Store of the Future – Reinventing

Store Networks for Sustainable GrowthHannah Donoghue | hannah@retailnetgroup.com

Grocery Innovations Canada 2016

Today’s Agenda

Introduction

Store Renewal & Reinvention

Future of Food Progressives

Summary & Implications

Introduction

External Drivers Shape the Store of the Future

Consumer Liquidity &

Employment Shifts

Devices & IoT

Policies & RegulationUrbanization &

Congestion

Substitution: Store for Store

& Ecommerce for Stores

Population

Segmentation

Automation Borderless Commerce

Introduction

Urbanization &

Congestion

Population

Segmentation

Source: RetailNet Group

Technologies Driving & Enabling the On-Demand Consumer –

New Demands & Expectations Increasing Pressure on Retail Formats

Demands

Heightened Levels of

Convenience

Values Flexibility

Information Availability

= Consumer

Empowerment

Demands & Expects

Full Transparency

Immediacy Critical,

Shrinking Attention

Spans

Increased Mobility &

Independence

On-Demand Consumer

Asset-Light

Lifestyles

Personalization &

Customization

Expectations

Introduction

Source: RetailNet Group

Stores Will Still Account for 94% of Sales in 2020,

But Ecommerce Taking Share of Sales & InfluenceIntroduction

Source: RetailNet Group database

2016E 2020E 2016E 2020E 11-15 16E-20E 11-15 16E-20E

Store-Based $212,724 $242,345 95% 94% 2.9% 3.4% $27,314 $37,256

Grocery $36,429 $40,613 16% 16% 1.3% 2.6% $2,187 $4,834

Hyper/Super & Mass $35,809 $41,047 16% 16% 2.1% 3.6% $3,354 $6,602

Health & Beauty $26,022 $29,248 12% 11% 3.9% 3.1% $4,333 $4,080

Cash & Carry/Club $19,540 $22,072 9% 9% 10.7% 3.6% $7,374 $3,580

QSR $17,312 $20,053 8% 8% 5.4% 3.9% $3,858 $3,492

Discounters $16,763 $19,401 8% 8% 3.2% 3.8% $2,341 $3,321

Convenience $6,458 $7,018 3% 3% 2.5% 2.1% $726 $691

All Other SBR Channels $54,391 $62,893 24% 24% 1.2% 3.8% $3,141 $10,656

Ecommerce $10,179 $15,043 5% 6% 18.9% 11.0% $5,171 $6,128

B&M.com $5,467 $7,571 2% 3% 14.7% 9.0% $2,444 $2,656

3P Marketplace $2,149 $3,633 1% 1% 23.8% 15.4% $1,165 $1,858

Pure-Play $2,127 $3,237 1% 1% 25.0% 11.9% $1,238 $1,395

QSR.com $436 $603 0.2% 0.2% 45.0% 9.4% $324 $219

Canada Chain Retail Total $222,903 $257,389 100% 100% 3.3% 3.8% $32,485 $43,383

Business Model

Sales / GMV

(USD mil)

Share of Sales /

GMV

Sales / GMV

CAGR

Sales / GMV Added

(USD mil)

Retailers are Organizing Around Key Strategic Initiatives

Strategic

Positioning

Capital

Discipline

Store &

Network

Renewal

Health

Accountability

Digital

Ecosystem

Management

Logistics &

Supply

Chain

Demand

Gen &

Analytics

Revenue

Management

Introduction

Source: RetailNet Group

Where Will We See the Most Change?

Photo

Home

Checkout

Hair Salon

Bakery / Deli

Produce

Frozen Food

Fresh Meat

Dairy

Tire & Lube

Express

Baby

Shoes

Jewelry Sea

sona

l

Cards &

Party Supplies

Auto Care

Sporting

Goods

Pha

rmac

y

Health &

Beauty

Paper &

CleaningPets

Books

& MusicElectronics Crafts

Do-it-

yourself

Vision

Center

Courtesy

DeskRestaurant

Home &

Office

ToysApparel

Grocery

Lawn &

Garden

Cos

met

ics

Site to

Store

Entrance Entrance

Entrance

Total Store Size

% Fresh?

