Independent Grocer's Guide 2022 by UNFI

INDEPENDENT GROCER’S GUIDE

2022

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The Guide is a compilation of individual results and results may vary. UNFI does not claim that the successes herein are typical results that all Independents will generally achieve, and the success contained herein may not be indicative of future performance or success of any other retailer . UNFI makes no representation or warranty, express or implied and does not endorse any specific strategy, concept, or theme contained herein.

THE INDEPENDENT GROCER’S GUIDE: WHAT IT IS, AND WHY NOW? At UNFI, we believe that Independents are the heart and soul of the grocery industry, and we stand on their side now more than ever. For this reason, we asked AlixPartners – a professional service firm that specializes in growth and operational excellence in grocery retail and wholesale – to bring a perspective to independent retailers on maximizing success post-pandemic. This Guide is the outcome of their study; in it, you’ll find strategies that have contributed to many Independents’ success. •

Their study is based on a mix of market research, industry expertise, and in-person observation of best-in-class retailers.

We know that every Independent is unique and that no one knows your customers or market better than you do.

At the same time, we found several common themes among successful independents, which each applied in their way to their store(s). To that end, we developed this Guide following two main guiding principles:

•

To be successful, every independent needs a unique value proposition for their customers. A store without a unique value proposition is at risk of being out-competed by large chains.

•

Although there isn’t a one-size-fits-all solution to success, there are a few universal concepts and winning themes that Independents can apply in a tailored way to their store(s) and customers.

Ultimately, we hope this Guide is a valuable resource for you to help grow your business.

It doesn’t contain all of the answers, and you’ll find in here many things you already do well today and others that might be new and helpful. As you read through, you’ll need to decide which are most critical for you and your customers and how to apply them to your unique business.

INDEPENDENT GROCER’S GUIDE

CONTENT CREATED BY ... …and thoughtfully reviewed by your peers.

Your peers who were involved in the creation of this guide had a few words to share about why it’s a valuable resource and how independent grocers can use it best.

Jeff Duritza

Rick Rodgers

up in the grocery “ Growing business, my dad taught me about the importance of efficiency in store operations, saying ‘the more you touch a product, the more it costs’.

I think this Guide offers great, practical recommendations for how operators can improve store efficiency and productivity.

”

no such thing as ‘business “ There’s as usual’ for grocers anymore. This Guide will help independent retailers understand some of the ways they need to adapt to changing times.

The chapter reflection questions are especially valuable—I think they’ll help people look in the mirror and make better business decisions.

”

Kevin Metcalfe

grocery retailers “ Independent are able to create real,

emotional connections with customers, but we first have to know our ‘why’. The Guide helps operators to define their purpose, identify goals, make decisions, and build tactical steps that align with their ‘why’.

”

Elliott Stone

Guide is an excellent tool “ This to onboard and train new management.

The reflection questions help capture fresh perspectives and spark discussions to maximize opportunities.

”

INDEPENDENT GROCER’S GUIDE

WHAT TO EXPECT AND HOW TO USE THIS GUIDE

The Independent Grocer’s Guide was developed using a combination of internal expertise, interviews with both industry veterans and independent grocery owners, and an assessment of industry data . AlixPartners also conducted store visits across the United States, ensuring coverage across regions. Some bestin-class examples have been highlighted throughout in specific case studies. We kept in mind the differences between independent grocers and tried to synthesize them in six profiles . Where applicable, we have highlighted how each strategy could be applied to different types of Independents and which strategies might be the most important for each profile The Guide is built around six main chapters: Shopper & Marketing, Assortment, Pricing & Promotion, Store Experience, Store Operations, and E-Commerce & Technology . Each chapter has 4 sections: Thought Starters, Key Concepts, Learnings, and a Self-Reflection. The Thought Starters and Self-Reflections are structured as a workbook to help you identify your key strengths and areas of opportunity. And because we know you’re busy, we highlighted a set of pages that feature the most important insights from this work.

INDEPENDENT GROCER’S GUIDE

KEY TOPICS

The Guide has six chapters and includes interactive workbook pages throughout to help you think through how to apply key concepts to your business.

1 2 3 4 5 6

SHOPPER & MARKETING ASSORTMENT PRICING & PROMOTION STORE EXPERIENCE STORE OPERATIONS E-COMMERCE & TECHNOLOGY

Thought Starters: Key questions to ask

Questions to help you put down on paper how to apply each chapter at your store(s) today.

Breakout of key concepts

Definitions of key components from each chapter and how to use them to win.

Learnings from other retailers

Practical examples of key winning themes and actions from independents and other grocers.

Self-Reflection

Questions to help you lock in your learnings and identify opportunities for your store(s).

We recommend spending time on the next page considering which type of store(s) “profile” you identify with. Where appropriate, the Guide concepts and learnings will be specific to a certain independent profile.

INDEPENDENT GROCER’S GUIDE

YOUR STORE'S PROFILE Which of these profiles sounds most like your store? If your business fits within multiple profiles, check out each applicable “Learnings” page.

THE CATEGORY SPECIALIST

Known as the go-to store for a specific category or purchase mission (cheese, meats, bulk goods, specialty baking goods, etc.)

THE ETHNIC SPECIALIST

Caters to a certain cultural demographic and their food choices (Italian, Latin American, Asian, etc.)

THE NATURAL/ ORGANIC STORE

Prioritizes health and natural/organic selections, often with a limited assortment of national brand products

THE CONVENIENCE SHOP

Serves up ease and convenience with lots of grab-and-go items, prepared meals, and a limited assortment of essentials

THE COUNTRY MARKET

Operates in smaller towns with limited competition

THE LOCAL GEM

A well-recognized store brand – usually a single or a few locations – that offers a unique shopping experience and product selection

CHAIN RETAILERS

Independents can learn best practices from retailers of all sizes. We used three categories to reference non-independent grocers. ILLUSTRATIVE EXAMPLES

LARGE CHAIN

Large chains with national presence

REGIONAL CHAIN

Medium chains, concentrated in a certain region or regions

SPECIALIST CHAIN

National or regional chains with a specialized focus

INDEPENDENT GROCER’S GUIDE

TABLE OF CONTENTS

1 2 3 4 5 6

CHAPTER

SHOPPER & MARKETING

ASSORTMENT

KEY CONCEPTS

Target Customer Acquisition

Marketing Channels

Retention & Advocacy

Loyalty

Category Roles

Fresh

Placement

Private Brands

Architecture

Price perception

Promotion Strategy

STORE EXPERIENCE

Store Experience

Staff Management

STORE OPERATIONS

Ordering

Labor

PRICING & PROMOTION

E-COMMERCE & TECHNOLOGY

Pricing Strategy

Value-add

Store Layout

Transportation

Strategy

Front-End & Back-End

Promotion Effectiveness

Process & Technology

Off-Setting Costs

Labor & Partnerships

Page #'s are hyperlinks RETAILER EXAMPLES

PAGES

20-35

REGIONAL CHAIN LARGE CHAIN

LARGE CHAIN SPECIALIST CHAIN

48-61

62-77

REGIONAL CHAIN

LARGE CHAIN

36-47

SPECIALIST CHAIN

78-87

88-103

INDEPENDENT GROCER’S GUIDE

KEY INSIGHTS:

SHOPPER & MARKETING

Defining your target shopper is at the core of an effective marketing strategy

22-23

Effectively reaching different shoppers will require specific strategies and tactics Use the needs of your target audience to craft your awareness and retention messages

Partner with local businesses, community clubs, and influencers to drive awareness and connection to the community

24-27

Pool investments to talk to customers using a single marketing vehicle

Co-market with other businesses to share discounts and each other’s marketing content Partner with individuals who have influence in your geographic region and/or brand focus area (naturals, ethnic foods, etc.) to establish credibility and awareness

Advance marketing capabilities through digital targeting and loyalty programs, which improve returns on investments

Use digital targeting to maximize reach in your area without wasted spend on shoppers outside your target

Successful independents design more unique programs taking cues from across retail segments. The most financially viable option would be to utilize an existing partnership with either your wholesaler, POS, or E-Commerce provider 14

28-33

KEY INSIGHTS:

ASSORTMENT

Win where you want to win

Define what you want to be known for and deliver on the promise (e.g., offer a broad assortment, enhance with private brands, local, specialty, and/or natural/organic)

