Independent Grocers Should Prepare to Innovate Through Rough Q4

As the pandemic continues to wear on, many retailers are looking to what the future may hold. And the near future does not look to offer much relief. “When talking to the manufacturers and the retailers, there is a significant question about supply and Q4. We’re going to start off by saying that we would expect the supply to continue to be sketchy in Q4,” said Thom Blischok, chairman and CEO of the Dialogic Group, during in his “Competing for the Future” session during the National Grocer Association’s (NGA) virtual Executive Conference.

The upside is that retailers are looking to rationalize SKUs for the first in the past 30 years, Blischok added, and it runs the gamut from national brands to private label. “There are a lot of conversations about reenergizing innovation,” he said.

Retailers have spent the past several months since the pandemic hit focusing on keeping the business running and now have a little bit of time to breathe again, allowing them to really take a look at how they need to change to meet the needs of consumers in the future and look at the impact of digital going forward. Blischok and Nielsen project that 17% of the grocery market will go online—an acceleration of the adoption rate of e-commerce by about two years prior to COVID-19.

While the future will be digital, when will life begin to feel normal again? He found that about one-third (32%) of retailers thought the country would recover from the pandemic in three to nine months, or at about the end of the year. However, another 38% of retailers saw it taking a bit longer with recovery in nine to 24 months or by the end of next year. On the consumer side, younger consumers were much more optimistic about a quick recovery than older consumers were, but none saw a very quick recovery.

To continue to weather consumer uncertainty, the first thing retailers need to do is conserve cash as Blischok predicts a complex recovery and a rough Q4. Next, get out of categories or reduce SKUs that are not performing. Also, aggressively focus shopper experience. “Think hard about increasing your capabilities in fresh and perishables,” Blishock said. “If you go back to nonproductive assets, and getting rid of some of center store. Begin to think about what are your top 20 items.”

Finally, engage in new external partnerships, whether meat provider or data purveyor or restaurant partner, to “protect those [consumer] trips that could essentially go away as restaurants continue to go online,” he said.

He also recommends that independent grocers “de-invest to reinvest. What I’m suggesting is start with an operating model, which says, ‘I have 100% today. How do I take out 30% to 35% of my costs, put back in 20% and actually operate my business more profitably, more effectively than I do today?’ And it’s going to be done by selectively using technologies.”

Self-disruption will be the key to success in the long term. That may come from working with smaller suppliers—Blischok predicts that smaller manufacturers will have a riot of innovation coming out of the pandemic—or other external partners. “Think about that as a strategy, I'd like you to think less about incremental growth and more about transformational growth. How do I serve the shopper differently going forward?” he said.

With the current situation of the United States being severely overstored—at seven times the rate of Europe—but Blishock said that independent grocers with their footing in local communities have a unique opportunity to capture and hold on to shoppers going forward.