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Retailers are positioning for a post-pandemic reset

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As society is becoming vaccinated and moving through 2021 further past the height of the COVID-19 pandemic, we find ourselves in a world much different than it was just 15 months ago. The changes necessitated by the pandemic shutdowns have permanently changed many behaviors and transformed several aspects of customers’ lives. People will be working in the office much less than in the past, and from home a lot more. They are cooking more and going to restaurants less. They are more concerned about their health and safety than ever, yet increasingly see their doctor via telehealth.

Tom Furphy

Although sources vary on the precise amount, U.S. e-commerce reached an estimated 15% of sales in CPG in 2020. Grocery e-commerce climbed from 3.4% to almost 10% of sales on average, per Incisiv, driven by customers across all demographics. These trends continue to grow, showing no signs of reverting backward.

Instacart delivers for more than 300 retailers in the U.S., building a powerful brand recently valued at $39 billion, putting its valuation on par with retailers like Kroger, Publix and Ahold Delhaize. Incisiv predicts that grocery e-commerce penetration will grow to 21.5% of sales by 2025. This sentiment was echoed by Vivek Sankaran, president and chief executive officer of Albertsons Cos., who recently told Citigroup’s Retail Madness Virtual Conference that e-commerce could represent 20% of the company’s sales in the coming years. This was unthinkable just a year ago, as was its recently announced tech partnership with Google.

Pre-positioned to handle the consumer shift, Amazon has become even stronger during the pandemic. Its packaged goods business grew about 40% to $45 billion in 2020, with $18 billion in Subscribe & Save, and now represents 5.5% of CPG market share. It entered the prescription business in earnest with Amazon Pharmacy, offering prescription delivery to its 150 million Prime members. Prime Rx gives its customers discounts at over 50,000 traditional pharmacies. The Amazon care app is now rolling out nationally. And, it is opening several Amazon Fresh grocery stores per month.

Retailers have battled to keep their shelves stocked and their customers and employees safe. They have appropriately focused on offering the basics of e-commerce via improved websites and delivery and pickup options. They’ve upgraded their apps to improve shopping experiences. And they’re now vaccinating millions of Americans who are ready to move forward in the new normal. It has been an exhausting year, with an effort nothing short of heroic.

Arguably, the market has changed more in one year than it has in most any decade. Shopper expectations have been reset. Retailers are now required to deliver experiences that serve their customers both physically and digitally. These experiences must work in unison, allowing customers to jump back and forth between them, blurring and melding the physical and digital worlds. This is The Great Reset.

Retailers are recognizing that a well-stocked store, attentive staff, efficient pharmacy, stable e-commerce and a solid retail experience are all now table stakes. To retain customer loyalty and stand up to competition, common themes are developing among best-in-class retailers.

First, they are focused on upgraded e-commerce and app platforms. Most all major retailers have “replatformed” their e-commerce technology to enable them to take control of their e-commerce experience and to provide the foundation to add more capabilities. They are using artificial intelligence and machine learning to deepen their personal relationships with their customers. Some are providing personalized offers and automated products ads. Many are adding auto-replenishment to reduce their customers’ burden of routine shopping and to ensure they never run out of their favorite products.

Operationally, retailers are architecting efficient service via micro-fulfillment, dark stores, delivery and pickup. They are also designing ways to help their customers discover new product and build personalized assortments based on their own preferences or needs. They are helping with meal planning and preparation, disciplines that had faded prior to the pandemic.

Brands are upping their game as well. Many are building DTC offerings, generating transactions from their own websites and building relationships with their loyal customers. They are also shifting their focus to retailers that offer thoughtful innovation, more direct connections to the end customer, capabilities that drive proven ROI and transparency of information. Traditional retailers that demand to make profit via deal structures and unjustified funding asks are being passed over for those that build collaborative programs with measurable ROI.

Two Consumer Equity Partners portfolio companies are on the front line of The Great Reset and are fortunate to be supporting the industry across these opportunities. Ideoclick works with over 300 manufacturers to help them win in e-commerce and advertising across all the retail platforms, such as Amazon, Instacart, and traditional retailers like Walmart and Target. Replenium works with several of the largest U.S. retailers, e-commerce platforms and dozens of brands to enable auto-replenishment across their shopping sites and apps. With a direct line of sight into these areas of the industry, we gain valuable perspectives into the future success factors.

Customers’ lives have been forever transformed by the pandemic. 2021 and 2022 will sort out the winners and losers. There is no doubt that Amazon has been well positioned to capitalize on this transformation and will be a winner.

Over the next few years — beyond Amazon — there is over $100 billion in e-commerce volume to be won, $20 billion in advertising dollars to be shifted and $50 billion in auto-replenishment sales to be locked in by retailers in the grocery, mass and chain drug sectors. Retailers and brands will be moving decisively to capture these generational opportunities, with winners of The Great Reset beginning to emerge this year.

Tom Furphy is chief executive officer and managing director of Consumer Equity Partners. He serves on a number of public and private company boards and speaks on the topics of retail innovation and e-commerce.


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