38-40

Ensure a consistent flow of new products

Use shelf space to maximize visibility (give these items prime placement)

Consistently feature these product categories in marketing and communications

Focus on fresh and prepared categories

Adjust product specs on what your customers value and what their primary use for the product will be

41-43

Limit the size of your display to hold only the quantity of a product that can be sold within its shelf life

Increase visibility and ensure competitive pricing on both key value items and items that need quicker inventory turns to maintain quality

Use private brands to their full potential, not just as a price point “hack”

44-45

Shoppers select private brands based on price-value relationships, variety of options or flavors, brand trust, and packaging portability Use your private brand offering as a differentiator to compete with national brands

INDEPENDENT GROCER’S GUIDE

KEY INSIGHTS:

PRICING & PROMOTION

Build pricing capabilities to attract and retain shoppers

50-53

Successful retailers have a targeted pricing strategy that aligns with their assortment strategy Understanding how shoppers develop price perception is key to developing a compelling price strategy for your store/category Shopper price perception is influenced by three factors:

Opportunity – how frequently the shopper interacts with the product Propensity – how important the product is to the shopper

Ability – how comparable the product is to a similar product

Run intentional promotions

Take an active role building out your promotion strategy and don’t only follow wholesaler specials Leverage different price/promotion components (e.g., base price, circulars, permanent price reductions, etc.) to engage shoppers

Each promotion should have an intent and results should be measured against the plan Use the learnings from previous promotions to improve future promotion plans

54-59

KEY INSIGHTS:

STORE EXPERIENCE

Identify the type of shopping experience you want to deliver to your customer

64-67

Tailor store layout, fixtures, displays, and services to deliver the desired experience

Different aspects of the store require additional investment to deliver the target experience (quality and assortment, signage and promotion, discounting and limited items, etc.)

Build a staff management plan that enables you to deliver your desired shopping experience

68-71

Define functional roles on an operational “need” supported with competitive pay and benefits

Build store staffing by starting with minimum staff requirements to operate the store, followed by staff and service optimization based on shopper demand and a headcount buffer

Identify the services and processes you want to be known for and excel in delivering those

72-75

Deliver on basic tasks needed to run a store, then focus on winning in specific targeted services Consider using technology to enhance processes and improve the shopping experience

INDEPENDENT GROCER’S GUIDE

KEY INSIGHTS:

STORE OPERATIONS

Define an ordering process and cross-train employees to decrease inventory risk and working capital

80-83

Limit idle time: let the workload build up a bit and stagger the labor schedules

Ordering is a complex and nuanced process, but having a standardized process decreases the risk of things falling through the cracks and creating stock-outs

Limit the labor that is scheduled at the time of delivery

Prioritize the delivery and unloading process to maximize labor productivity

Think outside the box to find ways to recoup store operation costs

Look for opportunities in your area to sell pallets, recycle corrugated items, or donate products

KEY INSIGHTS:

E-COMMERCE & TECHNOLOGY

E-Commerce is growing at a pace that you can’t afford to miss

90-91

Online grocery sales are expected to be over $250 billion in 2026— 17%–20.5% of total grocery sales Independent retailers without e-Commerce capabilities risk losing $1.70-$2.05 out of every $10 spent on groceries

Use a combination of in-house labor and partnerships to enable your e-commerce strategy

92-93

Between front-end technology, back-end fulfillment, and handoff, choose where to use your internal capabilities (“Build”), augment your workforce with third-party labor (“Buy”), or outsource completely to companies like Instacart

Reduce fulfillment complexity (cost) by offering pickup options only

Complexity of fulfillment is directly impacted by the level of service you want to provide and the size of your digital business

94-99

As e-commerce volume increases, the benefits of scaling fulfillment and delivery with third-party labor can outweigh the initial cost savings of using in-store labor Over 75% of customers prefer pickup options, so you could omit delivery to reduce complexity and still satisfy most customers

INDEPENDENT GROCER’S GUIDE

SHOPPER & MARKETING THOUGHT STARTERS

SHOPPER & MARKETING

ASSORTMENT

1 2

3 4

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

Describe your target shopper. (e.g., age, income, what’s important to them, needs, etc.).

How do you use your brand message to attract them? What is your winning communication theme?

How are you attracting new shoppers? What channels are you using? (e.g., newspaper, signage, social)

Through which channel does your current shopper find out about new products, brands, or stores?

What are you doing to get shoppers to come back on an ongoing basis?

INDEPENDENT GROCER’S GUIDE

DEFINING YOUR TARGET SHOPPER IS AT THE CORE OF AN EFFECTIVE MARKETING STRATEGY KEY QUESTIONS TO DEFINE YOUR TARGET

Demographics

Motivations & Attitudes

• What is the typical age, income, education, marital status, and household size of my shoppers? • Where do they live?

• Demographics available through US census • https://data.census.gov/ cedsci/

• Why do my shoppers choose to shop at a store? • What is important to them? • What motivates them to purchase specific products, categories, or brands?

Behaviors

• How often do my shoppers shop for groceries? What do they buy? • What activities do my customers participate in that are relevant to my business? • How do they get information? How do they communicate?

Needs

• What are some unmet needs that the shoppers have? How can we help? • Are there specific types of products they do not have access to? • What are their biggest objections to shopping in your store?

Source: Market analyses, AlixPartners expertise

GETTING THE INFO

EXAMPLE: HEALTH FOOD SHOPPER

• Age: 25-45 • Income: $75K+ • Geographic: Central Maryland, USA

• Motivated by health benefits of food and supplements • Believe that organic products are superior to conventional • Believe that you get what you pay for

• Create a customer profile using a survey (host a giveaway or contest for participation) • Anecdotal information from associates

• Buys more supplement purchases than most people • Only buys organic • Exercises 3+ times weekly • Discovers brands through Instagram

• There are limited vegan options in the area • They don’t have time to shop • They need advice on what works best for them

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

SET THE PURPOSE OF YOUR MARKETING EFFORT AND HOW TO DEFINE SUCCESS Awareness

Retention

Advocacy

GOAL

Make your store known to prospect shoppers

Keep shoppers coming to your store and increase their basket size & frequency

Increase positive perception of your store through your current shopper experience

MESSAGE FOCUS

Your brand tagline. What makes you different from other stores?

Focus should be on products (especially launches), promotional activity, and in-store events

Use the shopper’s voice; develop content based on messages they have shared

SUCCESS METRIC

# of new customers per month

Purchase frequency of current customers

Net Promoter Score / web-based review score

NOTE

Acquisition and Advocacy happen outside of the store, while Retention happens both inside and outside Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

THE NATURAL/ ORGANIC STORE

PARTNERSHIPS

Partnerships with complementary businesses also are an opportunity for Independents to increase marketing efforts by sharing costs while building community.

Complementary Businesses

Partnering with local business with similar ideals can reduce marketing costs and increase reach of your message Key Opportunities for Complementary Business Partnerships: Cooperative Approach to Spend: pool investments into a single marketing vehicle (example: co-branded mailers) Loyalty & Frequent Shopper Programs: Offering discounts across businesses to drive shopper loyalty Marketing Amplification: having business share and tag each other in marketing amplifies the reach of the message

Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

Making it work in practice at

Partnered with brands with similar ideals and location

Co-markets, and offers cross brand discounts

STORE OPERATIONS

E-COMMERCE

CASE STUDY

Benefits: drive traffic across stores, minimize marketing costs INDEPENDENT GROCER’S GUIDE

THE ETHNIC SPECIALIST

THE CONVENIENCE SHOP

INFLUENCERS

Marketing through influence is a trend for small businesses. Find partners that have significant reach who are aligned to your company’s ideals

Influencers Whose Personas Align to your Business Partnering with individuals who have influence in your geographic region and/or brand focus area –naturals, ethnic foods, etc.- can drive credibility & awareness Key Opportunities for Influencer Partnerships: Authentic Voice for the Brand: Influencers are seen as providing tips or guidance and usually have many people who trust them Marketing Amplification: having influencers share and be featured in your content amplifies the reach of the message

Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

Making it work in practice at

STORE OPERATIONS

E-COMMERCE

CASE STUDIES

• HMart partnered with Mike Chen, a YouTube influencer, who was already a known fan of the store • His persona is highly aligned with HMart, as he focuses on food and travel with a significant emphasis on Asian food • He has significant influence & reach in his channels, which helps build HMart awareness

