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Food assortments migrating to extremes

“Barbell” strikes at traditional strength

Consumers are migrating toward retailers whose assortments are either sharply streamlined or unusually deep, gutting a traditional strength of food retailers who competed on their range.

In a presentation Tuesday, Katherine Black, a principal at KMPG in New York, said the emergence of “barbell” assortments is illustrated by limited assortment discounters like Aldi and Lidl on one side and by Amazon’s “endless aisle” on the other.

Mainstream grocers competing on range will increasingly find themselves abandoned in the middle, Black predicted.

“Mainstream grocers have competed adequately on price and promotions, but they’ve won on range,” she said. “If you suddenly have a consumer who tends to migrate more to these extremes, that takes out the strength of the traditional grocer. That’s going to have a big impact, so they will need to think about their assortment in a completely different way than they do today.”

Black said she expects the “endless aisle” will gain strength as Amazon exerts influence on its newly acquired food retailing business, Whole Foods. Lidl and Aldi in the meantime are rapidly expanding and their mere presence will also influence how people shop, Black said.

“If you have a chain based on having a big basket or if you’re a CPG that trades on being in a big basket and bring a halo to the retailer, you’ll see an impact,” she said. “Almost as a rule of economics you’ll see that start to dissipate.”

The presentation accompanied results of a KPMG survey of retail and consumer goods CEOs released Tuesday suggesting that they remained confident in their growth outlooks, but acknowledged a need to transform their business to appeal to technology-enabled shoppers.

An overwhelming majority (95%) are confident about the growth outlook for the global economy, the industry and their companies over the next three years, despite potential technological risks. The survey included 41 U.S. and 134 global consumer goods and retail CEOs on topics including growth, corporate strategy, disruption and risk.

“While CEOs are optimistic, they recognize the need to continue to transform their businesses to build stronger relationships in this era of the ‘connected customer,’” Mark Larson, KMPG’s consumer & retail business leader, said. “Technology, as the key enabler to delivering the right customer experience, will play a huge role in determining which companies will thrive and which ones will fall into obscurity.”

Sixty-eight percent of U.S. CEOs are concerned that they are not leveraging digital means to connect with their customers as effectively as possible – well above the 33% of their global peers who felt similarly. Two-thirds of the U.S. CEOs agree that technological innovation is likely to disrupt the sector in the next three years, weakening or eliminating some traditional players. To address these concerns, U.S. CEOs say they will invest heavily in physical and digital infrastructure. One thing is clear, customers are central to the strategies U.S. CEOs are prioritizing for their businesses with digitization through technology transformation, greater speed-to-market and stronger marketing, branding and communications topping their agendas.

“Achieving growth is an urgent issue for companies as increased competition from new entrants disrupts the market and erodes share for traditional players,” added John MacIntosh, national sector leader, consumer goods. “Investments in technology and digital to establish better relationships with customers will go a long way in getting CEOs to see top-line growth for their organizations.”

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