Retail pundits predict 2018 and beyond
Disruptive technology: A triumph of human creativity expanding our mental horizons or a further step towards dystopia?
Last year our panel of retail experts looked ahead and were concerned about politics (cf. Trump, Putin, Erdogan, Brexit). But even Tesla co-founder & CEO Elon Must thinks they now ought to be worrying more about Artificial Intelligence.
Like all technology, machine learning systems can be a blessing or a curse, depending on who employs them and for what purpose. AI could help us to use less fertiliser and revolutionise subsistence farming in the developing world, but it could also begin to control us.
So does AI keep the gurus awake at night, or will they prefer to sing the praises of drones and robots?
Pepper or Hal 9000?
Pepper, the robot, serves a delighted young customer at a Carrefour store in France
But will robots eventually liberate humans from tedious repetitive tasks or turn homicidal like Hal 9000 in the Stanley Kubrick film 2001: A Space Odyssey? Some fear they might also become relentless taskmasters supervising our precarious existence within the gig economy.
Brave new world?
A similar situation applies to the 'internet of things'. Does it enrich our homes or allow ever more intrusive FANG companies to pry into every aspect of our private lives?
Meanwhile, technology has not prevented either the egg contamination or horsemeat scandals. Huge amounts of food continue to be wasted on a planet where there are still far too many hungry people. Global warming gains momentum as we fail to kick our addiction to fossil fuels and keep belching greenhouse gases into the atmosphere. Our rivers and seas are now so clogged with garbage that ever more plastic enters the food chain.
Convenient for whom?
Message in a bottle
No one asked shoppers whether they wanted all this packaging. Or have you ever heard sales staff ask: "May we smother this in plastic for you, Madam/Sir?" Yet the trade continues to claim that it is we consumers who demand convenience at all costs. One can only ask, convenient for whom?
Who needs a driver?
Baby, you can drive my car: CargoPod - Google Drive
Next year Germany's most profitable discounter, Aldi, will ban all non-reusable bags, regardless of whether they are plastic or paper.
Love on a rooftop: Organic garden over a Kaufland hypermarket
Meanwhile, sister hypermarket company Kaufland is busy experimenting with organic gardening in the car parks and on the rooftops of its hypermarkets in Rumania.
But, let the experts now speak. As in previous years, we asked:
"What do you see as the most significant or exciting development in retailing/the fmcg industry and the most important challenge for the future?"
Their answers are given below in alphabetical order of surname.
Getting Ahead of Tomorrow
Dagmar Bottenbruch, Angel Investor & Consultant:
Dagmar Bottenbruch: "A much bigger impact has yet to come from AI-based algorithms on pricing, merchandising and inventory management"
Targeted advertising: Social commerce is growing rapidly and influencers in particular are taking a bigger and bigger role in showing products to their followers.
In-store environments: Many German retailers still have quite a bit of room for improvement – this includes employee attitudes, but also messy store environments, poorly-stocked shelves, and long checkout lines. All this certainly does not contribute to making a visit to the store a positive experience, but that is exactly what it has to be in order to pursue a credible multi-channel strategy.
Brand content is also important as the millennials want transparency on brand values and to know whether value statements can be trusted. This concerns food, but also textiles, cosmetics and other consumer goods.
Finally, I would expect a much bigger impact has yet to come from AI-based algorithms on pricing, merchandising and inventory management.
Professor Utho Creusen, Founder & CEO, Positive Leadership, Ingolstadt:
Utho Creusen: "Some big players have suppressed reality"
On the one hand, we have reached the digital tipping point where the revolution starts. Companies with a high level of digital readiness increase their online sales and profitability. The speed of transformation is gaining momentum, for example, Amazon introduced Amazon Fresh in Germany and acquired Whole Foods.
On the other hand, some big players have suppressed reality and stopped investing in digitization. To me it looks like a German disease when one considers that German retailers like Lidl and Edeka are taking the lead in the offline counter-revolution.
Regression is a typical borderline behavior in a phase of too much success."
(Readers are also referred to the author's best seller: Digital Leadership)
Linda Eatherton, Ketchum Managing Director, Partner Global Food & Beverage Practice & Global Practices Development, Chicago:
Linda Eatherton: "The US food retail market is...like all retail entities here...facing a tidal wave of change"
Globally, we know that 'shift happened' when the information-enabled world moved power, influence and purchase channel drivers into the hands of millions of individuals; a trend cited in Ketchum's global research series called 'Food 2020' several years ago.