Making it work in practice at

• Butterfield Market partnered with a slightly smaller scale influencer • Her persona is highly focused on indulgent foods, which is in line with Butterfield Market (they focus on highly baked goods)

INDEPENDENT GROCER’S GUIDE

TARGETING

Targeting is slightly different by digital channel, but it gives you an opportunity to maximize reach in your area without wasted spend on shoppers outside your target

Social Media: Channel Description

Platforms that allow you to share information, ideas, and interests with virtual communities

* Over Index with Older Shoppers

* Over Index with Younger Shoppers

* Most used for Grocers & Other Retailers Benefits

Easily communicate

Give your store a personality Connect with shoppers Reduce spend with targeting

Watch-Outs

Can be a forum for customer complaints

Requires response and engagement Needs significant content and upkeep

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

Targeting Capabilities Narrow the reach of your advertisements to select groups based on specific attributes: Demographic: Age, gender, language

Geographic: country, state, province, city, congressional district, zip and post codes

Affinities: accounts/interests that the user follows

Connections: connections to your Pages, apps or events

Custom Audiences & Look-a-Likes: based on your shopper email lists, and allows you to find ‘similar’ people Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

THE CATEGORY SPECIALIST

SEARCH MARKETING

Search engines provide an opportunity to target customers by geography, demographics, and more. Marketers can even target specific look-a-like audiences based on a current shopper list.

Search: Channel Description

You bid on search terms through search engines like Google or Bing to get a priority position in the search results

Brand Search

™

Keyword Search

Store name or variations of potential store misspellings. Example, “Zabar’s” & “Zebar’s” Drive awareness for your brand; ensure your site is the first position shown to a Shopper ‘Poach’ shoppers from competitors-as you can bid on your competitors' name Any keywords that can be associated with your store. Example, “Artisanal cheese NYC” More closely associate you with select winning categories Resources: SEO: Improve Google Ranking (Organic) Google Search Ad Training Video (Paid)

Targeting Capabilities

Narrow the reach of your advertisements to select groups based on selected attributes Demographic: Age, gender, income Geographic: Affinities:

Region, cities, postal codes, or even set a radius around your location >125 affinity categories for search that include Cooking Enthusiasts, Foodies, Health & Fitness Buffs, etc.

Look-a-Likes: Upload your shopper emails and the search engine with find shoppers who are like yours Source: Market analyses, AlixPartners expertiseRetailer strategy observed in Spring 2022 - subject to change

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

Making it work in practice at

STORE OPERATIONS

E-COMMERCE

CASE STUDY

Zabar’s website & content provides them with a high ranking in both NYC & Dallas regardless of paid advertising activity (SEO/Organic Rank)

They are supplementing this with paid ads to those who are geographically close to their stores to maximize the likelihood of purchase

SEARCHED IN NYC

SEARCHED IN DALLAS

INDEPENDENT GROCER’S GUIDE

THE LOCAL GEM

THE CONVENIENCE SHOP

LOYALTY PROGRAMS

Loyalty Programs are a more advanced way to drive shopper engagement.Successful independents are structuring programs differently to set themselves apart

Program Goals

Increase Spend & Frequency

Attract New Shoppers

Key Levers to Drive Program Goals Points/Earning Structure Access to coupons or exclusive offers including win-back offers for lapsed shoppers, and offers focused on mix change Freebies after select number of purchases New product introductions Program referrals

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

PAID

E-COMMERCE

CASE STUDIES

• Erewhon has implemented a paid program, which is generally unused in grocery (outside of Amazon) • They enhance rewards based on the program fee

TIERED

Butterfield Market has structured their program more like a non-grocery retailer, using a tiered structure with benefits improving with spend Source: Market analyses, AlixPartners expertise Retailer strategy observed in Spring 2022 - subject to change

INDEPENDENT GROCER’S GUIDE

1 2 3 4 5 6 7 8

SELF-REFLECTION I have a clearly defined brand message I understand who my shopper is, and know how my store satisfies their needs I have a clear strategy for how I drive awareness to attract new shoppers – including which channels to use I partner with local business, community groups or influencers to reach new shoppers I have developed tactics that will drive shopper retention I use the shopper’s voice to amplify my marketing message I use social media for product/ store news, entertainment, and 1-1 communications with shoppers I minimize spend on digital through clear target guidelines

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

NOTES

1 2 3 4 5 6 7 8

INDEPENDENT GROCER’S GUIDE

ASSORTMEN 36

THOUGHT STARTERS

SHOPPER & MARKETING

ASSORTMENT

1 2 3

4 5

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

What am I known for?

Which categories are the heart of my assortment?

What are the top two things I sell that my customers value most?

What level of competition do I face? Who are my biggest competitors?

What is the role of private brands in my assortment? INDEPENDENT GROCER’S GUIDE

WHERE YOU WIN First, decide where you will win and what you want to be known for.

GUIDING PRINCIPLE

Category or Categories that you are (or will be) known for in the market

Commit to deliver superior value and quality to your shopper

• Offer a broad assortment • Enhance category offering with local, specialty, or natural/ organic products • Ensure a consistent flow of new products

Routine categories that shoppers expect but have low differentiation

Maintain all the key items and flavors in the assortment

• Top selling national brand items • Build out private brand at strategic price points to capture margin • You do not need to be the lowest price on every item, but ensure that your price is not ‘insulting’

A category that you don’t focus on and that customers usually purchase elsewhere

Offer only must-have items to avoid shoppers making an additional trip

• Often, it’s better not to play • If you decide to carry, limit the depth of your assortment • Focus on top-selling items only • Do not invest in price or promotion

Categories You Win

Categories You Play In

Categories You Don’t Lose or Don’t Play 38

…WHICH PRACTICALLY MEANS

DESCRIPTION

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

HOW YOU WIN

With your categories set, it’s time to align your assortment decisions to your strategy. ASSORTMENT BREADTH

ROLE OF PRIVATE BRAND

LEVEL OF LOCALIZATION

Offer a broad range with more flavors and specialty products

Specialty: offer unique flavors or items

Offer high-level local customer favorites and become a known destination

Premium: high on quality, price, and margin

PLACEMENT

Over index:

More shelf space than other categories

Premium Position:

front of store, end caps, and displays

Marketing:

National Brand Equivalent: competes on quality and taste at lower prices Offer an adequate assortment focused on national brand bestsellers and private brands

National Brand Equivalent: competes on quality and taste at lower prices Value/Discount: provide customers with a value or opening price point option

consistently feature in marketing/communications

Offer localization in select categories with items you know resonate with your customers e.g., regional hot sauces

At index:

shelf space in line with customer sales

Back & Center Store: high traffic items at the back of the store and basket builders at the center of the store

Marketing:

featured to support promotional activity Limit selections to top National Brands SKUs or potentially a single private brand

Little to None: only offer the private brand when it can completely replace national brand offering

Do not focus on finding local products to enhance the assortment

Under index:

less shelf space than other categories

Center Store:

limited shelf space in the store’s center next to highly cross-shopped categories

Marketing: None

Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

THE CONVENIENCE SHOP

STRATEGIES IN ACTION

The three stores assessed all “play” in the coffee category but have adjusted their assortment to fit their strategy and customer profile. Assortment offering in Coffee - # of item by price point

Good Better Best

$1.20

4 $0.90

$0.60

4 4

$0.30

Price Per Ounce

PLAY

REGIONAL CHAIN

PLAY

SPECIALIST CHAIN

Assortment strategy in action The Regional Chain assortment aligns to their mission of saving shoppers money through a larger coverage in “Good” and “Better” items

The mid-tier Specialist Chain stretches their offering to include the best brands, in addition to their “Good” and “Better” SKUs

Source: Store visits, Market analyses, AlixPartners expertise Retailer strategy observed in Spring 2022 - subject to change

Westside Market aims to offer high quality and unique SKUs and is reflected in their assortment through high-end NB and organic options

SHOPPER & MARKETING

PRICING & PROMOTION

ASSORTMENT

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

2019-2021 SALES GROWTH: FRESH VS OTHER CATEGORIES

Fresh is growing faster than ambient categories and is the primary driver for shoppers in their decision on where to shop weekly. Fresh categories grew 2x vs other categories since 2019

>2.0x 16.3% 8.1%

Fresh Categories All Other Categories

•

Fresh produce, meat, and seafood made up over 25% of total share of revenue in 2021

•

Both produce and meat are expected to continue their outsized growth

2019-2021 Growth %

Q: How important are these categories when deciding where to make your weekly grocery shopping trips?

