Guest post by Ron Lunde, Senior Marketing, Advertising Executive & Market Strategy Consultant
Choices = Disruption
What must companies do today to generate billions of dollars in revenue, create thousands of jobs, reward investors and sustain the environment —Survive? They have to think about it. They have to make new choices. They have to think outside the box, they have to think in new boxes. They must reframe both their personal and corporate mental & business models. They have to be able to Innovate and Re-Innovate.
- Cell phones weren’t introduced by AT& T
- Online mapping was not introduced by Rand McNally
- Overnight package delivery wasn’t introduced by the U.S. Postal Service
- Diet and caffeine-free soft drinks weren’t introduced by Coke
There is a significant lost opportunity and cost inflicted on companies if their management teams are mired in the status quo, teams that don’t or can’t tackle the hard work of Innovation and Re-Innovation.
Some examples of disruptive and reality changing business Innovations:
- Uber is the world’s largest taxi company, yet owns no automobiles.
- Facebook is the world’s most popular media company, yet creates no media.
- Alibaba is the world’s largest retail company, yet has no inventory.
- Airbnb is the world’s largest accommodation provider, yet owns no real-estate.
Through a cooperative arrangement with Prosper Insights & Analytics™, I have been able to access their massive, proprietary consumer database to take a close look at the impact of new and innovative business and competitive models in the Columbus Ohio and East North Central Census Region including a national overlay. Whether you are a grocery retailer or a consumer packaged goods brand, you might find the follow pages of interest.
Choices
When an industry market strategy or business model becomes a habit … there is a strong possibility of Disruption. My friend Willard Bishop brought my attention to a quote by Clayton M. Christensen, a Harvard Business School professor: ” DISRUPTION: It arises when successful businesses fail precisely because, in the face of technological change, they continue to make choices that made them successful in the first place.”
Choices Change
The Internet and digital technology are ascendant. Customers are increasingly experiencing the real and virtual world through their digital gadgets. Expectations are expanded. As a result, today’s consumer is changing faster than either product providers or retailers. There is a new and ever evolving definition of Customer Value. ‘Traditional’ or ‘Old Line” consumer goods retailing models are feeling the impact of declining brand product purchases or general store traffic on one front and under-performance against Amazon and other online competitors on the e-commerce side. The current dominant brand and food retailing models are roughly over three quarters of a century old. However, today, newer brick and mortar ‘segmented’ formats are auditioning for a place in the retailing spotlight. Smaller formats are in try-outs with a focus on globally sourced, healthier organic or ‘clean’ food, fresh ingredients, ingredient kits, semi-prepared and prepared meals as well as traditional staples. Hard discounters, mass marketers, convenience stores and even limited assortment stores are now in the mix.
Changing Choices
Brick and Mortar | The Aldi Impact
Aldi opened its 1st US store in in Iowa, 40 years ago. In 2016 it will have about 1,500 brick and mortar stores in 34 states. By 2018, Aldi plans to have 2,000 plus stores operating, a 33% increase. Because of its small store size footprint, around 17,000 sq. ft., a limited assortment of products and the fact that it does not participate in syndicated POS data reporting, Aldi’s market impact is therefore not visible to many traditional and big box retailers. But the following might add a modicum of perspective to the customer impact question: Prosper Insights & Analytics July 2016 national survey with over 6,900 18-year-old + respondents asked the question:
‘Have you shopped for groceries at any of the following stores in the last 90 days? (Check all the apply)’
18.7 % said Aldi while 15.8% said Kroger.
Choices—Old Line to Online
There are many in brand and retail management who think that Online Grocery is too small to be concerned about. But let’s try a different perspective and look at some numbers from the Prosper Insights & Analytics July 2016 survey. That survey asked customers who identified themselves as Kroger, Publix, Walmart or Winn Dixie shoppers whether or not they also had an Amazon Prime Membership. Prime Members can experience both the convenience of online ordering and order deliveries in one to two hours in multiple markets … creating a new customer value option. It changes the grocery shopping experience for many.
In the following chart, you can see how the Amazon Prime Membership has grown in these identified customers over the last 3 years.
As we know from my last blog, Amazon is making a $1 billion + investment in the Ohio and surrounding market. So let’s look at the Ohio market and key retailers who operate in the state of Ohio.
Whether you look at the data on a national level or focus on the state of Ohio, the penetration of Amazon’s Prime Membership growth is … well, significant!
Choices Have Consumer Consequences
From a consumer’s perspective, Online choices mean:
- The ultimate convenience of not having to go to the store at all.
- More extensive assortments.
- Frictionless ordering, payment and delivery
- Subscription automatic replenishment
- When and Where shopping freedom and convenience.
That’s what makes Online Grocery Shopping so appealing to many consumers.
From a brand and retailer perspective … this is where it starts to get interesting.
- Look at the 3 year growth of Prime customer penetration. What will the curve look like in 3 years?
- Only 25% of the US population buys groceries Online … today … they say. However, I doubt Walmart spent $3 billion plus to acquire Jet.com because they thought the HH penetration was going to remain at 25%.
- The Amazon Prime customer when compared to all US adults 18+ spends 8.5% more on average per month, $305.00 vs. $281.00.
- But … dig a little deeper and you find that 46% of Amazon Prime Members spend $300.00 or more per month. 16.5% spend $500.00 per more a month.
- That compares to the 18+ group of over 6,900 survey respondents and you find that 40% of all shoppers spend over $300.00 per month and only 11.9% spend $500.00.
- Amazon members have money and they spend it!
Why are the above numbers significant to a retailer? I suspect that if a retailer were to run a revenue contour study using their loyalty card database, a data set that most probably represents 70% or more of total store revenue, that retailer would find that 1% of his customer loyalty card base … those loyal customers, will spend as much as 59% of the remaining customer loyalty card base.
Oh … the July 2016 Prosper Survey of Amazon Prime self-reporting customers … indicates that 20% of Amazon Prime customers buy 25% or more of their grocery items… Online!
Oh … if you are a brand product manager … you had better figure out a way to follow the money!
In the next 30 days or so, I’ll take an Ohio market Prosper Insights and Analytics data dive and we’ll see if Amazon is getting a return on their 1 billion dollar investment at the expense of— ‘formerly successful businesses.’
For more information on Prosper’s Amazon Shopper Intelligence service such as insights missing from most retailers’ loyalty data, including encroachment by Amazon along with the reasons why, click here.
This article was originally published on the Aptaris web site on August, 19, 2016.
Contributed by Ron Lunde, Senior Marketing, Advertising Executive & Market Strategy Consultant
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Ron held senior management positions in grocery retailing including Supervalu, Grand Union and Price Chopper. He was also a Sr. VP. at the Leo Burnett Advertising agency. Ron is credited with introducing Space and Category Management systems to the industry as well as working with the Price Chopper team to introduce and deploy the first data driven frequent shopper program in the US. He was also a consultant to the Financial Accounting Standards Board in developing the Issues that govern the accounting requirements for all trade promotion and marketing expenditures. Lunde currently serves as a Market Strategy consultant to retailers and CPG brands.