Shift Towards

Limited Assortment

Solution Based

Merchandising

In-Store Services

Click & Collect

Introduction

Value,

Replenishment

Curation

Source: RetailNet Group

Store Renewal &

Reinvention

Critical Design Elements of Store Reinvention

Food & Health Progressive

Health & Nutrition Rating

Nutricentre – Integrative

Fully Branded Grocerants

Curation

Category Relevance,

Center Store, Expanded

fresh & RTE

Destination Departments

Innovated Merchandising Centers

Branded Exterior & Interior

Experience

Customer ServiceSampling, Open

Questions

Space Reallocation /

Partnerships

Store Within a Store,

Leased Space

Convenience

Reduce Friction,

Checkout, Quick Trips

ShopabilityNew fixtures & gondolas

In-store Ambiance

Navigation / Signage

Digital IntegrationSeamless, Integrated

Consumer Oriented

Social/Digital, Connected Life

Source: RetailNet Group

FlexibilityDay Part Merchandising,

Moveable Checkout

ServicesClinics / Financial

Community Space

Pricing & Promotion

Integrated in/out of

store

Fulfillment

3rd Party Delivery, Click &

Collect, Promisable

Inventory, Traceability

Store Renewal &

Reinvention

LocalismCurated assortment,

Signage, Supply Chain

Store

Reinvention

Front End Innovation

Reconfigured Checkouts,

Queueing Methods

Set the Tone with Fresh, Set the Experience for Rest of StoreStore Renewal &

ReinventionDepartmentalization

Whole Foods – Burnaby, BC

Ralphs – Los Angeles, CAWalmart – Mississauga, ON

Source: RetailNet Group

Source: Retail Design World,

RNG research & analytics

Reimagining the Big Box Experience with Fresh Inspired Concepts Scaled to Mass

ASDA – UK

Store Renewal &

ReinventionDepartmentalization

Creating Destination Departments In Key Perimeter Categories

Provigo – Montreal, QC

Wegmans – Burlington, MA

Store Renewal &

ReinventionDepartmentalization

Source: RetailNet Group

Reallocating Space to Leverage Brands to Elevate Experience

Through Store-within-Store

Store Renewal &

ReinventionSpace Reallocation

Best Buy – Vancouver, BC

Kroger – USA

Source: RetailNet Group

Curating the Merchandising & Experience Will Be Critical to

Differentiate & Engage the Consumer

Store Renewal &

ReinventionCuration

Story – NYC Source: RetailNet

Group

Improving In-Store Digital – Shifting From Digital Enablement &

Engagement to Seamless Digital Integration

Store Renewal &

ReinventionDigital Integration

Canadian Tire –

Toronto, ON

Vaughan Mills –

Toronto, ON

SportChek – Mississauga, ON

Kroger – Cincinnati, OHSource: RetailNet Group

Flexibility Yields Consumer EngagementStore Renewal &

ReinventionFlexibility

Penguin Shop – Toronto

Source: Now Toronto, Toronto Life

Format Design Enabling Retailer to Efficiently Serve Both Quick

Trips & Full Basket

Basement

First Floor

Roche Bros – Boston, MA

Store Renewal &

ReinventionConvenience

Source: RetailNet Group

