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Costco’s first quarter results reveal a strong start to its new financial year. We look at the drivers of growth, including its fast-growing ecommerce operation.

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We recently visited New York to see what grocery retailers can learn from the latest batch of new store openings in the city.

Flagship central

As one of the major retail destinations globally, New York is an automatic choice for retailers launching new flagships. Its iconic status, legendary shopping districts and diverse customer base make it a great showcase and testing ground for new ideas. Over the last month, the city has seen several high-profile launches. These include Nike’s ‘House of Innovation’, the first retail concept from CoverGirl, the return of FAO Schwartz and a new retail format from Levi’s.

Source: IGD Research

1. Do digital with purpose

Touring these stores provided a great opportunity to see and test some of the latest innovations, particularly those with a digital underpinning. While not everything is new to market, we were impressed with how various concepts were combined with engaged store associates to create a compelling in-store experience. Many of the digital elements made sense in the context of the broader store, rather than being isolated trials. The new Nike store stood out in this area, with the entire store experience designed around the Nike Plus app. Elements such as Instant Checkout, Scan to try and Shop the Look felt very natural.

Source: IGD Research

As grocery retailers focus on developing customer digital tools, especially those related to self-scanning and payment, its essential that these contribute to the ease and efficiency of shopping in-store. Often the experience an be disjointed and a hurdle to overcome, rather than being intuitive and supporting an omnichannel approach.

2. Enable true customisation and personalisation

Almost all the stores we visited offered some form of product customisation and personalisation. Arguably this may be easier to achieve within general merchandise categories. At Levi’s a team of four tailors were on-hand to create hand-crafted designs. At CoverGirl, the focus was on personalised makeup bags and lipsticks. At Nike, this was taken to another level with Nike by You offering made-to-measure clothing and footwear and the Nike Speed Shop. The latter featured an entire floor of products based on local shopper data.

Source: IGD Research

In the grocery store, personalisation and customisation is often focused on pricing, promotions and ranging. However, within the retailers we visited, very different approaches were being used. At CoverGirl and Levi’s it was an opportunity to create unique products. At Nike, it was data driven, optimising a very specific subset of customer data to create a unique, segmented in-store experience. Retailers should consider how they could blend these approaches to take their customisation and personalisation strategies beyond what they are currently activating.

3. Provide an opportunity to promote

Selling high value products creates an opportunity to elevate store design concepts. These stunning backdrops are made for selfie moments and socialising. Design elements at all the stores we visited were waiting to be captured and shared. Some had also created special spaces such as CoverGirl’s video booth, where customers could create 10-second videos, ready for an Instagram post.

Source: IGD Research

Food is theatre! There are potentially many opportunities for grocery retailers to create similar moments within their stores. How about a patisserie where the customer journey wraps around and through the prep area, or a robotic fulfillment solution encased in a glass cube? In an era of experiential retail and immersive design, retailers have licence to push creativity even further and create opportunities for customers to be their biggest brand ambassadors.

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As part of their strategic relationship, Walmart and Rakuten have opened their first ecommerce store in Japan. We look at the model being used and implications for future expansion.

Products fulfilled from US inventory

Earlier this year, Walmart and Tokyo-based Rakuten, announced a strategic alliance designed to optimise each company’s strengths and assets to expand their reach to new consumer groups. The Walmart Rakuten Ichiba Store is featured within Rakuten Ichiba, the largest ecommerce store in Japan. The new store provides Japanese consumers with access to products sourced from Walmart’s US ranges. Categories featured include clothing, outdoor goods and toys, with around 1,200 items initially offered. Orders are fulfilled in the US and flown to consumers in Japan. The product price incorporates shipping, duties and taxes.

Source: Rakuten

New online grocery service

A key element of the strategic partnership was the development of a new online grocery delivery service, Rakuten Seiyu Netsuper. This launched in October, offering a more convenient shopping experience that meets the changing needs of customers in Japan. In addition to offering deliveries from Walmart’s stores, the service has established a dedicated fulfillment centre to increase capacity. Both these new services help Walmart to expand its grocery footprint in Japan, a country where its stores numbers have been relatively static for several years.

