The future of grocery retail: How to become omnichannel grocery champions

Times are changing. Today, serving the omnichannel customer in the best​​ possible way requires grocery retailers to look at everything through an omnichannel lens, increase their data and analytics capabilities, and re-engineer their supply chains​​. Michelle Gloeckler, Former Board Member and advisor, explains how grocers can be future-ready and shares her perspective on the future of grocery retail.

What do you think consumers expect from omnichannel grocers? What should grocery retailers do well to meet the expectations and win in an increasingly competitive space?

Consumers’ needs and habits are constantly changing. They expect frictionless shopping experiences that integrate into their daily routines. They demand the flexibility to buy and fulfill where, when and how they choose, creating complexity for retailers.

Meeting the changing consumer expectations is all about being agile and responsive. Retailers who can create enough flexibility in their systems and inventories to offer effortless, frictionless shopping experiences gain a competitive advantage.

What do you consider the biggest challenges for grocery retailers today from an inventory planning perspective?

Aside from today’s supply chain challenges, I think the biggest challenge for retailers is rapidly changing consumers. There are generational differences in terms of assortment and how people shop. Today, consumers have many options, like buying online and picking up in-store. They are often less loyal, and we know that it only takes one unsatisfactory shopping experience to make a consumer stop shopping at a retailer. 

So, this new reality is forcing grocers to navigate differently. It’s about taking a new omnichannel approach, using technology and having the tools and systems that make sense for their business and operations. Inventory is at the center of it all. Many inventory tools are available to grocery retailers today, and sorting through what works best can be challenging. However, every starting point must begin with the consumer in mind.

How important is it today to focus on omnichannel grocery customers’ fulfillment expectations and respond to fast-evolving buying patterns?

Retailers need to please their most valuable, loyal customers first. Yes, all customers are important, but there is undoubtedly a lifetime value in a customer who is a grocer’s most loyal customer.

Today’s fulfillment expectations are very interesting. Consumers are getting smarter. They have realistic expectations and know when, where and how to get the best service. Retailers must fulfill consumers’ expectations by leveraging technology, such as inventory planning tools, to provide in-stock products. Accurate demand forecasting can also be helpful.

Substitution logic is essential for retailers, whether the shopper wants to change an order or the grocer wants to offer substitutions in an out-of-stock situation.

For example, a busy mother needs food for her 2-year-old. She creates her grocery shopping list, purchases the items online and has them delivered to save time. If the grocery store doesn’t have the specific item she wants, and if that means she needs to stop by another store, she will lose a lot of time. Emotionally, this experience leaves her with a negative view of the grocer that disappointed her. Retailers need to understand the customer’s emotions.

Today online platforms and apps can deliver orders in an hour or even less. What do you think this means for physical stores in the near future?

It depends on each situation. Every consumer will enjoy the opportunity to do shopping however they want at that time. COVID-19 accelerated e-commerce adoption, and today, more people are grocery shopping online. But some people still want to have an in-store experience. Some things are unique to an in-person experience, such as touching or physically examining an item.

I also think the innovation in delivery apps is fascinating, and it’s changing the workforce. You can see it in physical stores, with more self-checkout areas, areas for drivers to pick up and curbside delivery. 

How do you see the role of dark stores or micro-fulfillment centers in grocers’ fulfillment strategies?

I think it depends on the grocery store’s footprint as well as supply chain efficiency. It depends on how many stores a grocer has what their supply chain and fulfillment are like. So, for example, if a grocer has a huge saturation of stores, it is easier to pick the items from those stores than setting up a dark store.

On the other hand, I am sure we all had the experience with the carts in the stores where store employees are picking multiple orders, and it looks like a fulfillment center. Many times, customers in the store get frustrated with that. So, from that customer perspective, I like the idea of the dark store. It may not just be as financially possible for everybody, especially if they already have a large footprint of stores. In that case, it makes more sense for them to fulfill from the stores instead of duplicating the inventory in a dark store.

If the store density isn’t very strong, I think a dark store can be a good mechanism to fulfill specific geographies. Today, grocery retailers doing delivery know where their deliveries are going. If 60% of their deliveries are within 3 zip codes and if their closest store is 20 miles away, setting up a dark store can make a lot of sense in there.

What are the three key things grocers need to do to optimize their supply chain management to differentiate themselves from their competitors and meet their financial goals?

1. Know your customer

Grocers need to know their most valuable, loyal customers.

