Insights

How Polarization and Digital are Disrupting the U.S. Retail Landscape
Article

How Polarization and Digital are Disrupting the U.S. Retail Landscape

Pinpointing the exact cause or source of large-scale change is never easy. In the case of the U.S. fast-moving consumer goods (FMCG) sector, this year’s wide-sweeping shifts can be tied to several causes. While several economic factors resulted in a retail contraction of nearly $3 billion in the first-quarter of 2017 (compared to first-quarter 2016), shifting consumption patterns are ultimately to blame for much of what we’re seeing across the retail space on a more holistic basis.

In fact, much of this disruption is due to shifting consumer shopping behaviors—from how they shop across different retail channels, between departments and categories across the store, to how they shop differently for brands. This disruption has left manufacturers and retailers struggling to adapt; but in order to keep up, they must first understand where dollars are being spent and how to tap into changing shopping habits in order to drive growth.

We saw brick-and-mortar FMCG dollars rebound in the second quarter, with sales rising 0.6% quarter-over-quarter. Volume sales, though still in decline, did improve as well. This growth indicates that consumers’ dollars haven’t vanished from the store completely, though we expect slowed growth in the long term.

And shifts aren’t limited to one single retail channel; the core retail channels (food, drug and mass merchandisers) that FMCG manufacturers have relied on to attract consumers are all experiencing declining sales, while channels like convenience stores and value grocers (warehouse clubs, dollar stores and supercenters), as well as new emerging channels, are attracting higher foot traffic and growth.

While brick-and-mortar retail posted relatively flat growth in the first-half of 2017, e-commerce has a different story to tell. Despite representing around 8% of total FMCG sales (including meal kits and grocery delivery services), online FMCG sales adds nearly a point-and-a-half of topline growth. This may seem small, but it equates to more than $700 million. And at less than 10% share of total FMCG dollars, it’s already having a sizable impact on growth—and at a very early stage.

The Polarization of the Retail Landscape

The automation behind digital retail is changing how consumers shop. Across channels, particularly online, consumers are buying less each time they shop. This shift is even more concentrated in pure-play online retailers, where consumers aren’t looking to fill their baskets. Rather, their primary goal is to simply get what they want quickly and without any friction.

On the other end of the spectrum, drug stores and premiere fresh grocers are building baskets by aligning with consumers’ focus on health and wellness and premium pricing.

Digital Disruption Beyond the Grocery Aisles

It’s important to note that these seismic shifts aren’t just affecting the FMCG retail arena; foodservice is experiencing the same digital disruption as the grocery landscape. In the grocery space, retailers are responding to out-of-home shifts by boosting their in-store meal kits, offering more deli prepared items and bridging the gap between in-store and digital through curbside pick-up and click-and-collect services. On the foodservice side, mobile app delivery services that keep foot traffic out of restaurants’ doors are disrupting restaurant performance.

Regardless of channel, digital platforms and automation have enabled consumers to purchase and consume food differently than a decade ago, which has significantly disrupted the way that manufacturers and retailers need to operate. From an FMCG perspective, manufacturers and retailers need to stay closely aligned to these shifting dynamics in order to continue finding pockets of growth in both the short and long term.