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NGA Poses Five Questions For … AWG’s David Smith

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David Smith

NGA’s “Five Questions” is a regular feature that explores the insights of independent grocery operators. This week, David Smith, president and CEO of Associated Wholesale Grocers Inc., shares his thoughts with us.

 

  1. What were the most important lessons of 2020?

As grocers, I think the most critical lesson is rooted in independent grocers’ tremendous agility and how they pivoted so quickly to support the consumer’s needs, keeping teammates and customers safe and maintaining operations throughout. Additionally, we learned what we are capable of as companies, and each of us personally, and that there is little we can do all by ourselves.

Partnerships forged with foodservice companies, competitors and others ultimately helped us build capacity faster than we could have ever done on our own.

We saw real-time seismic shifts in consumer behaviors from new factors such as fear of the virus and perceptions toward crowded places, and the perceived availability of products.

We also discovered more that we can do with our vendor partners to improve the supply chain and instill trust that supply is fair and equitable to all. One of the essential needs is improved visibility and transparency at all levels, from the retail shelf sales to the throughput in real-time manufacturing and production facilities.

It’s just a fact that when demand exceeds supply capability, there will be disappointments and questions about getting “fair share.” Real visibility and transparency will facilitate collaboration and trust. While everyone won’t get what they need, everyone can be assured they are getting their fair share.

 

2. What changes do you expect will remain beyond the pandemic?

We expect 2021 to be two years in one, with the first half following a similar lift until we catch up with the early March initial stock up and hoarding.

The speed of the vaccine rollout and inoculation percentage combined with herd immunity will be the primary driver of the “next” normal, which will forever be different in many ways.

We believe that part of the COVID-19 uncertainty will stay with our generation, like 9/11 affected our thoughts about flying and terrorism.

Consumer research tells us that most of the shift from food away from home to food at home will continue. In many cases, the modes consumers will choose to shop, fulfill their orders and receive their food will be different than in the past. It won’t be either online with home delivery, or BOPIS (buy online and pick up in-store), in-store shopping or shipped to home; it will be all, true omnichannel shopping, with percentages of modal purchasing varying based on individual needs.

It will be challenging to meet and exceed these expectations, profitably and sustainably. That’s where companies like ours, our member-retailers and supplier partners must converge for success.

 

3. What are the most critical opportunities for independent operators in the coming year?

We must collaborate industry-wide (retailer/supplier/manufacturer) on enhancing supply chain transparency, demand forecasting and aligning production capacity with the current consumer demands.

Assortment optimization and reallocation of store space to increase digital fulfillment will become a big opportunity in 2021. To us, getting the shelf (and connected online assortment) right is a top priority. Improved core assortment complemented by locally relevant items and differentiators will be the goal.

There is also a tremendous opportunity to take digital to the next level. I’m very proud that over 70 percent of our member stores are up and running online, and we are seeing year-over-year online comps for some in the multiples. We are also pleased to be beginning our work on microfulfillment in select markets and will be starting a new digital retail platform launch in 2021.

There is an opportunity for members to become more digital-minded. Our members have shown intense pride and success over the years in selecting great locations, building inviting and pleasant places to shop and keeping their stores updated and ready for business. Those priorities haven’t changed; they’ve expanded.

The amount of food at home shifting to online purchasing will accelerate at a rate inconceivable before COVID. We have the opportunity to maintain practically all of the sales growth we’ve gained from the food-away-from-home to food-at-home shift.

But, do we look at our online space in the same way we look at our store? The digital space is now more frequently visited than the physical store. Are we staying fresh? Are we continually “resetting” the digital space to keep current with the season, harvest, new product introductions and keep the shopping experience fun?

The consumer is now cooking more at home. What an opportunity for us as grocers [to deliver on the] three essential cooking and preparation priorities of the new consumer: convenience, health and taste.

There are enormous opportunities for retailers as it relates to meeting the changing consumer needs and desires. Consumers want product transparency. We have colossal food waste and sustainability issues. Health and wellness are top of mind and likely to continue.

Retailer/supplier/vendor collaboration is not optional; it’s essential. Optimizing product, price, promotion, place and people to become more competitive and sustainable requires collaboration. We need to be hard-wired for collaboration and leveraging data and technology for efficiencies and effectiveness going forward.

 

4. What are the most significant challenges for independents?

One of the most significant challenges is the prosperity gap of the grocery channel due to COVID. For most retailers, 2020 was their best year ever, but the extent of that success varies significantly.

Independents outperformed significantly in the category of in-store sales. The challenge from now on is maintaining growth despite competitive pressures and changing consumer behavior.

The ticking time bomb independents may not see is the cash on hand that the retail chains stockpiled in 2020. Insecurity about the future has caused those retailers to hoard cash, and as a result, they have a war chest to spend on clawing back lost market share and dominating their markets. These stockpiles of money will be reinvested in technology and tools to expand digital performance and drive sales and improve market share as COVID sales gains start to dwindle.

Consumers were asked in November, “As we come out of COVID-19 and adjust to a new normal, what are the most important factors to you when grocery shopping?”

Availability of products was No. 1. Customer safety was No. 3. But low prices was No. 2 and availability of deals was No. 4. This means as the concern over coronavirus declines and America feels safe, price becomes most important. We must stay one step ahead and prepare our strategy today to deal with the new pricing and promotional environment.

Maintaining growth will require a multipronged approach with pricing, promotion and technology as the drivers to overcome the challenges we face.

 

5. How can independent operators continue to most effectively serve their customers and communities?

Throughout the past year, we have seen an increasing reliance and appreciation for the local grocer, and the independent didn’t let them down. There is a feeling of safety and security knowing the owner of the store is there, working in the store. You know they want to be safe, so they’ll keep their employees and customers safe as well. While our chain competitors may have more prominent, newer stores or other physical advantages, the connection between a consumer and an independently owned store owner and their team is something a chain can’t replicate.

Local ownership, friendly employees that consumers know and a passion for local products, local individualization, local communities and local involvement is the strong foundation that the independent grocer built. Now is the time to build on those innate strengths.

Our members are uniquely positioned to provide value, personalization, cooking-well and technology solutions, and to build out a profitable and sustainable digital future that is competitive and offers high customer satisfaction.

There also will be incredible opportunities for well-positioned independents to grow their business as there will be consolidations and market exits by weaker players. But none of us can achieve our potential alone. It will take a deliberate focus on the essential and urgent, and the collaboration of retailers, teammates and supplier partners. We will need to do more together to achieve more and do it at a lower cost.

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