Device-enabled consumers are voting with their keystrokes for ways to acquire needs and wants in an instant. Getting into a vehicle and strolling through aisles of merchandise registers as a total waste of time to more and more buyers. While there is still some 'sport and entertainment' to the physical retail buying experience, fewer and fewer people have the time or interest to make the trip.
The marriage of Amazon and Whole Foods may still be a 'work in progress', but it is emblematic of multiple such schemes and solutions currently in market. Today's business environment mandates 'test and learn' versus wait 'til it's fully baked'. For this reason there are many models in market tests which give economic pundits, who truly do not know the food space, plenty of room to pooh-pooh the idea of eCommerce replacing grocery stores.
My take? It's not a matter of 'if', it is, rather, 'when.' What is fascinating is the emergence of destination 'experience centers' designed more for entertainment and education than selling on property. Take Apple's new flagship store on the Chicago Magnificent Mile. There is virtually not a product to be purchased in the giant, gleaming new store. All that happens in the cloud.
Can food go that far? Look at Eataly and Revival Food Hall in Chicago and Anthony Bourdain's planned Bourdain Market in NYC. All are examples of Gary Oldenburg's 'third space' (author of The Great Good Place) where a 'bazaar' of food experiences and samplings blurs the lines between retail, restaurant and entertainment.
Nothing is as it was. All is different, new and energizing for the enterprising retailer of tomorrow."
Dr Kay Hafner, CEO, Hafner & Cie., Digital Change And Strategy GmbH, Essen:
Kay Hafner: "Investment will be increasingly channelled towards personalized services"
Many companies have not understood that the digital change is sweeping their old competitive advantages away. Although you might make good profits on traditional products, there is an urgent need to define what you want to sell to your customers.
Consider a coffee machine or an air conditioner, which will become part of an interconnected system of devices monitoring the functionality of all household machines. You have to assess your value proposition and transform your product approach into a value offer in a similar way to how car manufacturers will sell mobility rather than just cars in the future.
Companies will also need to think differently about how to develop and introduce products. Old-school thinking requiring months or even years of prior customer research, design and testing cannot survive.
Investment will be increasingly channelled towards personalized services rather than elegant hardware design. Companies will have to collect vast amounts of customer and user data in order to deliver the best value service and not product features alone. So the entire innovation system of most companies will be challenged and one needs a team that can merge traditional strength and speedy market response."
Tim Harrap, Head of Collaboration, Lye Cross Farm, Redhill, Bristol/UK:
Tim Harrap: "If you didn't believe the advent of the knowledge economy would really have an impact, then you are about to have a rude awakening"
Financialization of the economy has driven corporates to squeeze every last penny out of their respective sectors, leaving the nuts and bolts of every-day food production from farm to factory to cope with the reduced opportunities to find buyers and shelf space.
If you do find buyers, the increasing level of bureaucratization of the industry, built on risk aversion, takes up inordinate amounts of time for manufacturers and their technical teams. With product and shelf space lifecycles this means continuous technical input.
The challenge for the future is going to be ensuring that consumers have the resources to buy products. The increasing profile of the Basic Income narrative and trials in Finland and elsewhere should be a warning to the industry that the days of an industrial model of production and purchase are set to disappear.
That, coupled with the introduction of Blockchain technologies in distribution, means the economic and financial structure of the economy is set for a revolution, like it or not. If you didn't believe the advent of the knowledge economy would really have an impact, then you are about to have a rude awakening."
Ibrahim Ibrahim, Managing Director, Portland Design Associates Ltd, London:
Ibrahim Ibrahim: "Conversational commerce"
The new frontier for brands will be the 'voice response space' where consumers are increasingly engaging with systems such as Amazon's Alexa, Google's Assistant etc., and brands will develop strategies to own 'voice real estate'.
Consumers are demanding more convenience, personalization and intimacy from retailers, both AI and chat bots are a great way to satisfy those needs. A recent report from Segment stated that, on average 71 per cent of consumers express levels of frustration when their experience was impersonal.
Chatbots provide a one-on-one experience 24/7, constantly evolving to become more relevant and personalized with each interaction. According to Forrester, 57 per cent of firms globally are already using or plan to introduce chat bots within the next year.