Meat and produce are - by a large amount - the most important categories to drive weekly trips 1%

2% 31%

35%

32%

11%

56%

64%

58%

10% 14% 30% 46%

9% 22% 25% 44%

37% 28% 17% 18%

Ambient Grocery

Fresh Produce

Very Important

Fresh Meat Somewhat Important

Dairy

Deli Meats

Somewhat Not Important

Prepared Food Not Important

Most grocers should include fresh in either their “Win” or “Play” categories. Source: Euromonitor, IBIS World, IRI, Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

STRIKE THE RIGHT BALANCE

Independents need a balance between quality, variety, and price to best manage their Fresh departments.

KEY TRADE-OFF: SPECS Specs are the size and grade of your product

How to manage it

Adjust specs based on what your customers value and what their primary use for the product will be

KEY TRADE-OFF: SPACE-TO-SALES Quality

Space-to-sales ratio is the amount of space used to display a product vs. its expected sales

How to manage it

Limit the size of your display to hold only the quantity of a product that can be sold within its shelf life

Example: Fresco Y Mas optimizes for price by lowering their specs. Their core customer uses produce for soups, salsas, and other dishes where product aesthetic is unimportant.

Example: Berkeley Bowl uses risers in their produce displays to give the illusion of quantity while reducing space. The product turns more quickly and stays fresher.

Fresh Triangle

Price

Variety

KEY TRADE-OFF: MARGIN

Margin is the difference between product cost and selling price

How to manage it

Have the right variety (not necessarily the most expansive variety) to consolidate volume and reduce product cost, then sell at a lower price with same margin Example: Central Market prices high-movers competitively but increases prices on complimentary low-moving variety items Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

MAXIMIZING PREPARED FOODS

Many winning independents use prepared foods as a destination category, offering more choice to differentiate themselves in the market.

Prepared foods are a winning theme because: Shoppers increased at-home meals frequency in the recent past and trends suggest that it will stay Prepared foods provide a point of differentiation and can help the independent create unique offers faster Prepared foods allow you to increase your value for money perception because they compare to restaurant food Prepared foods are generally for more immediate consumption and will increase store visits to rebuy Prepared foods can help reduce fresh shrink in the store

Source: Store visits, Market analyses, AlixPartners expertise Retailer strategy observed in Spring 2022 - subject to change

INDEPENDENT GROCER’S GUIDE

PRIVATE BRAND POSITIONING

Independents can learn an important lesson from private brand positioning at chain retailers. They offer options across price brackets but compete on flavor and variety. Frozen Pizza Positioning: National vs. Private Brands

LARGE CHAIN

$0.90

Quest

$0.60

$0.30

Price Per Ounce

DiGiorno

Tombstone

GOOD

Overwrap

Red Baron

CPK

Premium Private Brand

National Brand Equivalent PB

Value PB

Private Brand National Brand

BETTER

Thin crust

BEST

Premium Thin crust

Private Brand “winning” positioning Private Brands always offer the highest value at each price tier

It is not always the lowest on price

(e.g. sits in between National Brand at the “Better” price point)

1. Pricing from National Retailer’s website, Size of the bubble represent # of SKUs at that price point Source: Store visits, Market analyses, AlixPartners expertise

Wider assortment of flavors/variety in the National Brand Equivalent tier, offering more choice where it matters the most

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

PRIVATE BRANDS IMPLEMENTATION

You can strategically use different supply lines of private brands to develop your offering across price points and support your winning strategies.

IMPLEMENTATION COMPLEXITY

In-House Production

Manufacturing Partner

White Label

Wholesaler Brands

Utilize store space as a production facility

Example: Northgate Gonzalez Fresh Tortillas

Partner with local producers or larger scale manufacturers Example: Festival Foods (Lefse)

Partner with manufacturers to brand generic product Example: Northgate Gonzalez Water

Purchase private brand options from your wholesale partners

Example: Festival Foods-Essential Everyday

Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

1 2 3 4 5 6 7 8 9 10

SELF-REFLECTION I have a clearly defined assortment strategy

yes

n/a

yes

n/a

Each product category has an associated strategy

yes

n/a

My product assortment is tailored to customer demand

yes

n/a

I use local products in my winning categories

yes

n/a

Products are strategically positioned on shelves/the floor

yes

n/a

I offer a range of fresh options (produce, meat, and deli)

yes

n/a

yes

n/a

I have private brand products

yes

n/a

I have clear roles for my private brand products

yes

n/a

I have differentiated product categories

I have value-add items available for purchase

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

NOTES

1 2 3 4 5 6 7 8 9 10

INDEPENDENT GROCER’S GUIDE

PRICING & PROMOTION THOUGHT STARTERS

SHOPPER & MARKETING

ASSORTMENT

1 2 3 4 5

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

What is my primary pricing strategy (e.g., Everyday Low Price)?

Which categories are the focus of my price investments?

Does my pricing strategy appeal to my target customers?

What is my promotion strategy?

Do I understand the effectiveness of my promotions?

INDEPENDENT GROCER’S GUIDE

PRICING STRATEGY

Build your pricing knowledge and capabilities to develop and execute a powerful pricing strategy. Advanced

PRICING CAPABILITIES STAIRCASE

Basic

Prices primarily driven through % margin targets and set intuitively • •

Limited understanding of shopper dynamics (how price-sensitive are they?) Limited monitoring of competitive price positions

INSTINCTIVE PRICING

Most Independent retailers are here Source: Market analyses, AlixPartners expertise

Prices set to % margin targets with an understanding of category strategy • •

Basic understanding of shopper reactions to price changes Sporadic monitoring of competitor prices

BASIC PRICING WITH MARGIN TARGETS

Price investment is part of a wider strategy with promo, marketing, etc. • •

Clear understanding of shopper and financial impact of price re-positions Robust tracking of competitor prices

DEEP UNDERSTANDING OF PRICE ARCHITECTURE

the GOAL is to be here

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

DEVELOP YOUR STRATEGY

Retailers have multiple options (on their own or in a combination) when it comes to setting their prices.

PRICING STRATEGY

Competitive index:

Index-based methodology with Key Value Items (KVIs) pinned to another retailer (e.g., Walmart)

Fixed mark-up:

Prices determined through cost plus flat markup

CONSIDERATIONS • •

• •

Other retailers do the work of checking market conditions and setting prices

Prices may not align with Cost of Goods (COGS) Mostly leveraged by retailers in low competitive situations (e.g., rural or premium assortment) Highest overall margin opportunity

Everyday Low Price (EDLP): Fixed low price that

•

Attractive to price-sensitive shoppers

High/Low (Hi/Lo):

•

Provides flexibility for retailers to focus investments in specific categories/items

is maintained long term for KVIs

Prices set by category margin targets

Targeted:

EDLP with promotion that targets different value customers

•

• •

Need to drive volume to make up for slim margins, and requires close coordination with distributor/ suppliers

Promotions drive traffic and volume Most complex because retailers need to be well connected with different customers and their purchasing behavior Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

Pricing strategy is usually not just defined in absolute, but rather as a balance of the different levers available to drive price perception. PRICE/PROMO COMPONENTS BASE PRICE WHITE TAG

BEST USED WHEN YOU WANT TO… • Have a solid margin foundation for the company as a whole • Provide good value perception where base prices are important APPLIES TO:

Fixed Mark-up

WEEKLY AD ( CIRCULAR)

Fixed Mark-up

Targeted

EDLP

Hi/Lo

Targeted

EDLP

Hi/Lo

Targeted

EDLP

Hi/Lo

Targeted

• Build loyalty through “exclusive” member discounts • Target specific customer segments with tailored offerings APPLIES TO:

Fixed Mark-up

Source: Market analyses, AlixPartners expertise

Hi/Lo

• Incentivize forward purchasing and capture a share-of-wallet • Move inventory out of the backstock (especially high loss items) APPLIES TO:

COUPON/CARD SPECIAL

EDLP

• Drive promotion-sensitive customers into the rest of store and build baskets by giving customers a reason to shop beyond the ad APPLIES TO:

VOLUME DISCOUNTS

Targeted

• Offer strong value over a longer period of time vs. circulars • Drive better value perception and build baskets (but not trip drivers) APPLIES TO:

PPR (PERMANENT PRICE REDUCTION)

Hi/Lo

• Drive trips to the store, using Key Value Item prices as a magnet • Define and reconfirm your value proposition in key categories APPLIES TO:

TPR (TEMPORARY PRICE REDUCTION)

EDLP

Hi/Lo

Targeted

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

INFLUENCING PRICE PERCEPTION

There are three factors that influence shopper price perception, but retailers cannot influence all of them equally. OPPORTUNITY

PROPENSITY

ABILITY

How frequently

How important

How comparable

does the shopper interact with the product?

is the p roduct to the shopper?

