A trend that has emerged is demand for "curated" products and unique instore experiences.
How do grocery retailers decide what to stock?

It’s a question that has been challenging and often baffling retailers ever since the  first grocery opened its doors. And in a hypercompetitive market with razor-thin margins, coming up with the right answer can be the difference between success and bankruptcy.

In the 21st century marketplace, the question has become even tougher. With the digital shopping revolution, retailers now face new versions of the old question: How do I decide what to sell online and what to sell brick-and-mortar? How can I make sure that the stories behind the products I do decide to sell get conveyed to a demanding, information-hungry customer base?

Many grocers are experimenting with smaller-format stores to lure digital-minded shoppers back with unique instore experiences. How does less square footage affect their stocking decisions?

One trend that has emerged out of this new world is demand for “curated” products —items that have been carefully selected with not only quality and flavor in mind but also things like healthfulness, social responsibility and a clear connection to the people that made them.

They’re products with stories. And consumers want retailers who know how to tell those stories.

Hunting for value

Bill Bishop, chief architect and co-founder of Barrington, Illinois-based consultancy Brick Meets Click, says the first question a manager has to make about what to stock is: What is the retailer’s “value proposition.” A store catering to an upscale customer base will think differently about what SKUs it displays than one whose customers are primarily discount-minded.  

Next, a store considers what capabilities it has to tailor just the right product for the target audience determined in the “value proposition” stage. “Those two filters can really help you” figure out what selection of products will work for your particular store, Bishop says.

While it’s true that a certain amount of product selection is determined by how much suppliers are willing to pay for the privilege (“Why is this cracker sold in the instore deli and that one in the snack aisle?”), that method often doesn’t pass the proposition/capability test, Bishop says. “Unfortunately,  it often means the store is promoting a product that doesn’t really meet those criteria.”

Interdepartmental pressures also can affect the effectiveness of product placement. For instance, Bishop says, there are times when it makes sense for an instore deli to market rolls alongside prepared foods or other meal items. But if those roll sales go to the bakery, how much incentive is there for deli to sell them? A lot, he says, can depend on “how retailers account for what’s being sold.”

San Francisco-based retailer Bi-Rite Market, whose family of businesses also includes a commissary, a creamery, a cooking school and a farm, also relies on “a series of filters” to decide what items to stock instore, says Jason Rose, the company’s culinary director.

 “Sales and seasonality are two of the most important determining factors,” Rose says. “At Bi-Rite, we cook hyper-seasonally, which ends up driving much of the influence of the menu. Then there’s sales —if our guests love something, they will let us know through buying it.”

Bi-Rite studies item movement on both a daily and weekly basis to determine what’s moving and what’s not. And Rose takes great pains not to cannibalize similar house-made categories by creating items that are too similar across categories.

For example, Bi-Rite offers a kale salad in the chef’s case and a kale salad in its grab-and-go case, but they’re vastly different flavors, Rose says —both profile- and texture-wise.

Neil Stern, a consultant with Chicago-based McMillan Doolittle, says he’d like to be able to say that retailers based their product selection on category management or “rich analysis” of consumer trends. Unfortunately, the decision-making process often lacks that level of rigor.

“Too often, it’s driven by what a vendor brings to them or by seeing an item at a competitor and copying,” he says. “Better data on consumer trends, basket analysis and item movement is helping to drive better decisions.”

Brian Numainville, a principal with Lake Success, New York-based Retail Feedback Group, draws on the Food Marketing Institute’s “2018 Power of Foodservice at Retail” report in citing three strategies for retailers to consider when they make their stocking decisions.

The first strategy, Numainville says, focuses on “perfecting the basics” —blending the need for mainstream, premium and value options as a way to replace restaurant meals while also considering items needed for those who want a convenient way to cook from scratch or make snacks.

Another strategy — “balancing performance” —centers on providing shoppers with choices by cross-promoting items that go together. That often results  in mixing items that are already made with items that engage the shopper in assembling the meal.

