The economic backdrop is tough, and the consumer is cautious. These are not auspicious conditions for 2018.
Discounters such as Aldi, Lidl and B&M continue to open new stores and increase the pressure. Meanwhile the big four collectively have got stronger, with the laggard Asda showing signs of getting its mojo back.
Historically it has been hard to break out from the pack with this combination of consumer and competitive pressures. A positive economic backdrop and a weakened competitor are normal ingredients of overperformance by a leading grocer.
So, 2018 is going to be tough, with the focus on improving the shopping trip to retain customers. It will be hard to improve at a relatively faster rate than competitors - the normal prerequisite for growth - and therefore harder to win a greater share of wallet.
It’s impossible to look back at 2017 without talking about Amazon’s £10.7bn Whole Foods acquisition. In Whole Foods, Amazon acquired a sophisticated and differentiated food supply chain, enabling it to pursue grocery home shopping more competently and more aggressively. If this acquisition proves successful, it sets Amazon up as a potential buyer of other grocery businesses all over the world.
Another online behemoth, Alibaba, has invested £2.2bn in Chinese hypermarket operator Sun Art. CEO Daniel Zhang stated that “physical stores serve an indispensable role during the consumer journey, and should be enhanced through data-driven technology and personalised services in the digital economy”.
While many retailers are preoccupied with conquering online in a bid to win customers, Amazon and Alibaba have realised the potential of in-store to better engage customers - looking to incorporate it into the overall customer experience, rather than it being treated as an add-on. These retail giants understand that they can’t operate in siloes and need an integrated data-driven journey. Physical retail might be different, but it is not dead.
To differentiate and succeed next year, grocers need a real-time digital connection to their store customers. The digital world is all about connections. Connection to places through mapping led by Google, connection to things through the internet of things, and most importantly connection to people.
How do Facebookers and Googlers shop when they come in your store? Nobody knows, but you should. Using customer data collected in-store and offline is critical for 2018. It will bridge both worlds and avoid the physical store becoming a black hole of missed opportunities. Physical retailers need to learn digital while digital retailers are learning physical. There is a moment of opportunity. Seize it.
Tim Mason is CEO of Eagle Eye