Albertsons’ president and CEO, Vivek Sankaran, recently spoke at Citi’s Retail Madness Virtual Conference. We look at how the third largest US grocery retailer is adapting in 2021 after a year of significant change and the rise of a more digitally engaged consumer base.
1. Economic resilience has shifted earlier expectations of a tough trading environment
The pandemic accelerated business transformation, enabling it to emerge stronger from the pandemic. It has grown its customer base and continues to attract shoppers back into its stores, with retention rates increasing each quarter. Over recent years it has pushed significant investment into its digital transformation, with almost every business capability now technology enabled. From a sales perspective, its belief is that this has been rebased and will focus on a two-year growth and market share performance over the 2019-2021 period rather than chasing potential negative comps this year.
Contrary to his original expectations of a tough trading climate this year, he has been surprised by the resilience of consumers. He expects the investments they have made in better quality food at home over the last 12 months will continue even as lockdowns ease and restaurants reopen.
Source: IGD Research
2. Automated micro-fulfilment (MFC) will be expanded this year as it enables digital goals
Although one of the early leaders with automated micro-fulfilment, through its strategic partnership with Takeoff Technologies, the pandemic placed its activities in this area on hold. Throughout the crisis, its year-on-year digital growth has remained above 200%, with the retailer focusing its efforts on expanding its store pickup model, Drive Up & Go. Having been expanded to 1,400 stores by the end of 2020, a further 400 stores will be added to the programme this year. In addition, it will also launch a further seven MFCs and accelerate from there.
Sankaran is a firm believer in the technology as it enables Albertsons to deliver on two key elements; it wants to offer a relevant assortment that has been curated in a local market over many years and it wants to have a small delivery radius as this enables it to offer two-hour delivery. While the technology will not be suited to less dense markets, it sees lots of promise in the technology to get costs down, equivalent to its core business. Over the longer term, he believes that grocery ecommerce could account for 20% of sales in the US. While this level of penetration would be achieved over many years, it highlights the imperative to get the right economics for the channel. Developing the capacity to reach this penetration is also major factor to consider.
3. Private label growth runway is strong, which creates a challenge for C&D brands
While private label penetration dipped slightly last year, as it saw supply challenges and a stronger performance for all brands in relevant categories, the rate has started to climb back towards 25%. Its aspiration is to grow this to 30% over time. This will be driven by the better margin opportunity, continued digital growth (where private label penetration is higher due to its ability to drive customers towards its ranges and showcase a broad offer), and the space which exists in new and existing categories. Key focus areas include meal solutions, cooking ingredients, plant based and holistic wellbeing items. While the retailer stressed its position as offering a “house of brands,” it believes that the trading environment will become harder for C&D brands in the category.
4. The promotional environment will remain rational as it adopts a more surgical approach to value
While most promotional activities were curtailed in 2020, mainly due to supply issues and the focus on managing store capacity levels, Sankaran expects the trading environment to remain rational this year. Demand continues to outstrip supply in some categories and the infusion of technology enables it to be much more targeted with its approach, driving a better ROI, compared to mass promotions. Albertsons is also able to optimise its loyalty card data to reward shoppers in different ways.
5. Automation and personalisation technologies will reinvent retail
Asked about which technologies which will have the greatest impact on food retail, Sankaran highlighted automation and personalisation. While automation will change the cost equation, personalisation technologies will drive greater engagement and loyalty, creating “stickiness with customers.” In combination, the two could be even more powerful. Albertsons is making good progress against its $1bn cost saving target, with the potential for additional gains to be made, while its personalisation efforts have been accelerated by the pandemic and the emergence of a more digitally engaged consumer.
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