Front End Innovation to Reduce Friction, Drive Impulse & Provide

Greater Flexibility

Whole Foods – Burnaby, BC

Store Renewal &

ReinventionFront End Innovation

Target – Los Angeles, CA

Source: RetailNet Group

Fulfillment Capability Evolution – Starting with Store Pick Retailers Will Have

Tiered Model of Fulfillment Models to Enable Seamless Fulfillment

Store Pick /

Click & Collect

Dark Store /

Central Pick

Fulfillment Center –

Direct Ship

Same Day

Source: RetailNet Group analysis; Sphere Global; The Star; Lehigh Valley, Amazon

Store Renewal &

ReinventionFulfillment

Traditional Store Based Retailers & Pure-Plays All Working to Get

Closer to the Consumer – Partnerships Play a Role

Amazon Japan

leveraging Lawson

convenience stores

as pickup points

Lawson offers

service at over

12,000 stores in

Japan

Amazon lockers in

select UK metro

stations

Targeting highly-

trafficked train

stations to offer

convenient pickup for

commuters

Amazon India

partnering with local

kirana stores as pickup

points

Allows Amazon to

avoid last-mile delivery

in India’s challenging

logistical infrastructure

Amazon bringing

increased scale & reach

to regionals &

independents through on-

demand deliveries

Scaling last mile delivery

networks

Source: RetailNet Group, RNG database, Amazon

Amazon

partnered with

Canada Post in

2014 – 6K+ pick

up points

Similar

partnership in

Mexico with post

office & DHL

Store Renewal &

ReinventionFulfillment

Retailers Will Need to Remix Their Store for the Future

Click & Collect Curated Replenishment

20M SKU’s 30-40k SKU’s 25-30k SKU’s

Immediate &

Imminent

Consumption

Source: RetailNet Group

Store Renewal &

Reinvention

Store & Network

Renewal

Deleveraging of existing store (asset)

base

Assortment review – Curation,

Replenishment, Immediate

Consumption

Center store resets

Fresh space allocation

Destination departments

Scalable platforms

Store as a fulfillment center

Food

Progressives

Overview

Food Progressive Distinctions

Scalable Positionings – not just a specialty store

Commercialize Ideas – entire categories not just items

Lifestyle Enabler

Trend Sensitive

Thematic

Local

Selling the Experience

Focused on Fresh / Natural

Branded Outside In – Established “iconic brand”

2020 Ready Stores – Destination Food Shopping Experience

Distinctive Merchandising Strategy

Health & Wellness a Priority

Expert Led – e.g. Chef Led Food Strategy

Own the in-store theater

Corporate and in store

Deep involvement in own brand development

Own Brand

Prepared & Ready-to-Eat = 100% own brand

Digital Integration

Enhances the experience

Drives convenience

Item Innovators Progressives: Commercializing Ideas

Food ProgressivesKey Characteristics

Source: RetailNet Group

Forced (medical) and/ or

interested (weight

management/ ingredient

avoidance)