Driven by

•

Competitive Intensity

•

Demographics

•

Shopping Frequency

•

Category Role

•

Assortment Overlaps

Primarily set by location and shopper behavior

LEAST Influence

is the p roduct with other items?

•

Item Importance

Retailer needs to be aware when developing their strategy

Driven by • •

Product Type/Segment Assortment Overlaps •

Store Signage

Retailer mostly controls this aspect

MOST Influence Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

THE ETHNIC SPECIALIST

COMPETITIVE PRICING STRATEGY

Northgate, a Latino value grocer, competes heavily on price for tortillas to drive traffic while accumulating margin on other products.

OPPORTUNITY

How frequently

does the shopper interact with the product? Location is a highly competitive area among other grocers with a national chain value player within 2 miles

PROPENSITY

How important is the p roduct to the shopper?

• Mid-tier house income: $95K • House makeup (mostly family): 2.3 54

• Bachelor’s degree or higher: 58.4% • Hispanic or Latino: 23.7%

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

CASE STUDY Learnings from

ABILITY

How comparable is the product with other items? NORTHGATE MARKET

Categories You Win

Invest to provide best value

Categories You Play In

Be competitive, but not the lowest

Categories You Don’t Lose or Don’t Play

Build margin, but don’t insult with price

LARGE CHAIN

Northgate Corn Tortillas/ Tortillas De Maiz Northgate 50 count $2.69 Gonzalez Vitamin D Milk 1 ga $3.69

Ferrero Rocher 7oz $10.99

Mission Corn Tortillas 80 count $4.39 (~$2.75 for equivalent 50 count) Private Brand Vitamin D Whole Milk, 1 ga $3.39

Ferrero Rocher 7oz $9.99

Source: Store visits, Market analyses, AP expertiseNorthgate Market Culver City, CA online items and prices 2/7/2022

INDEPENDENT GROCER’S GUIDE

BUILDING A STRONG PROMOTION STRATEGY Every promotional event must have an explicit intent and success definition. How you mix them determines your overall strategy.

1 2 3 4 5

PROMOTION INTENT

SUCCESS METRICS

To drive sales and increase gross profit

•

To attract customers to the store and increase store traffic

•

Increased frequency of store visits

Give customers “reason to try” and drive future sales of the item

•

Increased product/ category penetration

To move inventory (discontinued/out of code items)

•

To remain competitive (competitor price matching)

•

Increased volume, sales, and gross profit Increase basket size

Increased basket size

Reduced waste/spoilage of the item

Increased inventory turn to make space for new items coming in Maintain unit sales market share Maintain store traffic

How you mix up the promotion intents and your choice of promotion depth and breadth defines your Source: Market analyses, AlixPartners expertise

PROMOTION STRATEGY

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

ANALYZING IMPACT For most promotions, the direct effects can be a good gauge of impact. IMPACT TYPE

COMPONENT + WHAT IT IS

DIRECT

The financial impact coming from the item performance

IMPACT

Baseline

The amount of sales and margin the item makes at “Base” price E.g., at $3.99, item A sells 30 units/week, making $45 in GM

Uplift

The incremental units sold when the item is in promotion E.g., on the promo week, item A sells 10 more units per week

Discount

The price discount required to achieve the promotional uplift E.g., on promotion we reduce item A price by $1.00 to $2.99

Vendor Funding

The contribution from suppliers to run the promotion E.g., Vendor A provides $.80 rebate for each unit sold on promo

Cannibalization

INDIRECT

The financial impact of today’s promo item on other items and its future sales1

The sales lost due to shopper switching to the item in promo E.g., Ben usually buys item B at $3.49. He buys item A instead

Halo

The additional sales driven by the promotion of the item E.g., Ben comes to the store to buy item A, and buys also item C

Pull-forward

The future sales lost on the item due to stock ups E.g., Mary usually buys 1 unit per week. She buys 3 this week

SG&A

Cost of executing the promo event

Store Costs

The additional cost to execute the promo event E.g., incremental labor in store to change the price tag

The effectiveness of the promo (good promo vs. bad promo) is determined by the components’

NET EFFECT

1. *These effects are usually more difficult to estimate, and the calculation has a higher degree of uncertainty - Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

THE ETHNIC SPECIALIST

PROMOTION EFFECTIVENESS

Through an analytical approach to promotion effectiveness, a specialist chain found that the cause of “red” promotions was an excessive discount level. DISCOUNT DEPTH

MARGIN UPLIFT

0-10%

30-35%

10-30%

22-28%

30-50%

8-12%

50%+

(20-35%)

Learning: Stop Manager’s specials greater than 50%

•

By analyzing promotion events, specialist chain found Manager’s specials with discounts greater than 50% did not increase total margin

•

This is the result of an imbalance in the discount offered. You don’t get enough additional sales to justify bigger discounts.

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

CASE STUDY Taking a deeper look at

RETAILER EXAMPLE

Manager’s Special

House Tofu 19oz Original price: $1.79 Sale price: $0.88 Discount: 51% • Retailer is a US-based ethnic grocer • Store managers have the freedom to conduct store-specific promotions (not advertised) • Store managers believed steeper discounts would drive higher total margin through volume Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

1 2 3 4 5 6 7 8 9 10

SELF-REFLECTION I have a clearly defined pricing strategy

yes

n/a

My pricing and assortment strategies are aligned

yes

n/a

My product categories have specific pricing strategies

yes

n/a

I understand my competitors’ pricing strategies

yes

n/a

I understand my customers’ willingness to spend

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

I have a defined promotion strategy My promotion strategy is tactical, not market-following I have signage and marketing support for promotions I test pricing and promotion changes I track the impact of price changes on performance

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

NOTES

1 2 3 4 5 6 7 8 9 10

INDEPENDENT GROCER’S GUIDE

STORE EXPERIENCE 62

THOUGHT STARTERS

SHOPPER & MARKETING

ASSORTMENT

1 2 3 4 5

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

What experience do we offer that excites our shopper?

Do I invest in store design, decor, and remodels?

Do I have a structured way to manage my staff?

Do my employees understand their day-to-day tasks?

Do I use technology to enhance processes and tasks?

INDEPENDENT GROCER’S GUIDE

CREATING YOUR STORE EXPERIENCE

Use operational focus and aesthetics to determine your store experience. STORE EXPERIENCE PERCEPTION1

EXPERIENCE

A unique experience of specialized services and broad assortment 1. Experiential

An easy experience that offers differentiated assortment 2. Traditional

A no frills, low-cost shopping experience 3. Cost Saving

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

DISTINCTIONS

STORE OPERATIONS

E-COMMERCE

INVESTMENT FOCUS

• Product fixtures highlight specialty items and services • Higher focus on assortment and quality over price and promotion

• Product assortment and quality • Specialty services

• In-store messaging used to inform and educate

• Unique fixtures and store aesthetic

• Store is built to highlight and supplement specialty offerings

• Traditional aisle, wall, and stand-alone fixtures

• Signage and promotion

• Regular sales and promotions used to support target categories

• Product differentiation • Shrink limiting

• Signage used to guide the shopper and highlight promo items

• Store layout is built to easily find and browse products • Products sold in crates, pallets, and boxes on aisles • Promotion and limited time, special buy items are prioritized

• Price competitiveness • Discounting

• Large price tags and sale stickers are used to highlight low prices

• Limited time items

• Layout allows the shopper to quickly find specific products

Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

STORE EXPERIENCE IMPLEMENTATION

Stores implement similar concepts in different ways to promote the image and journey that they want their shoppers to experience.

