Louise Keely, global head of retail for Nielsen, Jay Nikolich, divisional VP of e-commerce at Pharmavite LLC and Jonathan Scherr, head of strategic partnerships at CircleUp, came together to discuss “The Future Retail Reality” at the Grocery Manufacturers Association Leadership Forum at The Greenbrier in West Virginia in September.
Pharmavite offers vitamins, minerals and herbal supplements through its Nature Made and FoodState brands; CircleUp helps entrepreneurs by giving them capital and resources they need.
Keely moderated the panel, and the trio discussed the concept of disruption and what it means for companies today and how business will continue to change as technology makes its mark.
In food and beverage specifically, Keely said there are at least three types of disruptions happening, and most of them are driven by technology: emerging channels; omnichannel and e-commerce; and away-from-home dining, Keely said.
Emerging channels include meal kits and direct-to-consumer products.
In terms of omnichannel and e-commerce, at-home food and beverage purchases are being made outside traditional channels, via companies like Amazon, Whole Foods Market, Aldi and Lidl.
Away-from-home dining is the biggest driver of growth over the past few years, Keely said. Restaurants, fast-casual and quick service restaurants make up more than half the total food and beverage spending in the U.S.
Below are excerpts from the panelists’ responses.
With e-commerce and omnichannel, what are the implications of the growth in online for brick-and-mortar retail?
Scherr: At the end of the day, a lot of this comes down to friction. If you remember 15 years ago or even five years ago, when you went online to buy something, you found the product and you put it in the cart and then you went to the next page and you would have to spend 10 minutes filling out your information—credit card, address, etc. That friction made e-commerce less desirable than walking into a store and just buying the product. Innovations in that transaction, reducing that friction—everything from online payments to the one-click experience of Amazon itself to Shopify that actually stores your information makes it really easy to buy a product. What that means is the balance between online and offline friction has now changed. When you go into a store today, the schema you have around buying a product is set on the way you bought a product 20 years ago. But those frictions will have to disappear if that balance is to be regained. In 15 years, when today’s kids are doing their grocery shopping, the idea of them waiting in line in a grocery store will be ridiculous; it just won’t happen. In the context of food, friction is one component in a buying decision. Buying a book, an electronic product—convenience has become paramount. In food, it’s more nuanced, and there are definitely more variables that go into it for sure.
RFID technology—at what point are we going to see not just digital identities for people and our devices but also objects that contain data about the product itself as well as how it’s being used throughout its life cycle?
Scherr: For those who don’t know CircleUp, we are a tech platform out of the Bay Area that tracks over 1.2 million brands. We collect information on products that compose those brands, sentiments and social listening behind brands and categories they play in. Then we act as an asset manager, investing in the companies we find to be most interesting, or as a broker/dealer in the context of trying to facilitate a financial transaction both on the equity and the debt side.
What you’re describing is essentially what we’re trying to do. It doesn’t necessarily require an RFID tag; a lot of it involves the triangulation of image recognition of what’s on the shelf, trying to understand the placement of what’s on the shelf, understanding product attributes, understanding relationships between product attributes, ingredients, packaging and all of those social inputs and indicators as well. We’re essentially trying to unpack the production function and what makes a product win. Specifically in the context of emerging brands—focusing on companies in the $1 million to $20 million in revenue—the point is that RFID tags would make our job a lot easier but at the same time it’s incredible what technology from both the engineering and data science side can do—how much data and how many fingerprints there are on CPG.
What’s behind emerging brands growing as they have?
Scherr: There are three tailwinds that are really driving what we’re seeing with respect to that shift in market share. The foundation of each of these three has a technology component to it.
The first has to do with the personalization of consumer preferences. Today, if I saw a shirt you were wearing with a logo I’d never seen, I could Google it and find exactly what it is you’re trying to communicate to me about yourself, which is what a brand is. It’s your ability to communicate to the world about yourself.
The second has to do with marketing costs. Billboards and magazines and TV ads were all fixed cost-based (in the past), so there was a barrier for a company that has no money to go and create an ad campaign. That has changed entirely. We live in a variable cost marketing world, and that means that with the right branding and content marketing, you can be really thoughtful about a branding and go-to-market strategy that costs next to nothing; it’s a variable cost.
The third has to do with distribution. It’s the entire value chain. It’s not just the reduction of slotting fees and some of those barriers and that friction in terms of going to market, but it’s essentially the paradigm shift in what’s happening in retail.
Many emerging brands have used a direct-to-consumer model. Jay, what would you say about direct-to-consumer in the context of more established brands?
Nikolich: If you’re talking about the direct-to-consumer model…as a brand, you spend all this money marketing; you can now close that loophole. When you take a brand experience and hand it off to a retailer, that is now a retailer experience.
This low barrier to entry has completely turned this thing on its head…Build to sell product, create scale, get it into a retailer—that’s our basic model, right? So now you have people who aren’t playing by the same rules, and it can be very disruptive. But it also changes the competitive landscape.
I’ll give you an example from Pharmavite/Nature Made Vitamins. We know what our competitive set is at shelf; we partner with Nielsen, we know exactly who the competition is. But if I look online and I type in vitamin D, I’m playing with every single brand out there—organics, naturals, probably somebody in the middle of Maine who had a crazy idea. It changes the entire competitive landscape. We talk omnichannel in terms of how we reach consumers for different channels; really, the consumer is in control of that omnichannel in terms of it being everywhere.
How do you see emerging brands vs. more established brands—what roles do you see them playing in different retailers’ portfolios, how do you see that changing?
Nickolich: Brands are going to play a role. It’s a much longer-term play. We know there are some concerns right now about bringing emerging brands and things like that; maybe it’s a margin play. At the end of the day, the brands are going to drive the foot traffic to the store because they have that broad, established relationship with the consumers. And this is where it gets down to partnership. Because big brands have the reach, not only can they talk about the product, but they can drive consumers to the store and, let’s face it, that’s everybody’s goal.
Is it important going forward that retailers and manufacturers not only collaborate in terms of merchandising/marketing decisions but also that brand portfolios line up with the retailer and the retailer with the brands?
Scherr: It’s a very tough question. On one hand, what we’re seeing is the continued expansion of what a single door carries…the Walmart, the Amazon effect, so to speak. But you can argue that there will be a pendulum swing back. People want an experience when shopping for food to feed their families or what they’re going to put on their bodies. And an online experience can help, but it’s not going to supplant that entirely. I would say what that looks like in terms of the “new normal” of the retail experience when it comes to whether it becomes solely around specialization, which could grow the pie but make incumbents have to focus and eventually reach out in other areas. But I think today, at least for the short term, I think it’s going to be competing with the store for everything.
What do you think a Whole Foods store is going to look like in a couple of years, and what types of products are going to be sold by the brick and mortar vs. online channels?
Scherr: There has been talk of the fact that a Whole Foods store will be somewhat split—half DC (distribution center), half retail store. But I think the point is that could shift to every brick-and-mortar retailer. The question is, what’s the catalyst for doing that? Players like Instacart, prior to the acquisition…I think a lot of retailers thought this was an interesting idea on the back burner but it now has become an important channel partner because you need to get that last mile figured out. And if that last mile does scale, you can have this hybrid model for sure. Or you just buy real estate that doesn’t have to have this good frontage; just think about what real estate has lost value over the last decade, which could have value for DCs. Malls…there are some really interesting pieces of real estate that could have a lot of value when it comes to distribution that are essentially latent assets today.