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Format experimentation likely, consultant says

The supermarket industry is likely to see a lot of experimentation in the next few years as retailers look for "the next big thing" to secure their financial success, an industry consultant said Tuesday during a webinar sponsored by BMO Harris Bank.

The "next big thing" could involve fresh formats, ethnic markets, neighborhood stores, smaller stores "or new services to increase productivity," according to Jim Hertel, managing partner at Willard Bishop, Barrington, Ill.


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Ecommerce will continue to grow, with retailers deciding on the best delivery model, he said, "and we'll see more marketing efforts and less dependence on CPG companies," Hertel added.

He said he also expects more consolidation at the regional and local level as third-generation grocers become less interested in keeping family businesses going; ecommerce growth of 10% to 15% over the next five to seven years; more emphasis on fresh, natural/organic and healthy formats; and more growth in extreme-value formats, with limited-assortment stores growing from 2,500 today to between 5,000 and 7,000 over the next five years, plus further growth among dollar stores.

Read more: 2014 prediction: Growth in small formats

Looking ahead, Kelly Bania, an equity analyst with BMO Capital, New York, said she expects food inflation to decelerate this year to between zero and 1%; ongoing industry consolidation, though at a slower rate than the record levels set in 2013; and ongoing competitive challenges from non-traditional channels.

The industry as a whole was reluctant to promote in 2013 following a difficult year in 2012 during which it over-promoted, Bania said, and she expects that reluctance to continue this year "as the industry faces increased volatility as food inflation and commodity prices trend down," she added.

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