CASE STUDIES Making it work in practice at

Experiential

Fixtures

Specialty, customizable selection

Pricing And Tagging

Product prioritized over price

Marketing Messaging Highlight niche/specialty

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

Making it work in practice at

Traditional

Fixtures

Items individually on the shelf, near associated products

Pricing And Tagging

Price and product info equal size and prioritization

Marketing Messaging

Weekly specials and sales by product

Making it work in practice at

Cost Saving

Fixtures

Products stored in boxes/crates

Pricing And Tagging

Price is the focal point of the tag

Marketing Messaging

Focus on bulk, promo, special-buys Source: Store visits, Market analyses, AlixPartners expertise Retailer strategy observed in Spring 2022 - subject to change

INDEPENDENT GROCER’S GUIDE

FIVE PRIMARY COMPONENTS OF STAFF MANAGEMENT

1 2 3 4 5

OPERATIONAL REQUIREMENTS

Functions

Define roles required to operate the store

Staffing & Scheduling Manage staff utilization

Operational responsibilities

•

Performance expectations

•

Expertise requirements

•

A clear staffing schedule

•

Staffing matched to demand levels

•

Defined hour requirements

SUPPORTING FUNCTIONS

Pay & Benefits Recruiting

Performance & Retention

Source: Market analyses, AlixPartners expertise

•

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

HOW TO OPTIMIZE STAFFING

Store staffing is built upon minimum operational requirements, staff and service optimization, and a headcount buffer. WHAT IS NEEDED

Define minimum requirements

Adjust based on season/day/hour

Embed a headcount buffer

Minimum hours and personnel required to operate base tasks

Planning time of day and day of week schedules to change staffing based on shopper traffic

Additional staff on site or available for unforeseen absences and resignations

HOW THIS IS DETERMINED • What are my store hours?

• What are the minimum shift requirements? • What services do I provide?

• What functions are required from open to close?

• What are the busiest hours and days of the week?

• Are there upcoming events or holidays that will drive traffic? (e.g. Thanksgiving, Superbowl, promos) • Has demand shifted where resources can be moved to other tasks? (e.g. more ready-made meal prep, less salad bar prep) • If someone misses their shift, will their tasks still get completed with the existing schedule?

• Are the staff trained to fill multiple tasks depending on who is absent? • Can the staff swap shifts to anticipate absences?

Staff scheduling can be managed by an individual or by specific tools, depending on your level of size and sophistication. Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

HOW TO OPTIMIZE STAFFING

Store functions are defined on an operational “need” basis and supported with competitive pay and benefits. WHEN NEEDED

FUNCTION

Manager

Oversee general store operations, including staffing and scheduling

Always Needed

Cashier

Manage the check-out process

Store Associates

Clerks and stockers to assist with shoppers and restocking

Assistant Manager

Oversee general store operations

Size Dependent

Security

Manage loss-prevention, ensure store safety

Department Manager

Provide expertise to shoppers, direct restocking and placement (e.g. produce, deli, center store, etc.)

Butcher

Cut and prepare the meat

Service Dependent

Apprentice Butcher

Wrap and stock meat, prepare pre-made meals, manage counter

Pick and Packers

Select and bag items from shelves for curbside pickup and delivery orders 70

SHOPPER & MARKETING

ASSORTMENT

SHOPPER FACING

PRICING & PROMOTION

STORE EXPERIENCE

EXPERTISE

High Low Low Low Moderate High High Moderate Low

STORE OPERATIONS

E-COMMERCE

NATIONAL MEDIAN WAGE $19

$28

$38

$12

$11

$10

$15

$13

$20

$15

$31

$12

$17

$23

$11

$16

$22

$10

$12

$14

$10

$13

$16

Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

THE CATEGORY SPECIALIST

STAFFING FLUCTUATIONS

For example, a Category Specialist will fluctuate staff levels based on services provided and shopper traffic throughout the day.

Store Details

Profile: The Category Specialist • Store size: 25,000 sq ft • Market: suburban, middle class • Services provided: meat counter, deli counter, curbside pickup, premade meals • 4 cash registers

Best Practice: Headcount Buffer

• A buffer against no-shows is built by scheduling more staff than is required • The number of buffer staff fluctuates with shopper traffic • Buffers account for ~10% of the headcount, 1-3 in right-hand example

Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

PRICING & PROMOTION

ASSORTMENT

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

Shopper traffic levels throughout the day

11PM

10PM

Evening

9PM

Afternoon

8PM

7PM

Midday

6PM

5PM

4PM

3PM

2PM

Midmorning

1PM

12PM

Morning

11AM

10AM

9AM

8AM

7AM

6AM

Pre-open

Post-close

Scheduling throughout the day Role Store Manager

Pre-open

Morning

Midmorning

Midday

Afternoon

Evening

Post-close

Cashier Store Associates Asst. Manager Dept. Manager Butcher

Headcount needed based on time-of-day traffic

Pick and pack Security

Total

Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

Processes can range from being a base necessity for all types of stores to tasks that are developed for the purpose of delivering a targeted shopper experience.

Experience-Specific Tasks REQUIRED TASKS

EXPERIENTIAL

TRADITIONAL

COST SAVING

• Price tag changes • Shrink reduction

• Premade meal prep • Speciality station prep

• Special buy products

• Out of stock tracking • Order scheduling

• Order schedules for local, specialty vendors

• Regular floor-stock checks at a case level

• Store signage • Checkout process

• Experts on the floor • Interactive stations

• Experts on the floor

• Sale and promo messages

• Staff management • Loss prevention

• Event traffic evaluations

• Promoeffectiveness evaluations

• Promo footprint evaluation

• Curbside or in-store pickup (one of the two)

• Delivery, curbside, and in-store pickup

• Curbside and in-store pickup

• N/A

Product Management

Inventory Management

Customer Experience

Labor/Floor Management

E-Commerce 74

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

MAKE TECHNOLOGY WORK FOR YOU

Technology can be used to enable and enhance both base and specialty processes. HOW TECHNOLOGY CAN HELP YOU

PROCESS WITH TECHNOLOGY

PROCESS WITHOUT TECHNOLOGY

Evaluate and adjust product pricing and placement

• Software evaluates and updates prices • Digitally built planograms

• Manual price, planogram analysis • Employees change physical tags

Automate stock tracking and ordering

• Sale and delivery tracking • Reorders based on stock levels

• Manually track inventory (Excel) • Manual orders on a need basis

Educate and engage the shopper

• Educational, cafe-order kiosks • Self-checkout, integrated POS

• Mailers available at the entrance • In-store signage and placement

Manage back-of-house and staff processes

• Staff and traffic forecasts, flexible scheduling, tracking • Security system, monitoring

• Manual schedule, staff tracking • Higher physical security presence

Integrate and manage digital offerings

• A central platform to manage all E-Commerce capabilities

• Phone and paper curbside pickup management

• POS analysis, digital price tags, planogram software

• POS tracking, automated order schedules, scanners

• In-store education, integrated checkout systems, premade meal order management

• Labor management, loss prevention, delivery efficiencies

• Front-end E-Commerce platform, new service and channel enablement

Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

1 2 3 4 5 6 7 8 9 10

SELF-REFLECTION I use a defined methodology for staff management

yes

n/a

yes

n/a

yes

n/a

I recruit from a range of local sources

yes

n/a

I track Key Performance Indicators for each position

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

I have defined roles and positions I offer competitive pay and benefits

I have incentives in place to retain talent Shoppers receive a specific shopping experience My store layout supports the target shopping experience The tasks I offer support the target shopping experience I utilize technology to enhance processes

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

NOTES

1 2 3 4 5 6 7 8 9 10

INDEPENDENT GROCER’S GUIDE

STORE OPERATIONS 78

THOUGHT STARTERS

SHOPPER & MARKETING

ASSORTMENT

2 3

PRICING & PROMOTION

STORES

STORE OPERATIONS

E-COMMERCE

Thinking about my store’s operations, what are my main strengths and weaknesses? (e.g., employee capabilities, flexible labor scheduling) Can I list my standard ordering process? (e.g., dedicated person, inventory, specified ordering day/time, etc.) How knowledgeable and capable are my employees about store operation processes? (e.g., ordering process, put-away process, labor scheduling, etc.) What are my biggest areas of opportunity when it comes to store operations?