2. Win with the assortment to meet the needs of the most loyal customers

Assortment plays a significant role in optimizing the supply chain in today’s environment. Grocers need to offer a variety of products that please their customers.

3. Leverage technology to differentiate your service levels.

Grocers must use omnichannel inventory planning solutions to differentiate their service levels from their competitors.

How important do you think it is to make granular, data-driven forecasts in the omnichannel grocery era?

Data-driven forecasts give retailers a competitive advantage. However, grocers need to expand the time of their forecasts to make more accurate forecasts and meet customer expectations. Today, grocers need to take into account competitive activity, promotions, local events, all of those different things. And I think local events are an amazing thing if the forecasting tools can account for differences regionally. The more inputs grocers have, the better and more robust the forecasts will be.

What do you think is the most effective way for omnichannel grocery retailers to improve availability? 

I think grocers need to manage assortment differently for in-store vs. online. For example, high turn, perishable items may be things that are important for people to touch and feel, and these should be in store. There can be a broader assortment of items on online channels. Also good demand planning and forecasting, and powerful inventory management systems, can be very helpful in improving the availability. This should be the starting point.

But as a stopgap, we talked about substitution logic. As a consumer, if a grocery store is out of the item I wanted, I’d prefer them not just telling me they’re out of it. I’d rather expect them to make some effort, take a step toward me and say, “I’m sorry, we are out of it, but we’ll give you this one at the same price.” I’m good with that because it shows that they care, and they don’t make me go to some other store. Substitution logic is hard, and it builds over time, but it can be very powerful.  

What is the best way for omnichannel grocers to reduce lost sales and increase customer lifetime value in such a competitive environment?

I’d say excellent substitution logic and excellent customer communication skills. Building a good customer relationship is critical in this new omnichannel retail era. I also think the method of communication is very important, and it does help with reducing lost sales and increasing lifetime value.

What do you think will be key trends shaping the grocery industry in the coming years?

How we grocery shop and what we grocery shop for has changed, and I think the pace of change will continue. We’ll see modern, healthier food. We’ll witness growth in fresh food and in pickup. Consumers are getting more thoughtful about healthier eating, especially younger consumers. There was a phase where consumers went through: ‘All I want is convenience in my food,’ which led to a lot of highly processed food. Now I think they want convenience in how they shop, not in what they eat.

What do you think should be the top three inventory planning strategies for grocery retailers who want to become the omnichannel grocery champions of tomorrow?

1. Align metrics with company strategy and goals

Grocery retailers need to align their metrics with their strategy and goals. For so many retailers, inventory goals are based on historical processes. They measure in stock, inventory turn and inventory dollars -just very traditional retail inventory measurements. I think they should start over and ask the question, ‘What are our company’s financial goals?’ And then, they need to align their inventory, in-stock, profits, sales and customer satisfaction to their business strategy.

In the past, there was a warehouse and a store. Now there is a warehouse and a store that is a warehouse if you’re doing fulfillment from there. There are also online orders carrying incredible consumer data. In the past, no such data was available. A grocer might have thought they lost a sale, but it was more of a guessing game.

Today when a customer places an online order, they get a recap of the items they’ll get or the substitution items. Retailers have access to this very valuable information too. They can see what their consumers are looking for, what they are purchasing, the out-of-stock, etc. This is a whole stream of data and analytics, and retailers can use it for better inventory planning and more valuable experiences for their shoppers.

2. Leverage technology

Traditional metrics like in-stock, inventory turn and inventory dollars can no longer produce the desired financial or customer retention results. Today, grocers must leverage the technology and tools to do robust demand forecasting, better inventory positioning and better fulfillment.

3. Simplify and remove tension in the supply chain

Lastly, to meet these goals, I would say retailers need to simplify and remove tension. I think it is a very different way of thinking about inventory, replenishment and forecasting.

Finally, how do you think invent.ai can help grocery retailers win in the new omnichannel world?

Consumers have power; they have choice…in both the what they shop for and the how they shop for it. Add to that where they buy, and it gets complex quickly. While consumers have habits, they don’t conform to a predictable behavior all the time. Given that, the use of AI to build as much pattern-based learning to assist in driving the business is necessary. Invent.ai has been modernizing allocation, inventory and forecasting through AI for years and now has tools to help in the modern…because there’s no going back! Consumers are in charge and have the power, and the retailers that thrive are the ones that cater to new buying preferences. 

Ready to embrace the future of retail grocery shopping? Check out how invent.ai is built for success today.