Brave new worlds: Retailers leverage stores to fuel omnichannel efforts
The winning food and drug retailers of the future will not think of their brick-and-mortar stores in terms of competing against online sales, but instead integrating the stores into the online sales experience.
“The retailers we see being most successful right now are actually the ones that I would say are least likely to be fighting the shift from in-store to online,” said Tory Gundelach, senior vice president at Kantar Consulting. “They are really thinking about it from a shopper-centric view, letting the shoppers fulfill their needs in whatever way is most convenient for them at that moment.”
Shoppers tend not to adhere exclusively to any one channel for buying consumables, she said. Instead, they use a combination of home delivery, traditional in-store shopping and, increasingly, shopping online, and picking up their products at the store as that service becomes more widely available.
“We shouldn’t think about it as the channels competing,” Gundelach said, citing the potential to use physical stores as fulfillment centers for online orders. “We should think about it as the channels augmenting each other.”
Food and drug retailers increasingly need to think about their stores as serving multiple purposes for consumers, she said. Their networks of brick-and-mortar boxes must provide more engaging experiences that make consumers want to spend time shopping there. At the same time, they must provide efficient shopping trips to meet increasing demands for convenience, as well as serve as warehouses for digital order fulfillment.
Gundelach said she sees retailers rethinking their layout and design going forward, making more use of back rooms to stage orders for delivery and click-and-collect shoppers.
“People ask me a lot of times, ‘We’ve got these retail footprints that are, in some cases, 150,000-plus square feet. What’s going to happen to that?’,” Gundelach said. “Over time, I think, particularly in the grocery space, we’ll see some of that get remodeled and become backroom space. For example, why would you pick milk and eggs off the selling floor [for online orders] when you can have your highest-selling items already pre-staged in the back room?”
Meanwhile, on the front end, retailers are experimenting with more checkout options, from traditional cashier-assisted checkout and self-checkout terminals to scan-and-go options using a retailer’s app — and, in some cases, creating special areas for in-store pickup.
“At the end of the day, it makes the store a really viable part of the retailer’s overall logistics and ecosystem,” Gundelach said. “For most retailers, brick-and-mortar assets are the biggest assets on their balance sheet, so being able to support new fulfillment methods and new selling methods with that large asset is actually really important.”
Bill Duffy, research director at consulting firm Gartner for Marketers, formerly called L2, said Walmart is setting the standard for optimizing its massive store base to provide online purchasing, pickup in-store shopping and fulfillment. The service has been rolled out to about 3,000 locations.
“It’s been a major driver of their digital growth year over year,” he said, noting that Walmart also continues to expand home delivery from its store locations. “While this is not driving customers into the stores, they’re leveraging their store footprint as a way to directly compete against Amazon, saving on the fulfillment costs associated with same-day and next-day delivery.”
Rethinking Convenience and the Store Experience
Part of the challenge retailers face is that “running a quick errand at the store” to pick up some forgotten item may no longer be the most convenient way to obtain that item. Instead, an Amazon Prime membership or an Instacart delivery might have that item delivered to a consumer’s door within hours.
“What we have found is that it’s not that shoppers don’t want to go into the store,” Gundelach said. “It’s just that a lot of times it’s more convenient to do something through online, and they don’t necessarily have a reason to give up that convenience.”
Transforming stores into frictionless environments that make shopping a more enjoyable experience is one way retailers are seeking to drive more customers to shop inside their stores. Gundelach described enhancing the in-store experience for consumers as “minimizing the bad time and maximizing the good time.”
In such categories as home goods, apparel or electronics, Gundelach said providing a “good time” for shoppers translates into offering a “truly immersive” experience, where consumers can interact with the products in ways they will never be able to do online, and where store workers have in-depth product knowledge. In the grocery and drug store environment, that type of experience could be driven through such features as wine bars, expanded gourmet cheese assortments, or expanded health care or beauty care services.
Woonsocket, R.I.-based CVS Pharmacy embraced this idea when it began rolling out a revamped store design in 2017 under the leadership of then-president Helena Foulkes, who has since left to become CEO of Hudson’s Bay. The revamp included a healthier food assortment and new standards for vitamins, supplements and beauty products, as well as design changes that included a “trend wall,” showcasing new beauty products and niche brands, as well as a “beauty discover zone,” highlighting on-the-go options at checkout.
The physical store and merchandise changes coincided with a digital revamp that included enhancements to the retailer’s mobile app and its ExtraCare Rewards program.