INDEPENDENT GROCER’S GUIDE

FOUR KEY COMPONENTS OF STORE OPERATIONS The four major components of a store’s operation can, in addition to COGS, be used to calculate net landed cost per carton to cost compare across deliveries. COMPONENTS

ASSOCIATED COSTS Total cost of goods for items purchased

Assortment

= COGS

––––––––––––––––––––––––

Store Operations

1 2

Costs due to store ordering process, from identifying the products and units needed to placing the order through the vendor system

Ordering

Transportation

= Landed Cost

Cost of delivery including any incentives vendors may provide for optimization

= Fully Loaded Landed Cost

Store labor costs due to unloading and put-away

––––––––––––––––––––––––

Labor

–

––––––––––––––––––––––––

Off-Setting Costs

Any offsetting benefits to the store, including recycling and donations = Net Landed Cost

Viewing net landed cost at a per carton level allows for quick cost comparisons across deliveries and processes Net Landed Cost per Carton = Net Landed Cost / # of cartons received 80

Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORES

STORE OPERATIONS

E-COMMERCE

1 ORDERING THE POWER OF THE ORDERING PROCESS The ordering process impacts all aspects of the store and there are significant risks in not having a robust ordering process. ORDERING IMPACT

GUIDELINES / BEST PRACTICES

RISKS

• High shrink due to expired products

Assortment

• Decreased quality in Fresh products

Pricing and Promo

• Low/negative margins from steep discounts (i.e. promotions due to expiration)

• Gaps in employee capabilities

Store Operations

• Confusion due to lack of standardized processes

• Bad shopping experience

Store Experience

• Loss of customer to competitors / decreased share of wallet

Source: Market analyses, AlixPartners expertise

• Stock up high velocity vendor promoted items

• Develop an inventory walk-through and ordering cadence (e.g., Monday and Wednesday) • Cross train employees to minimize knowledge gaps • Leverage vendor services (e.g., stocking)

• Continuously replenish out of stock from the backroom

–––––––

• Empty shelf space

• Understand vendor lead times and line up delivery with sale cycle/ad drop

––––––––––

• Labor scheduled does not meet store needs

• Order fresh at every opportunity

–––––––

• Inventory shortage for scheduled promotions

• Understand the sell rates of items to determine appropriate order volume

–––––––

• Excessive working capital tied up in inventory

• Schedule put-away to be least disruptive to the shopping experience

INDEPENDENT GROCER’S GUIDE

2 TRANSPORTATION DRIVERS OF TRANSPORTATION FEES Delivery frequency and truck fill rate are the key drivers of transportation fees. TRANSPORTATION FACTORS

RISKS

Delivery Frequency Average # of trucks delivering product to the store (weekly)

• Infrequent deliveries increase the chance of a low-quality fresh assortment • More deliveries means more opportunities for your store team to be idle

Truck Fill Rate

Average share of trucks capacity allocated to the store

• Higher cost of goods due to purchasing less than a full case • Wholesaler will pass on higher costs due to under-optimized truck

• Balance frequency with the need to maintain freshness (2-3 deliveries per week should suffice for most stores)

• Order in full case or full pallet quantities

––––––––––––––

• Small deliveries disrupt your store labor

• Optimize delivery schedules to minimize the number of trucks coming to your store

–––––––––––––

• Too frequent deliveries will lead to higher costs, smaller order sizes, and overstocking

BEST PRACTICES

• Add high cube items to fill available space (e.g., paper products or water) and achieve the lowest per-carton cost • Helping your wholesaler be efficient will allow you get a better cost of goods in the long run

Transportation optimization is a joint effort between stores and vendors but will also be highly influenced by market conditions, like shortage of truck drivers and supply chain constraints 82

Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORES

STORE OPERATIONS

E-COMMERCE

LEARNING FROM A LARGE MULTI-BANNER INDEPENDENT The store has substantially reduced the number of small deliveries through a better partnership with its wholesaler. STARTING POINT

2.5

Average deliveries per store per week

26/66/8

Small / Half / Full truck (% of deliveries)

622

Avg. cube / delivery

KEY ASPECT OF NEW WHOLESALER PARTNERSHIP

The independent and the wholesaler worked together to optimize their store operations • Total company transformation to align competitiveness with local market positioning • “Net zero” transportation structure built around incentivizing truck cube • Incentive system from the wholesaler to support buying power and density

RESULTS

-20%

# of deliveries, despite +14% in cube volumes

3.0x

Full truckloads deliveries, reducing store labor cost

+60%

Avg. cube / delivery

Overall, independent achieved a 160 basis point improvement in Gross Margin Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

3 LABOR GUIDELINES FOR PRIORITIZING STORE LABOR Plan store labor to avoid idle time and balance customer service with in-stock needs. LABOR PRIORITIZATION

BEST PRACTICES • Schedule trusted employee(s) to meet the truck and unload (specialized labor)

Truck Unloading

Fresh Items

Floor Shelf Items

• To limit idle time, let the workload build up a bit and stagger the labor schedules • Put away temperature-controlled items immediately upon receipt • For ambient products, schedule put away time to avoid interrupting shopping experiences (do not plan it to begin immediately at the appointed truck arrival time). The variability of actual delivery time may cause these resources to idle. • Maximize the flow of product directly from the truck to the sales floor • Minimize products sent to backroom

Backroom Items

• Flex employees and keep freight processing shifts to 4 hours

Source: Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORES

STORE OPERATIONS

E-COMMERCE

4 OFF-SETTING COSTS THE KEYS TO CUTTING COST Costs can be partially off-set by repurposing or selling delivery materials. OFF-SETTING MATERIAL

COST OFF-SETTING PRACTICE Participate in a pallet re-use program

Pallets

Waste and packaging baling

Corrugated & Wraps

Excess food donations for tax deductions

Donations

HOW AND WHY TO MONETIZE

• Sell used pallets or return rented pallets to suppliers for additional revenue • Eliminates potential pallet disposal costs

• Re-sell products back to recycling companies • On-site baling is often the cost-efficient route compared to transporting prior to baling

• Tax deductions for donations made to non-profit orgs • Limited liability protection provided to companies making good-faith donations

Cost offsetting provides potential incremental revenue streams, but the benefit should be weighed against the labor investment required to perform such processes. Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

SELF-REFLECTION

6 86

I have a defined ordering process

I optimize my orders to minimize delivery frequency and maximize truck load I have an unloading and put-away process and my employees are aware of it I schedule my labor strategically to minimize my put-away labor costs

I achieve my on-hand inventory goals

I find ways to off-set my store operation costs

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

yes

n/a

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORES

STORE OPERATIONS

E-COMMERCE

NOTES

6 INDEPENDENT GROCER’S GUIDE

E-COMMERCE

& TECHNOLOGY

THOUGHT STARTERS

SHOPPER & MARKETING

1 2 3 4 5 6 7 8

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

Are customer service and convenience part of my strategy? Does a significant portion of my current or desired future shopper base skew younger (e.g., Millennial, Gen-Z)? Do I offer a loyalty program and want to gain additional information on shopper preferences? Am I looking for opportunities to collect more information about shopper preferences to inform my assortment decisions? Am I located in an urban environment where my shoppers are located within a tight radius of my store(s)?

Am I in a highly competitive market where many other retailers offer online shopping options? Do I have multiple stores? Are my private label and/or prepared food offerings minimal?

E-COMMERCE

yes

If you answered “YES” to ANY of the questions above, we highly recommend that e-commerce is part of your strategy. If you already offer e-commerce, consider:

How do I deliver my e-commerce offerings (Instacart, other partnerships, store employees, combination)? Do my partnerships allow for net positive profitability?

How do I balance my in-store operations with my e-commerce operations? INDEPENDENT GROCER’S GUIDE

THE GROWING WORLD OF E-COMMERCE

Online grocery sales are expected to be over $250 billion in 2026. Independent retailers without e-commerce capabilities risk losing $1.70-$2.05 out of every $10 spent. Grocery e-comm as % of total sales (high estimate) Grocery e-comm as % of total sales (low estimate)

11.1% 9.5% 8.1% 2020

2021

10.5%

2022

Actual

At the low end of the forecast, investing in e-commerce is well worth it; at the high end, retailers without e-commerce are in serious trouble. Independent retailers who do not offer e-commerce are putting themselves at risk.