Thirdly, “building incrementally” revolves around developing a range of offerings that cover many of the different bases of shopper types in a given market. Some shoppers, for instance, Numainville says, are convenience-oriented. Others are nutrition-focused, others want to stay up with the latest trends, etc.  

“All of these strategies can be considered in determining what instore deli and prepared departments carry,” Numainville says.  

Digital, brick-and-mortar…or both?

The advent of online shopping and retailers scampering to keep up with Amazon and other e-commerce specialists has had a profound impact on how instore and other retail grocery departments are stocked.

“Freshness and integrity of the product” play a big role in how Bi-Rite determines what gets sold instore and online or instore only, Rose says.  In prepared foods, sandwiches are a prime example. “We offer our cold sandwiches for online sales, but not our hot sandwiches,” Rose says. “The hot sandwiches are meant to be made and enjoyed immediately.”

The analytical possibilities offered by online can be profound. Bi-Rite, Rose says, tracks its online sales extremely closely to see what’s trending and why it’s trending.

Typically, retailers who offer products online will offer those same products in their physical stores, Bishop says. “Moving online has the benefit of expanding sales because now you have access to people at a distance, too,” he says.

For instore delis and bakeries, the advantages of going online can be even more acute, Bishop says. Retailers, for instance, who carry signature items can find a relatively easy way to expand their market shares. “Take Dorothy Lane Market’s Killer Brownies,” Bishop says, citing the instore bakery star of the Dayton, Ohio-based retail chain. “They probably sell more online than they do in their stores.”

Online offers a great opportunity for retailers to extend their assortment without adding duplicative or slow-moving inventory instore, says Stern, who refers to online as “the endless aisle.”

“Although we’re in the early stages of managing these activities, it allows for more efficiency instore and better service to the consumer,” he says.

You can’t assume, Bishop says, that people will shop differently online than they do in the store. Many consumers buy the same things online as they do when they take the time to visit an actual store.

That said, there are certainly opportunities for retailers to capitalize on the instore experience even in the digital age. In some brick-and-mortar produce departments, for example, you might see a display of 12 different peppers, artfully displayed and popping with multiple colors.

You’re not going to find that same variety of peppers on the retailer’s website, Bishop says, and you’re certainly not going to create an “experience” —that elusive quality so prized by millennials and others —on your website to match the multi-sensory visit to the instore produce department.

“There are some interesting opportunities to create destination categories” in brick-and-mortar, Bishop says.

In some ways, Numainville says, having an online sales platform can make product decisions in retail foodservice easier. Retailers, for instance, can steer shoppers towards items that go together, using technology to build a meal.  

On the other hand, he says, depending on the delivery or pickup service offered, some items —hot prepared foods, for example — may be harder to sell online.

“Experimentation and monitoring product movement, both online and instore, will provide learnings that will inform the selection offered in both environments,” Numainville says.

|||READ MORE: Small footprint, curated selection|||

With space a premium at Bi-Rite Market and many other stores like it, all SKUs must be top performers.
Small footprint, curated selection

Many U.S. retail giants are rolling out smaller-footprint stores to compete for the dollars of the urban millennial who’s looking for a more intimate, personal shopping experience and a curated selection of items chosen by someone who shares their interests and values.

Small-footprint is all Bi-Rite has ever known, making it something of an authority on curating. “My mantra is this: given how space is at such a premium on our markets, every SKU needs to be a top performer,” Rose says. “If it’s not, it goes.”

Sometimes, there are tough calls to make, Rose says. But making them in a timely, efficient manner is critical to running a healthy business. “Over the years, I’ve placed sales performance minimums on most sub-categories as a way to trigger the replacement, or expansion, of a certain category.”

Smaller footprint stores require much greater precision on the part of retailers, Stern says. As a result, curation becomes key.

“A retailer needs to decide what is core —what can be found in any store —and what needs to be localized or optional in a small store,” he says.

Fortunately, Stern says, “curated” is not a tough concept to sell to most consumers, and it can strengthen the retailer-shopper bond.

“Customers actually appreciate more curated choice and sometimes stop buying when overloaded with choice,” he says. “Telling customers that we've selected the very best is really the core of what a retailer needs to do —work on behalf of customers to simplify their choices.”