Alexa, the all-powerful
In contrast, Smart speakers, like Amazon's Alexa, offer a different experience. They provide a gateway to the internet, via a virtual assistant able to act on a shopping request, and answer any query along with the occasional witty anecdote.
Alexa has the potential to become an e-commerce powerhouse. Currently 17 per cent of users make frequent purchases through Alexa – a figure set to rise into next year. With forecasted Alexa sales to reach 128m devices by 2020 and chat-bots showing meteoric growth.
Both these technologies humanize business whilst delivering a frictionless, hyper convenient shopping experience.
We are living in an 'on-demand' economy where consumers increasingly live a 'just-in-time' existence, so these systems have hit the zeitgeist."
Uwe W. Klenk, CEO + Founder UK & Partners Group, Budapest:
Uwe Klenk: "Amazon is all over the place. What is Walmart doing?"
And four challenges: As millennials move away from big brands, authenticity will become critically important; the continued rise of the discounters (I don't think they're growth is likely to stop any time soon); the demise of the large, all-purpose supermarket or superstore; lack of investment by fmcg companies in Research & Development viz. New Product Development, as they strive to protect their margins.
This will lead to a lack of new and exciting innovation capable of driving category growth."
Ben Policella, International Food Sales & Marketing Consultant, Rome:
Ben Policella: "A solution offered by Russian tech company INS could save consumers 'up to 30 per cent on grocery shopping"
For example, Barclaycard is developing an app that will drastically reduce supermarket queues by allowing shoppers to charge in-store purchases to their mobile phone. The smartphone app automatically charges items to a credit card when shoppers scan items using the phone's camera, without them having to pay at a checkout. Dubbed 'Grab and Go', it will allow shoppers to walk into a store, scan each item in their basket with the phone, and simply leave, without having to queue for a till. It is set to be piloted in early 2018.
Another significant development occurred earlier this year when Amazon trialled its own check-out free stores. Under the slogan 'No Queue. No Checkout. (No, seriously.)' this technology uses a system of facial recognition cameras and sensors on shelves to determine what customers are buying and then charges shoppers as they swipe their smartphone on leaving the store.
It's worth bearing in mind that with its recent acquisition of Whole Foods, Amazon has gone from being an outsider to being 'one of us' so any innovations it introduces will be of huge significance.
Finally, a significant challenge to the entire FMCG industry may be on the horizon thanks to Russian tech company INS. Using 'blockchain technology', they have designed a digital platform which will allow manufacturers to sell directly to consumers. Giants such as Unilever, Mars and Reckitt Benckiser have already signed up (spurred on, no doubt, by the prospect of selling at a higher price than supermarkets are willing to pay).
According to INS, by cutting out the middleman – wholesalers and retailers – consumers will save 'up to 30 per cent on grocery shopping'. With that kind of promise it looks destined to succeed. Trials are scheduled for early 2018 and the entire industry will surely be monitoring developments."
Michael Sansolo, Retail Industry Consultant, Washington D.C.:
Michael Sansolo: "Experiential retailing will become the standard"
Today we know that in 2018 anything is possible; it's hard to imagine any merger or acquisition that would be equally shocking now. The e-commerce revolution is underway.
But stores are not dead; in fact, they are anything but. The resurgence of Best Buy in the US makes it clear that the retail obituary was written too soon. The challenge, as the electronic retailer makes clear, is recreating retail and making it exciting, interesting and centered on the omni-shopper.
2018 will see that formula spreading. Experiential retailing will become the standard even among low-end retailers. Everyone will be hunting for special points of differentiation to get the shopper off their sofa, away from Siri and into the aisles. Product manufacturers and retailers need to work together in order to create compelling moments around everything in the store.
One caution though: economic expansions can only last so long and we're nearly ten years after the Great Recession. What goes up invariably must come down and the clock is ticking."
Dr Alan Treadgold, Partner, Retail Strategy, PA Consulting, London:
Alan Treadgold: "Personalisation will be at the heart of a lot of retailers' efforts in 2018"
I think retailers are going to become far more flexible in how they engage with shoppers. I'm expecting a lot of stores – physical and virtual – to change a lot more as retailers really now embrace the realities that their shoppers want very different experiences and to shop in very different ways. I feel sure that personalisation will be at the heart of a lot of retailers' efforts in 2018.