Health & wellness a primary

consideration

Actively trying to improve health

& wellness lifestyle

Store proximity the primary

trip driver

Actively searching for the best

offers / deals

Assortment Caters to a Spectrum of Shoppers From Value to

Wellness-Focused

Source: Sprouts Investor Relations

Food Progressive Shopper Types Description

Food ProgressivesAssortment

Targeting Local Community with Curated Prepared Foods Offering, Driving

Increased Share of Prepared Foods Sales Relative to Rest of Store

Source: Whole Foods 2015 Annual

Report, Chicago Tribune

18.8%

18.9%

19.0%

19.2%

19.0%

18.6%

18.7%

18.8%

18.9%

19.0%

19.1%

19.2%

19.3%

2011 2012 2013 2014 2015

Share Prepared Foods & Bakery of Total Whole Foods Sales

Whole Foods – Chicago Whole Foods – Boston

Whole Foods – Pompano Miami Whole Foods – Fort Lauderdale

Food ProgressivesAssortment

Managing Traffic Across the Store with New Food Experiences-

Social, Educational, and Wellness-Inspired

Source: Whole Foods, Eataly

Food ProgressivesReimaging the Store

Reinventing Community Space to Drive Engagement

Lowes Food –

Cut your own herbs

Whole Foods –

In-Store Spa

Whole Foods –

Whole Body DiagnosisH-E-B –

SWAS Confectionary

Central Market –

Cooking School

Mariano’s –

Oyster Bar

Hannaford –

In-Store Gym

Wegmans –

In-Store Pub

Food ProgressivesReimaging the Store

Source: RetailNet Group

Own Brands Reinforce Retailer “Foodie” Commitment

Aligned with Movement to Chef Led

Lidl’s Own Brand – Chef Led

Food ProgressivesOwn Brand

Waitrose Own Brand – Chef Led

Source: Lidl, Waitrose

Engaged in Retail Health

Health oriented assortments, Limited wellness messaging

Prioritized Health Growth Platform

Tier 1 + Prioritized merchandising & space allocation, Integrated into store brands, Educational & Consultation

Services, Store Renewal efforts / new format development

Health Accountable at Core

Tier 1 + Tier 2 + Heavily tailored assortment with “Unhealthy” SKUs/ ingredients removed from store, critical

to branding & positioning

Pyramid of Retailer Influence & Involvement in Healthy Living –

Scalability & Broaden to Mass

Example Retailers*

Source: RetailNet Group, *Retailers listed may not have attributes across

store, some department-focused

Food ProgressivesHealth Accountability

Traditional Grocers Respond with Item Innovation & PartnershipsFood Progressives

Traditional Grocery

Response

Source: RetailNet Group, Hannaford

Food Progressives

Lifestyle & solution enablers, not just

item innovators

Chef Led Assortment &

Merchandising

Local & Culinary Inspired

Transparency

Increased & elevated prepared

offering

Health Accountability driven by

consumer expectation

Differentiation supported by services

Summary &

Implications

Call to Action for Retailers and Brands

• Redefine the value of the store trip to differentiate and

complement ecommerce – seamless, value, solution, experiential

Need to reimage the store not as a set of departments, but

a set of solutions

Experience is not all investment in merchandising, also

reducing friction points

Value remains a foundational building block, no matter your

definition

• Embrace the new “on demand consumer”, their behavior will

drive change and technology will accelerate the pace at which

new expectations are made

Seamless transactions the where, when and how your new

on demand consumer wants to engage

• Monitor Food Progressives… are both a source of inspiration

and learning

Summary &

Implications

Source: RetailNet Group

Characteristics of the Store of the Future

Automated

Summary &

Implications

Curated &

Inspirational

Real Time

Responsive Agile & Flexible

Targeted

Seamless

SolutionExperiential

Frictionless

LocalizedHealth

Accountable

Value

Store of

the Future

Source: RetailNet Group

Implications – Expect Continuous Reinvention

1. Retail landscape shifts will deleverage existing assets, drive continuous store renewal & race to be proximate

2. Challenge to shift legacy scaled business models – requires organizational change management

3. New scalable platform initiatives critical, but need to be aligned to core positioning – e.g. wellness

4. Merchandise lifecycles shortening and need for assortment refreshes & reviews – curated vs. replenishment

5. Chef or restaurant inspired philosophy to the grocery store – what’s next to win culinary

6. Private label will be a key differentiator and enabler to offer both value and the opportunity for unique assortment

7. Stores will need to be more agile & quick to adapt to trends – ability to react in real time, mobile fixtures

8. Automation critical to improve efficiency & support optimization – manage complexity of real time retail

9. Synchronization of merchandising, replenishment & logistics – Seamless, single view inventory approach,

leveraging store as a fulfillment center to meet on-demand consumer needs

10. New partnerships will be critical – need to leverage 3rd parties, no longer closed loop ecosystem, co-opetition

11. Turning Stores into Learning Labs – leveraging store associates

12. Economics are THE challenge to solve – how to increase speed, improve inventory placement & product flows,

support seamless network, while lowering cost

Summary &

Implications

Source: RetailNet Group

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Thank you! Questions?

Hannah Donoghue, Director of Advisory

hannah@retailnetgroup.com