We see all around us evidence that retail is going through massive change. Millions of words have been dedicated to describing retail dynamics, often framed as a battle between online and offline channels. Its a narrative which is absorbing many of us, both from inside and outside the retail and consumer goods industries. But much of the commentary is over-simplified – often pitching this as a simplistic head-to-head battle between online and offline giants. But the reality is (and data shows it) that shoppers AREN’T simply migrating offline to offline. Online may be a catalyst, but the story is more complicated than that. And around the world, retail is convulsing, even in markets where online is still tiny. Why? Because the rules of shopping are changing. Shoppers are changing their behavior. Understanding what is happening at retail (and what happens next) requires an understanding of shoppers, and that means we need to consider the concept of Shopper Economics.
Why is Shopper Economics important?
Everyone who is involved in marketing, manufacturing, selling or retailing consumer goods products really needs to understand Shopper Economics. Why? Because Shopper Economics lie at the heart of what shoppers do, where they do it, and why. And it is shoppers that deliver sales to a retailer, or a brand. It is shoppers that put product on plates, that enable consumption of any brand or category. In a recent post I explained what I mean by Shopper Economics: in this post I’m going to show how Shopper Economics is driving one of the biggest trends in retail today: the fragmentation of shopping trips.
Global Retail Dynamics are explained by Shopper Economics
Grocery shopper fragmentation is a fabulous example of Shopper Economics. It’s a trend that we are seeing in many, if not all, countries around the world. Simply put, many shoppers are moving away from one-stop grocery shopping towards buying in smaller shops. The fragmentation process varies, but always is driven by Shopper Economics. Let me explain.
Shopper Economics explains how shoppers weigh up alternatives. That can be alternative channels, or alternative categories, or products. Shoppers evaluate based on the VALUE that an option creates (value is based on the potential future value of consumption and the value derived from the shopping experience), and the COST of that option. Cost is primarily derived in terms of monetary cost, and time cost. (if you’re interested in learning more about the concept of Shopper Economics, check here before reading on).
Historic retail dynamics were caused by shoppers and Shopper Economics
When shoppers used to go to a big superstore for all of their grocery needs, this was driven by Shopper Economics. Big stores offered great price/value (big clean stores, sharp prices, well-curated ranges) as well as time/convenience (do it all in one shop).
Shifts in Shopper Economics are driving changes in retail and channel dynamics
But something triggered change. In some markets it was online shopping. In others, it was discounters. In others, convenience stores. Online shopping challenged the Shopper Economics which underpinned the superstore. Online promised to match (or maybe improve on) the Price/Value dimension, with better prices, bigger ranges and so on. And online redefined convenience. Compared to a home delivery, traipsing round a superstore was time consuming and not convenient at all!
The rise of the discounter is explained by Shopper Economics
The same is true for discounters. Many people believe that discounters win share on price, but that is only part of the argument. Discounters have been around for years offering really low prices, but it is only recently that they have been able to take significant market share around the world. Why? Shopper Economics. The difference between discounters of twenty years ago and those today is that they have shown an understanding of total Shopper Economics, not just price. They have understood that it isn’t all about price. Discounters have bolstered the price/value offer to shoppers by improving the quality of their product, and improving the shopping environment. They also play hard on convenience/time. Think about it. How long does shopping in a discounter take compared to a superstore? A fraction of the time.
The hidden truth of Shopper Economics – Shopping Fragmentation
But how does this explain fragmentation? This just explains channel shifts. Fragmentation is a phenomena we see where shoppers use lots of different channels to do their shopping: not just shifting from one to another. How does Shopper Economics explain that?
The first factor to understand is choice. Shoppers now have more choice than ever before. Go back twenty years. Realistically, how many options did a shopper have to buy a grocery product? And compare that to now. So the environment has changed significantly. Shoppers now have more choice of what to buy and where to buy it than ever before. This allows for different decisions.
Building on this, shoppers can now choose. They can flex the Shopper Economics equation category by category, shop by shop. Big store retailers largely applied the same Shopper Economics formula to every category. Good value, a reasonable range, all merchandised in the same way. No variation. Whichever category you shop, a big box retailer gave you largely the same Shopper Economics.
But that isn’t what shoppers want. In some categories, shoppers want more value, and convenience is less important. In others, its all about price. In some experience is key. In some, it’s all about time or convenience.
Shopper Economics are changing Shopping Missions
The same can be said for shopping missions. Some are skewed towards price. Some are skewed towards experience. Some are skewed towards time and convenience. Twenty years ago there were limited options. Today a shopper has more options. A shopper can choose to go to an offline specialist in one category (giving me loads of experience but maybe not convenient), and then go to a discounter for another category (saving money and time)
Think of it this way. A shopper has an entire ‘budget’ of time and a ‘budget’ of money. In a big box retail world, all categories take a certain amount of time, all offer the same experience and value. In a fragmented world a shopper can invest more money in one category (at the expense of another), or can invest more time in a category (at the expense of another). If I save money and time by buying certain categories at a discounter, or online, I can invest that time and/or money in a category I really care about, or enjoy shopping.
Shopper Economics and the Big Box Retail Tipping Point
So what happens next with Shopper Economics? Can we use it to predict future retail trends? Perhaps!
Fragmentation will continue, but it raises an important question. As more and more items get removed from the big shop, at what point does it become ‘uneconomical’ from a Shopper Economics point of view? A trip to a hypermarket or out of town superstore takes hours (time to get there, time to shop and queue, and then time to get home). The Shopper Economics make sense if I buy a lot of stuff at a time. But what if my shopping becomes fragmented? What if I buy my razors on , my essentials at a discounter, my wine at an online specialist. Is it still worth going to the big store? At what point does that shop no longer make sense? That tipping point will be different for every shopper, but explains the drop in frequency and basket size that we have seen in hypermarket shops in many markets globally.
What does the latest data show us about retail dynamics?
I’ve recently shared a presentation on LinkedIn I made at a conference in the US, which shows the real-world trends that Shopper Economics creates. If you’d like to know more check it out on LinkedIN, just get in touch and I’ll happily share a PDF of the presentation with you.
Image: Pixabay