I also expect 2018 to be the 'end of the beginning' when all of the focus on AI, AR and robotics starts to move decisively out of innovation labs and into the retail mainstream with the objective, yet again, of enhancing the customer experience.
My other prediction is that 2018 is going to be the year when we will be questioning as never before what it even means to be a retailer as shoppers look to make non-traditional purchases in non-traditional ways from non-traditional sellers."
Bill Webb, The London College of Fashion Business School, Member of the Ebeltoft Group of Retail Experts:
Bill Webb: "Key decisions are increasingly made by generic algorithms"
A particular challenge will be how to protect a brand's unique vision, values and culture when key decisions are increasingly made by generic algorithms.
Will the retail sector's aging visionaries, such as Ralph Lauren, Philip Green or Giorgio Armani, be prepared to relinquish their seats in favour of a chatbot legacy created in their likeness?"
Julian Wild, Partner, Corporate Finance for Rollits LLP, Hull:
Julian Wild: "Brexit will be a catastrophe for the UK"
However, as can be seen from some of their most recent store developments, they are now much more like mainstream retailers but also great value, not limited range and low quality.
The most important challenge is clearly Brexit! This will be a catastrophe for the UK, and the impact will be felt for generations to come. Food prices in this country will rise dramatically and the exodus of EU workers will have a huge impact on food manufacturers.
I can see no prospect of any sort of sensible settlement with the rest of the EU. I can only hope for a late change of heart."
Clive Woodger, Founder, SCG London:
Clive Woodger: "A key human need is the importance of creating locations or destinations with a sense of place"
Disruption is just a more modish description of changing markets and expectations. Consumers, companies and consultants now have instant access to information and have to decipher the difference between relevant/true and false news and data. Empowered with this knowledge, consumers demand more transparency from retailers.
Equally, retailers need to understand and anticipate their customers' increased expectations, aspirations and demands.
The need to meet the physical and emotional requirements of target customers, together with the push/pull effect of constantly raising standards of value, service, quality and experience – these provide a basic level of certainty in any market.
Having the right narrative for the new consumer is about appealing to wide-ranging needs from pure aspiration to ethical perceptions and shared 'values', balancing planet and people issues with profit performance.
A key human need is the importance of creating locations or destinations with a sense of place to which people relate and want to visit, live and work. In the modern world this sense of place applies both physically and digitally.
Amazon has now combined its mega online operational clout and reach with the takeover of Whole Foods experiential food store offer. This provides an immediate synergy of physical and digital advantages resulting in lower prices for the consumer and a venue that people want to visit and enjoy.
Morphing the Mall
Alibaba's new five-storey 'More Mall' shopping centre in China reflects the inevitable increased 'morphing' of physical and digital retail, which has led to further advances in customer-focused technology, ways of shopping and enjoying new experiences in a stimulating environment.
There is an increased recognition of the commercial benefits of best sustainability practices, green building technology, ethical product procurement and the development of a society that embraces all aspects of a real circular economy.
Nevertheless, retailers and developers are still faced with the commercial reality that whereas many consumers talk about ethical values, they are not willing to pay for them. Consumerism with values is a tough balancing act.
Stuff, not values
Another Chinese 'Singles Day' this year has broken all records. It reflects that basic human urge for bargain hunting and acquiring 'stuff' – not better experiences that western consumers are now meant to be looking for.
But whatever the motivations of consumers, every retailer, centre owner and developer has to constantly review how they are best positioned to meet the need to 'create places where people want to be' whether physical or digital. The concept of placemaking and how/where people shop is being redefined, for example by a mix of virtual reality with pop up retail.
Shopping centres are increasingly now seen as mixed-use developments potentially creating new communities for living, working and leisure. Similarly grocery retailers are looking to use redundant, large, existing store sites and car parking to plan new retail, residential, business and entertainment facilities.
So the future is about rethinking retail as creative local placemaking in the widest sense to achieve a potential win/win strategy appealing to a broad range of vested interests which best meet the needs of people, politicians, business, retailers…and the planet."
Introduction and collation of statements by Mike Dawson, International Desk Editor, Lebensmittel Zeitung. A happy, healthy, wealthy and imaginative 2018 to all our readers!