CVS Pharmacy’s approach raised the bar on creating a compelling in-store experience for drug store operators, said Burt P. Flickinger III, managing director at New York-based consulting firm Strategic Resource Group.
“Their model is having the best loyalty program in the business and turning the drug store into a local neighborhood supermarket, rather than let the extreme value retailers like Aldi, Lidl, Grocery Outlet and Trader Joe’s, and the dollar stores, pick up a lot of the convenience food retailing,” he said.
CVS Pharmacy makes its offering compelling as a fill-in grocery shop with a combination of sharp pricing on popular national-brand items and a strong private-label assortment, Flickinger said. The chain merchandises about 80% of the key categories and brands that consumers buy most frequently at supermarkets very close to the cash registers at the front end to facilitate these convenience-shopping trips, he said.
Walmart, while not historically known for offering a compelling in-store experience, has focused sharply on that area of its operations recently, at the same time, it has been ramping up its digital shopping capabilities. The results have been evident in the retailer’s strong store sales performance during the past year.
“We spend a lot of time on the customers and the customer experience,” said Steve Bratspies, the retailer’s then-chief merchandising officer at Walmart U.S., at the Barclays Global Consumer Staples Conference last year. “We track customer data very closely. We get customer experience data weekly real-time, and it’s actually the first thing that we talk about every single week at our U.S. officers meeting.”
Flickinger suggested that one way traditional food-and-drug combo stores could emulate Walmart is by moving their pharmacies closer to the front end, in proximity to the most popular food and beverage categories, in order to provide a more convenient in-and-out experience.
“This allows the shopper to do a quick convenience shop in 15 minutes, the same way one could use a CVS as a substitute supermarket,” he said.
Leveraging Apps in Store
Retailers also are using technology in multiple ways to enhance the in-store experience. Mobile apps, for example, are becoming more refined in terms of their ability to create lists, apply coupons, provide self-checkout capabilities and other functions.
“There are challenges with apps — essentially getting customers to use them — but we do see a couple of pretty compelling use cases,” Duffy said, citing Goodlettsville, Tenn.-based Dollar General’s DG GO! app as an example.
The DG GO! app, which is being consolidated into the main Dollar General app, includes a tool that allows customers to add up the total of their items while they’re shopping, so they can ensure that they don’t exceed their budgets when they reach checkout, Duffy said.
In a recent earnings conference call with analysts and investors, Todd Vasos, CEO, said the budgeting tool had gained widespread use among customers and had been expanded to 15,000 locations as of the third quarter of last year.
Vasos said part of the chain’s digital strategy includes “innovating to meet [consumers’] increasing desire for convenience.” Dollar General has expanded self-scanning and expedited checkout using the app at more than 700 of its stores, for example. It also recently began testing self-checkout in some stores, and has been pleased with the early results, Vasos said.
In addition, Dollar General was preparing to begin testing DG Pickup, its buy-online, pickup-in-store offering, during the fourth quarter.
“Our digital efforts are focused on making things easier for our customers by providing an even more convenient, frictionless and personalized shopping experience,” Vasos said. “Importantly, these efforts will continue to be tailored specifically to the Dollar General customer.”
In-app digital shopping lists are another functionality that retailers can leverage to improve both the in-store and online experience, if the list allows customers to add products easily and pair them with coupons, Duffy said. The leading retailers excel at creating logical adjacencies so that shoppers’ building lists in the app can easily add products that go together. Adding peanut butter to the list might prompt suggestions for jelly and bread, for example.
Another important functionality of mobile apps is their potential to incorporate loyalty programs that allow retailers to generate data, which can be used not only to provide rewards, such as discounts at checkout, but also to aid in the suggestion of products for shopping lists or targeted digital coupons based on past purchasing histories. At Whole Foods Market, for example, customers can use the Amazon Prime app as a loyalty program at checkout.
“In the long term, we expect Amazon to use that data to start sending more product suggestions to the customer when they’re online,” Duffy said, to help drive impulse sales over and above the planned purchases that may have appeared on a written list.
Because retail apps tend to be downloaded by only a store’s most loyal customers, Duffy suggested that retailers need to duplicate some of the key functionality of the app onto the mobile website, so that any consumer with a smartphone can leverage these tools in store.
“An app is very useful for geolocation-based tools and for certain types of expedited payments, but eventually retailers need to make sure to move those key features onto the mobile site, so that they’re accessible by everyone,” he said.