Five Keys To Retail Innovation

A new study by Nielsen, Continuous Innovation, the Key to Retail Success, points out that shoppers never stop shopping, and retailers must evolve to stay ahead of the pack and keep consumers engaged. Today, brick-and-mortar stores need to innovate continually to capture their shoppers’ attention, as e-commerce attracts a growing number of users. Philip Clarke, Tesco CEO, says “For retailers, it’s no longer going to be sufficient to innovate… to meet an existing customer trend… successful retailers will NOT be those who… follow the customer like some obedient puppy… (but) be one step ahead, offering people new ways to make their lives… a bit better.”

And, says the report, while consumer confidence was on the rise in over half of the countries surveyed in the third quarter of 2013, shoppers remain focused on value for their money, so retailers need to stand out to compete for consumers' limited baskets.

Today’s consumers have more retail choices than ever, says the report, but they’re cutting back on their overall purchases. In the U.S., trip frequency has fallen 15% over the last six years, while basket size has climbed only 9%. For stores to beat the competition, the study confirms that they need to encourage consumers to increase the number of trips, grow the size of their baskets, or both. Innovation can help them win sales with an edge in five major shopper-need categories: convenience, choice or assortment, shopability, price-value, and brand equity.

U.S.  Basket Size and Trip Frequency


Basket Size

Trip Frequency













Source: Nielsen, January 2014

Innovation captures consumer interest and attention for a brief period attracting both new customers and faithful loyalists. But it is quickly and easily copied. There has been no secret formula and nothing that can be protected by patent. Consequently, for a retailer to grow or stay ahead, it must innovate continually. The alternative is a price-based race to the bottom, concludes the report.

Innovating For Convenience

Convenience offers the most creative, energetic examples of retail innovation, says the report. Retailers have responded with innovation through new channels and formats, according to shopper profile and need. Walmart is expanding its traditional supermarket format (Neighborhood Market) in the U.S. and testing smaller Express and Campus formats.

One of the more powerful innovations, by which ‘brick’ retailers have taken advantage of ‘click’ possibilities, is the ‘click and collect’ process, says the report, as some shoppers find it inconvenient to wait at home during broad delivery windows.

European retailers are particularly advanced here. One offers a drive-through service with spacious collection points, allowing shoppers to collect pre-ordered baskets without leaving their cars. Visible from the road, the service is both ultra-convenient and a powerful advertisement. In the U.S., drug retailer Walgreens offers shoppers a variety of in-store and curbside pick-up options.

Innovating Assortment For Optimal Choice

In the survey, shoppers rated finding “everything they need in one shop” as one of the five most important reasons in deciding where to shop in 43 out of 56 markets around the world.

When considering assortment, retailers must differentiate on things such as healthy options, products that save the shopper time, and food freshness (physical stores’ ability to allow shoppers to select for freshness is of course a powerful advantage over online). This involves carefully managing by monitoring customer data and category trends.

Most large retailers respond to what they see happening in the marketplace by modifying the core offer and space allocated based on customer profile, optimizing range and quantity based on a general picture of the local consumer.

Ranging by mission is most visible at the front of the store, where the retailer must satisfy the quick-trip, grab-and-go mission. A store in the UK takes ranging by mission to a new level by designing some of their convenience stores to cater for the next two days through ‘Food for Now,’ ‘Food for Later’ and ‘Quality Essentials.’

Innovating For Shopability

Many retailers are reinventing the in-store experience to keep it powerful, despite the attractions of online shopping. Obviously, the store allows the inspection of the product to search for mark-downs, or for the item with the latest sell-by date. For many, physical shopping also fills a social and emotional need, and remains central to their relationship with the retailer. Shopability, helping retailers to sell by helping consumers to buy, is a key driver of store choice.

That said, the bundle of rational and emotional needs shoppers seek to meet at the store changes with their situation. Success lies partly in making the store responsive to the same shopper’s changing needs, serving equally well the quick trip, the regular routine visit, and the major stock-up. The front of the store is the key tool in enhancing shopability.

Much retail innovation has focused on the ‘edge’ of the store, generally understood to offer the best opportunity for differentiation. The perimeter, it is said, drives the brand experience and store engagement. More time in-store generally means higher spend, so retailers do what they can to keep shoppers in. The perimeter is where retailers offer free samples and greater opportunities to interact with staff. Coffee shops, newsagents and other services such as mini-bank branches and pharmacies draw people in, and keep them in longer. U.S. grocers are now adding sit-down restaurants, some with beer and wine, to attract traditional restaurant spend.

Innovating For Price-Value

Convenience, assortment and shopability can save a retailer from a race to the bottom, but the price-value equation remains fundamental. Retailers should do everything they can to assert their low prices when they can, and assert their value-for-price when they cannot, finds the study.

From mainstream broadcast media to personalized digital communications, innovative organizations seek any mechanism to deliver the price-value message to the ‘always on’ shopper, notes the report. Retailers shout offers and serve e-coupons in a constant process of testing and learning. Multi-category manufacturers can emphasize cross-brand promotions; retailers can leverage cross-subsidizations.

Across Europe and North America, the penetration of private label is significant, in line with category expansion. In the U.S., private label grew at a compound average growth rate of over 15% from 2009 ($94 billion) to 2012 ($108.6 billion). Private label is a mechanism through which retailers stay ahead of shopper needs. In recent U.S. Consumer Reports tests, several retailers offered private labels that achieved a higher rating than the top-branded comparable product.

Innovating Beyond The Store

At the traditional store, convenience, assortment, shopability and price-value are king. But innovation must go beyond the traditional store to remain competitive, concludes the report. Current efforts take two forms. First, retailers are stretching the brand to create business opportunities in completely new areas; second, they are engaging with the communities they serve on social issues important to the well being of those communities.

Grocery retail has been a poster child for innovative brand stretch as retailers move toward offering one-stop-shop opportunities. Many grocery retailers now supplement traditional packaged goods with services including apparel, entertainment, soft furnishings, pharmacy, durables, fuel, and even travel services.

Some larger grocers now function as diversified operators, stretching the brand beyond the store into banking, insurance and telecoms, leveraging the accumulated trust built in one space to win in another. Extending the franchise often involves partnership or co-branding, with the retailer conferring the trust, and a partner underpinning the offer with business expertise and reputation.

As for activity on social issues, supporting the health and vitality of their communities has been an important part of retailing from its earliest days. It has long been understood that local projects such as hunger relief, school donations, emergency fundraising, community health initiatives, and so on are powerful ways to shoppers’ hearts, advises the report.

For more information from Nielsen, please go here.

Next story loading loading..