With a smaller number of items, it’s easier for product to stand out, Bishop says. And the opportunities for highlighting many of those items as premium can have a big impact on retailers’ bottom lines.

In recent discussions with Aldi officials, for instance, Bishop learned that a premium nutrient-dense bread the retailer sells for about $4.25 a loaf —high by a discounter’s standards —is one of the fastest-growing items at Aldi, whose stores are typically in the 12,000-15,000-square-foot range. Aldi also is doing “a real nice job” moving par-baked bread sold in its instore bakeries, he says.

But smaller stores can also create a new set of challenges for retailers, Bishop says. “With small-footprint stores, curation really needs to focus on products that stand out enough so you can sell sufficient volumes to justify sales.”

Telling stories

Successful curation, Bishop says, often comes down to successful storytelling. And there are two types of stories retailers can tell.

The first is a story about themselves. Trader Joe’s excels at this, Bishop says. “Trader Joe’s story is that it looks all over the world for this mango juice or that olive oil.” The second story is about individual products —where were they grown, how were they made, what do the companies behind them believe? Either kind of story, told well, can have a “huge amount of upside” for retailers looking to differentiate themselves from the crowd, he says.

For Bi-Rite, those stories belong to the producers, farmers, ranchers and artisans that make the cut supplying the chain’s stores, Rose says —"telling their stories and sampling their beautiful products.” Rose often takes what the calls the “record store approach” to marketing curated product: letting consumers know what the Bi-Rite staff’s favorites are.

“It showcases the passion of your staff along with the amazing stories of the producers,” he says.

Smaller footprint stores definitely challenge retailers to be as precise as possible in determining which items to carry, Numainville says. But they also can create exciting new opportunities for stores that are bullish on their instore deli, bakery and prepared foods departments.

“If a retailer is more heavily focused on more fresh and prepared foods, they may allocate more space in a smaller footprint store, thus giving these departments much more of a ‘front and center’ visibility,” Numainville says. “But in either case, carrying the products in-demand by shoppers of the store format is key given limited space in a smaller store.”

New modes of education

Telling the story about a curated product at retail can hinge on how much a consumer can learn about it before she pulls the trigger on the sale. The traditional delivery route for that information is through a well-trained, knowledgeable member of the instore deli or bakery or other department.

But in an age of low unemployment and other hurdles to hiring quality workers, Bishop believes the answer to the education question lies with technology more than with people.

Augmented reality is one tool that is  low-cost and could be put to incredibly good use in curated grocery instore delis and bakeries, Bishop says. Augmented reality, or AR, is an interactive experience of a real-world environment where the real-world objects are augmented by computer-generated images, sounds or other content.

In the context of grocery shopping, consumers would hold their phone camera up as they walked through a department and be given augmented information about individual items, with technology filling in the educational role of the knowledgeable (and relatively high-cost) human clerk. “Augmented reality is coming down the pike, and millennials in particular really find it attractive,” Bishop says.

Digital signage and what Bishop calls “hyper-directive sound” —audio that can be focused on a very small space, with shoppers in a nearby space unable to hear it at all —are other technological tools that will make the retail curator’s job easier in coming years.

Provided that a retailer has done the research to accurately assess their shopper base, Numainville says that providing a curated shopping experience can be used in marketing to really tell the shopper that a particular store and its unique set of products have been especially prepared with her or his needs in mind.  

“Part of this is the storytelling that must accompany the curated product —where did the ingredients come from, why are they unique, are they from local sources. All of these elements are part of an effective curated shopping experience,” Numainville says. “And although the execution will differ online versus instore, both allow the retailer to effectively tell the story of the product.” 

Being a good curator can make all the difference in today’s hyper-competitive, ever-changing marketplace, Rose says. “I find it’s what’s triggered so many of the wonderful community relationships we have,” he says. “Whether it’s your guest who’s searching for an affordable grass-fed cut of beef, or someone who’s headed to a party and is looking for that perfect something, our smaller footprint coupled with our dedication to hospitality has enabled us to thrive.”