Adding new eBooks capability to the ecosystem

In addition, Walmart and Rakuten Kobo Inc. have formed an exclusive retail alliance that enables Walmart to sell eBooks and audiobooks and Rakuten Kobo eReaders, in Walmart stores and online at Walmart.com. As one of the country’s largest booksellers, a digital platform enhances its appeal, while also pitching it directly against Amazon and its Kindle e-reader.

A model for future international ecommerce expansion

Although Walmart has operated in Japan since 2002, the Walmart Rakuten Ichiba Store is a model which could be replicated in other countries where it does not have a physical presence. In Japan, Walmart benefits from an established customer base, but trades under the Seiyu brand. Physical stores are not essential to this model. Key elements are a strategic partnership with an ecommerce marketplace leader and a logistics infrastructure to support home delivery.

As orders are being fulfilled from the US, there is limited infrastructure development required in the new country of operation. With Walmart having high brand recognition globally and a reputation for price leadership, there is likely to be strong demand for its products. Walmart has established similar stores in China through its partnership with JD.com.

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As Kroger reports its third quarter performance, we review how it’s performing against its ‘Restock Kroger’ strategic plan.

Impacting the entire business

There are four key elements to the plan, focused on redefining the customer experience, partnering for growth, developing talent and building out its environmental and social impact plan. The first two are the most critical from a commercial results and capex perspective.

Identical store sales up 1.6%

Over a three-year period, the retailer plans on investing $3.1bn in the customer experience, including its stores and online operations. In Q3, while sales decreased 0.3% to $27.7bn, reflecting the divestment of its convenience store business, identical store sales, excluding fuel were up 1.6%. Ecommerce sales were up over 60%. Its new Kroger Ship initiative contributed to this as it was rolled-out to all divisions, along with the expansion of its store pickup service and the growth of its Home Chef meal kits business.

Optimising the in-store offer across 600 locations

The retailer is also improving its stores, through both remodels and range expansion. A significant amount of space optimisation is underway, with around 600 store projects expected to be completed by the end of the year. Kroger is also redesigning its checkout areas to accommodate more self-checkouts and its Scan, Bag and Go self-scanning solution. The new Dip clothing range has been introduced into 300 stores, while it has also been extending its range of meal solutions and related services such as wine bars.

Source: IGD Research. A recently remodelled Fred Meyer hypermarket.

Building a new model for profitability

Despite the heavy investments underway in this area, they are expected to dilute the retailer’s profitability. However, it plans on growing its operating income by an additional $400m by 2020 through developing alternative profit streams. These include Kroger Personal Finance, monetising its data and insights capabilities, digital marketing initiatives and partnering for growth. Kroger Personal Finance is having a strong year and is expected to deliver record profitability while revenue through its digital marketing business, Kroger Precision Marketing, is up more than 150% year-to-date.

Strategic partnership with Walgreens

One of the most significant developments in the quarter was the formation of a new strategic partnership with Walgreens. Elements of its online and in-store offer being tested in a small number of the drugstore operator’s locations. Under the Kroger Express brand, the retailers are piloting a a curated range of 2,300 products at 13 Walgreens stores. This includes Kroger’s Simple Truth private label products and Home Chef meal its, with the latter also being introduced in 65 Chicago-area Walgreens stores. Further expansion of these programmes could offer Kroger significant scale benefits. The partnership between the two retailers could also hold some long-term implications for Kroger’s in-store pharmacy operations.

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Key Presentations

This in-depth guide to USA explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.

We visited San Francisco to see the trends shaping food-to-go development in the US market. Read our report to learn more about 10 innovative operators and the lessons which can be applied to your businesses.

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We've developed a single, universal methodology for calculating food and consumer goods retail data, supported by our programme of primary and secondary research. This makes Retail Analysis the most reliable and robust source available for data of this type.