The global benchmark for the fresh categories as a share of total grocery in the Top 10 grocery markets of the West is 31.4 percent and growing. Although online grocery is booming, demand for fresh, natural and organic food has reinvigorated brick-and-mortar grocery stores. Across the globe, market leading brick-and-mortar grocers are now ramping up the fresh food ranges, from produce to foodservice. Fresh food might even secure the future of the offline format.
Getting Shoppers Back in Store
Fresh food, if done right, is a real footfall driver. When it comes to fresh, shoppers still like to see, feel, smell and even taste products. The experience of speaking directly to butchers, fishmongers and cheesemongers in-store is difficult to replicate online.
However, simply stocking shelves with produce is not enough. The presentation of the fresh range and the in-store ambience has become as important as quality and freshness. The display of fresh food requires considerable effort to attract shoppers out of the house.
Love and Care Required to Create Buzz
As shoppers walk into a grocery store, they must get a sense of the buzz around fresh food. U.S. champions, Whole Foods Market and Wegman’s, set the standard in fruit and vegetable display, while Canada’s Farm Boy has a 50-foot, self-service hot and cold food bar in every store. Store workers who talk passionately about their products, in-store literature that tells a story of a product’s origin (Trader Joe’s is good at this), and the smell of freshly baked bread show love and dedication for high quality.
Other features such as open kitchens serving pizzas, stir-fries, pasta and sushi; transparent windows showing butchers and fishmongers at work at the back of stores; and cooking demonstrations add vibrancy to the store experience. Dutch hypermarket Jumbo Foodmarkt creates retail theatre by baking bread and pizzas in brick ovens in store. The retailer also roasts coffee beans in front of customers and has sushi chefs prepare meals in dedicated stalls.
Creativity Leads to Interesting Concepts
The unbranded nature of fresh food gives retailers the creative and innovative freedom to convey identity. A common theme among North American retailers is creating a farmers-market style environment that promotes local and artisanal products. For example, Phoenix-based Sprouts Farmers Market uses market stalls instead of tall shelving; Whole Foods Market uses wooden crates for fruit and vegetables; and Trader Joe’s utilizes blackboard signs written in chalk.
Fresh food allows retailers to be expressive by injecting color and personality. This creates a contrast to the corporate dullness of many major supermarket chains.
And now retailers are opening specialist fresh food banners focusing on local and organic food and foodservice. 365 by Whole Foods Market and Kroger’s Main & Vine demonstrate the innovation drives from major chains.
In the EU, Germany’s Veganz sells only vegan products, and Kochhaus groups products by recipes rather than categories. Like Kochhaus, many new concepts are blurring the boundary between grocery stores and foodservice providers. Italy’s Eataly combines a grocery store with a department store style foodhall. U.K. grocer Waitrose’s new store in London’s King’s Cross offers food and drink bars, a cooking school, and seating areas.
Harder to Make Money
Although fresh food provides many exciting opportunities for retailers, it is important not to get carried away. Fresh food is a major cost driver and can depress margin.
A fresh food focus inevitably increases replenishment costs due to the perishable nature of the fresh categories. Labor costs are also higher due to hiring trained specialists spending more time on presentation. Despite the temptations to pass on the higher costs to customers, retailers must offer value for money. Whole Foods Market has struggled of late as customers perceive its prices as too high. They can get similar quality foods cheaper from rivals Sprouts Farmers Market and Trader Joe’s. Furthermore, discounters such as Aldi and Lidl also expanded their fresh ranges. Their lean discount model keeps prices low without compromising on quality.
Future of Fresh Food
Despite brick-and-mortar stores’ advantage over online with fresh food, arguably, online has the edge on convenience. The future of grocery could be characterized by a bifurcation in shopping behavior. Shoppers will then buy dry and bulky items through subscriptions online, while buying fresh food from brick-and-mortar stores.
This evolution in buying habits could see the relationship between off and online shift from one of competition to cooperation. Apart from the rise of click-and-collect solutions and drive stations, the recent tie-up of British supermarket Morrisons with Amazon to supply Amazon Prime Now and Pantry suggests this trend is already in motion.
Edward Bickel is an analyst for retail consultancy London-based ResearchFarm, covering key trends across the retail and FMCG (fast-moving consumer goods) space both in the U.K. and globally. Bickel is particularly interested in the impact the Internet and technology has on consumer-facing industries and how shopping behavior is changing amidst the digital revolution.