Source: eGrocery Transformed, Market Projections & Insights report, EMarketer US Digital Grocery Forecast 2021, Market analyses, AlixPartners expertise

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

E-commerce expected to double as % of total sales in five years

20.5% 19.0%

17.2% 17.0%

16.8%

13.5% 14.7% 12.9%

2023

Represents an estimated $215 - $265 Billion in online grocery sales by 2026

2024

2025

2026

Projected

INDEPENDENT GROCER’S GUIDE

E-COMMERCE BREAKDOWN

The e-commerce Front-End is the platform where the shopper places an order and the Back-End is how the order gets picked, packed, and in the shopper’s hands. FRONT-END

Technology Platform for display and purchase of available products

Fulfillment Process for picking and packing online orders

Handoff Method of getting the order to the shopper (pickup or delivery)

Customer User Interface

Fulfillment

Pickup/Delivery

Replenishment

Routing

Main interface where a person views items, adds to their cart, and pays

Easy navigation, including the ability to find active promotions and search based on dietary needs

Mobile

Optimized for viewing in a mobile-responsive website, as well as integration with a mobile application

Payment

Supports many different payment methods, including credit card and SNAP E BT card

BACK-END

Integrated with the e-commerce platform or a separate picking/ packing system

Integrated with the existing inventory management system and helps with forecasting

Track when fulfillment is complete and ensure accurate and timely handoff to shoppers

If offering delivery, manage route planning, staffing, and timing

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

THREE E-COMMERCE OPTIONS Retailers can either make or buy e-commerce capabilities; do it yourself, find partners, or outsource to Instacart.

Partner list is not exhaustive

Technology

You can fully build it in-house

Use 3rd party providers for each or a few parts of it

Develop your own e-commerce platform

Fulfillment

Use employees to fulfill from your stores

Existing POS system Micro Fulfillment Center Dark Store

Brick & Mortar Store

Handoff Pickup/Delivery

Use employees for all handoff options

Us e t h i r d to f u l f i p a r t i e s o rde r – l l t h e in a u to m ac l u d i n g t f a c i l i t i e e1d s

p latf o rm Co nt ra ct a n d b u y p ro v ide r a - sh e lf a n o ff - t h e ck te ch - sta

Self-delivered

Let a service like Instacart do all the work for you

Across the value chain, FULFILLMENT is by far the most complex piece to figure out. 1. Likely not feasible unless volume is large enough to justify. Source: Market analyses, AlixPartners expertise

INDEPENDENT GROCER’S GUIDE

ORDER FULFILLMENT OPTIONS

Complexity of fulfillment is directly impacted by the level of service you want to provide as well as the size of your digital business. Depending on your scale, the most effective way to fulfill online orders will shift. But consider starting with the options below. STORE SCALE Smaller retailers with limited e-commerce volume

Slightly larger retailers with moderate e-comm volume

Large retailers with significant e-commerce volume, specifically delivery

MOST EFFECTIVE WAY TO FULFILL ONLINE ORDERS •

Redirect any idle employees to pick & pack orders ~2x/day

•

Adds minimal cost since employees are already on the payroll, but limits scalability

•

With full staff and minimal slack time to pick & pack, scale fulfillment workforce through third-party labor

•

Provides ability to flex workforce on-demand, but added convenience and scalability increases labor costs.

•

Invest in a Micro Fulfillment Center or dark store for centralized fulfillment and staff with employees and third-party labor as needed

•

Can greatly reduce cost-toserve but requires a large CapEx investment

START HERE USE STORE EMPLOYEES

Source: Market analyses, AlixPartners expertise

HIRE THIRD-PARTY LABOR

USE A DARK STORE OR MICRO FULFILLMENT CENTER

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

Retailers can reduce fulfillment complexity and still satisfy over 75% of shoppers by offering only pickup options.

Capacity Considerations

STORAGE NEEDS

LOCATION

OTHER SUPPORT

In-store Pickup

Curbside Pickup

Home Delivery

Temp-controlled storage areas

In-store point where shoppers pick up their order

Parking lot section where shoppers wait to have their order loaded

Area to pass delivery orders to drivers (not needed when using third-parties that fulfill AND deliver)

In-store signage pointing to pickup area

Alert system that shoppers can use when they arrive

Dispatch/routing capabilities

Carts to roll orders out to shopper

Method for shoppers to report missing or incorrect items

Financial Considerations

COST-TO-SERVE AS % OF SALE (HANDOFF ONLY)

0.5%-1%

1% - 3%

6%-11%

EXPECTED % OF FUTURE E-COMM SALES

44%

32%

24%

All retailers should consider offering AT LEAST in-store pickup options. Shoppers prefer pickup and it has a much lower cost-to-serve. INDEPENDENT GROCER’S GUIDE

THE LOCAL GEM

Berkeley Bowl has two stores in Berkeley, CA. It utilizes a user-friendly website and mobile app for e-commerce and both employees and partners for back-end processes.

TECHNOLOGY

Shoppers order through a store-owned platform/app • Website has a simple interface and displays common searches • Berkeley Bowl app drives traffic to promoted items, gives visibility to key departments, and allows for detailed search by attribute

FULFILLMENT

• Uses employees for fulfillment of pickup and delivery orders placed directly through their platform • Promotes highly that orders are fulfilled by their employees, emphasizing personal touch

HANDOFF

• Delivery is $8.25 and Pickup is free • Employees manage pickup but delivery is outsourced to a third party • Shoppers can also order directly through DoorDash or Instacart

’s l w o B y e l e k r e B les b a n e y g o l o n tech t and n e m l l fi l u f r i e th lity i b i x e fl ff o d n ha

Shop in app by

key department

(e.g. Plant-Based Products, Asian Specialty Items)

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

CASE STUDY Learnings from

Berkeley Bowl is known for its produce selection, local/organic options, and Asian specialty items and has a loyal following in the Bay Area.

Promoted items

are easily accessible through menu at bottom of app

Intuitive search function

allows shopper to shop by dietary needs (e.g. Gluten Free Muffins, etc.) Source: Market analyses, AlixPartners expertise Retailer strategy observed in Spring 2022 - subject to change

INDEPENDENT GROCER’S GUIDE

THE CATEGORY SPECIALIST

With one store in Dallas, TX, Lucky Mouth Grocery manages the entire process themselves using their own platform and store employees for fulfillment and handoff.

Lucky Mouth Grocery specializes in vegan products and other foods for alternative diets

In-app shopping and cross-promotion

with local brands on Instagram

TECHNOLOGY

• Self-managed e-commerce platform • Large social media presence where they offer in-app shopping and promote local brands and events

Hiring efforts

for store employees who will act as sales associates and delivery drivers

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

E-COMMERCE

CASE STUDY Learnings from

FULFILLMENT

Employees pick and pack all orders submitted by 5pm for same-day delivery • Small store format allows for employees to use idle time to pick/pack

HANDOFF

• $25 minimum order size, $7 fee, or free on orders over $100 • Curbside pickup and delivery are exclusively completed by store employees • Deliveries completed after the store closes at 6pm

Lucky Mouth efficiently uses sales staff for fulfillment and deliveries

Source: Market analyses, AlixPartners expertise Retailer strategy observed in Spring 2022 - subject to change

INDEPENDENT GROCER’S GUIDE

TECHNOLOGY TRENDS TO WATCH Major technology trends are expected to impact the grocery industry as customers seek out enhanced shopping experiences. STORE

Predictive forecasting technology uses machine learning to analyze instore inventory and sales data

Cashier-less checkout technology uses cameras and sensors to track and charge customer purchases

OMNI-CHANNEL

Voice-ordering technology enables customers to say what they want and have items delivered to them directly

100

Search Engine Optimization (SEO) helps customers find desired products in their area faster

SHOPPER & MARKETING

ASSORTMENT

PRICING & PROMOTION

STORE EXPERIENCE

STORE OPERATIONS

Automation technologies (e.g., center store robots picking items) in warehouses and retail stores will allow retailers to provide better compensation and benefit to their workforce

The growing demand for grains and food necessitates high-yield farming techniques. Hydroponic products are thus sought after as a potential solution to food insecurity.

Omnichannel ordering (e.g., mobile, online, in-store, third-party, etc.) enhances customer experience

Metaverse e-commerce is expected to grow rapidly in the next decade, creating new pathways for grocery stores to increase revenue

E-COMMERCE

INDEPENDENT GROCER’S GUIDE

101

A FEW LAST WORDS... Feel free to pick and choose the information that is most helpful for your store from these chapters. Whether you’ve learned something new or found information that helped you refresh your knowledge, we hope that what you read helps you grow your business. We wish you success as you continue to provide a critical service to the community.

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