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YOU GOT CHOCOLATE IN MY PEANUT BUTTER:

The Viability of Blurring Retail Categories

YOU GOT CHOCOLATE IN MY PEANUT BUTTER:

The Viability of Blurring Retail Categories Retailers today are enjoying an identity crisis and shoppers couldn’t be happier about it. Grocers are successfully selling tee shirts and takeout; c-stores are bringing regional organic produce and local wines to convenience; pharmacies are causing a buzz with in-house sushi bars and mani/pedi spas; quick serve restaurants are peddling kitchen gadgets and cookbooks alongside grab-and-go; and the big box guys are getting in on all of the above . Today’s shoppers continue to force retail’s evolution, caring less and less for what merchandise/service niche a retailer subscribes to so long as the value a retailer is offering appeals to their lifestyle needs.

“You’re beginning to see the blurring of the retail channels in America… We are deliberately blurring those channels.” -Gregory Wasson, CEO, Walgreen Co.

WOULD YOU LIKE LIPSTICK WITH THAT? It came up in an internal conversation at KRS, “Cross-categorization can only go so far. They’re never going to put drugs or lipstick in a restaurant.” That may (or may not) be true. Why or why not? It comes down to viability. Would a restaurant, with patrons ostensibly walking in the door for an immediate meal, be able to turn enough of a profit to justify stocking pharmacy items or a makeup counter? Probably not, but maybe. Where a few years ago retailers were simplifying

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YOU GOT CHOCOLATE IN MY PEANUT BUTTER:

The Viability of Blurring Retail Categories and homogenizing in an attempt to appeal to as many shoppers as possible, today there is a new focus on focus. Retailers are fine-tuning their offerings, often cross-merchandising across categories that were once mutually exclusive, in order to appeal to their desired shoppers’ focused lifestyle preferences. Where Burger King may never find it viable to cross-merchandise pharmaceuticals and beauty products, a homeopathic, raw foods restaurant, with its focused customer base to suit, just might.

MIDDLE OF THE ROAD LEADS TO NOWHERE Netherlands-based Rabobank Food and Agribusiness Research released a studyi in May 2013 the gist of which was that today’s consumers, fueled by a rocky economy, a willingness to indulge here and there, and endless, instant access to information on the products they’re purchasing, are increasingly polarizing purchases into two categories: value purchases and premium purchases, with middle ground players struggling to retain market share.

“The implications of this market trend are profound and touch on areas such as product offerings, distribution channels, marketing and brand management… Adapt or risk fading away.” This trend expands well beyond which type of peanut butter a consumer is purchasing to which type of retail establishments a consumer will ultimately connect with and thus return to again and again. Those retailers that have polarized their product and service offering to cater to a specific consumer-set’s lifestyle, even while often charging a premium, are trendsetters in the retail landscape.

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YOU GOT CHOCOLATE IN MY PEANUT BUTTER:

The Viability of Blurring Retail Categories

TRUST IS KEY TO HYBRID VIABILITY Consumers speak most clearly through their purchases. Retailers interested in crossing category boundaries in order to gain a larger market share with hybrid retail concepts should do so wisely and that means listening carefully to what customer transactions have to say about the types of products and services a shopper is likely to appreciate and ultimately buy. Trust isn’t built by patronizing your patrons in a transparent attempt to squeeze as many pennies out of them as possible. In other words, it’s not built by telling someone what they want without asking them what they care about first. In this age of permission-based advertising, retailer/consumer trust can only be built by taking a sincere interest in your target consumers’ interests and then thoughtfully, intentionally building content they will care about. Sincerity is a big part of this equation. That means focusing on delivering actual value, not just increasing bottom line. Because if what matters to the shopper really, truly matters to the retailer, then that retailer is going to, in turn, matter to the shopper. See? It’s all about trust and advocating for your shoppers’ interests. Online mega-retailers like Amazon have made it acceptable and even expected that a retailer will analyze and act on their customers’ purchases in order to better cater service. Amazon’s “Customers Who Viewed This Item Also Viewed” and “Customers Who Bought This Item Also Bought” features do this at an individual level that, coupled with reviews from fellow shoppers, have brought crowd-sourcing to online shopping in a way that feels organic and above-board.

WIN/WIN: CLICK AND MORTAR RETAILERS LIKE TARGET USE CONSUMER INSIGHTS TO EXPAND SALES WHILE AT THE SAME TIME MAKING ADVERTISING AND PROMO PIECES MORE RELEVANT TO THE SHOPPERS WHO RECEIVE THEM.

“Because of the data attached to her Guest ID number, Target knows how to trigger [the customer]’s habits. They know that if she receives a coupon via e-mail, it will most likely cue her to buy online. They know that if she receives an ad in the mail on Friday, she frequently uses it on a weekend trip … reward her with a printed receipt that entitles her to a free cup of Starbucks coffee, she’ll use it when she comes back again.” The New York Timesii

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YOU GOT CHOCOLATE IN MY PEANUT BUTTER:

The Viability of Blurring Retail Categories

A CONVENIENT PHARMA-GROCERiii When the goal becomes being all things to as many people as possible, it’s easy to see how traditional retail categories are becoming blurred. Today’s pharmacies have soda fountains and sushi bars (ie., Walgreens). Today’s big box stores sell produce and have pharmacies (ie., Target). Today’s convenience stores sell locally sourced gourmet sandwiches and organic wines alongside Skittles, Camel cigarettes, and gasoline (ie., Oregon’s Pacific Roads). And mega crossover kings like Fred Meyer are getting national attention for having all of the above, including fully stocked department store s, groceries, jewelers, and more in a single one-stop location.

NOT ALWAYS A SLAM DUNK While expanding across retail categories offers much appeal to retailers in the form of newfound revenue potential there is also a significant risk inherent in the choice to blur. By expanding its categorical footprint, a retailer also instantly increases the size and scope of its competition in the marketplace. Retailers looking to “go hybrid” need to be prepared to compete on multiple levels in their quest to capture the lifestyle segment that will ultimately make their unique form of retail establishment a success.

KING RETAIL SOLUTIONS KRS (www.kingrs.com) provides award-winning retail store design, manufacturing, distribution and installation services to local, national and global retail clients and has done so for over 45 years. In each of these service areas, we are recognized as industry leaders. For more information on how KRS can help you connect with your customer, make a lasting impression, boost brand image and drive sales, contact us today:

BUSINESS.RELATIONSHIPS@KINGRS.COM

800.533.2796

i

Rabobank: Rise of the ‘Hybrid Consumer’ polarize the food sector. Published 23 May 2013. http://rabobank-foodagribusiness-research.pressdoc.com/46800-rabobank-rise-of-the-hybrid-consumer-to-polarise-the-food-sector ii How Companies Learn Your Secrets by Charles Duhigg. Published 16 February 2012. http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=1&_r=2&hp iii Section previously published in The Incredible Shrinking Expansion. Published 17 December 2012. http://www.kingrs.com/news/filter/white-paper/the-incredible-shrinking-expansion

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The Viability of Blurring Retail Categories