By Fernando Salido, IRI

Posted 8/7/2019

Since 2015, 57 major U.S. retail firms have filed for bankruptcy, significantly altering the retail landscape.  Yet, would today’s omnichannel shopper really notice? Consumers continue to disrupt the marketplace as they increasingly prefer seamless omnichannel shopping experiences over brick-and-mortar-only ones. Digital ordering, supported by many fulfillment options, is undoubtedly the fastest-growing way in which shoppers buy products. Today, e-commerce sales already account for 11 percent of total CPG sales and 64 percent of total CPG US market growth. These trends are leading to unprecedented opportunities for both retailers and manufacturers, particularly for those who can leverage the principles of retail gravitation and consumer physics in their favor.

Understanding Retail Gravitation

In the recent past, shoppers were lured to stores based on their retail gravitation—driven by the same universal laws of physics that attract objects to each another, i.e. mass and distance. Historically, stores with greater “mass” or “attraction” held greater “pull” on consumers, exerting more “force” (or influence) on nearby shoppers, such as local neighborhoods. Most of the retail landscape and related site-selection strategy was built on the long-standing predictability of retail gravitation’s influence on market share. If you built the store nearby or built it big, even if the store was a little further away, shoppers still came.  The greater the attractiveness of the store (cool-looking, inexpensive items) and/or size (mass) of the store, the more pull it had on shoppers nearby and further away, and typically gained greater market share than other surrounding store types. But retail dynamics have significantly changed over the past five years, with the laws of physics still fully at play.

New Forces Impacting Retail Gravitation

By virtually eliminating “distance” from the equation, e-commerce and digital sales are disrupting the traditional retail gravitational pull. Categories that were once solely available in store are now migrating online. Physical distances to buy virtually anything no longer matter, as browsing and buying are as close as one’s fingertips. Fulfilment has become just as easy, whether it’s home delivery or pickup. One of the main growth drivers of online shopping has been free and fast shipping, which has become as integral to the digital shopping experience as oxygen is to breathing. Shopping convenience is now king. 

Also, the growth in eating away from home is significantly affecting traditional retail gravitation models. Today, more than 50 cents of every dollar spent on food is now spent on eating away from home. In fact, food-away-from-home sales have been growing at double the rate (+5.5% / year) of food-at-home sales (+2.8% / year) for the past 10 years. This should come as no surprise, considering that we now have one restaurant for every 500 people in the U.S.

Traditional grocers have been most affected by the food-away-from-home trend, as the channel now captures only 28 cents of every dollar spent on food. And virtually all channels sell food today, from drug stores to department stores. There are 17 times as many restaurants as there are grocery stores. And the trend is expected to continue, as younger generations’ preference for freshly prepared or almost-prepared foods increasingly influence retail gravitational forces.

Many retailers are responding in kind with investments in prepared foods and services, increasingly blurring boundaries with restaurants, from the Kroger Kitchen in Cincinnati to HEB True Texas in Houston. Traditional deli department category sales have slowed, but prepared foods and meal kits are on the rise. We can certainly expect to see the fight for share of stomach to escalate over the coming years. 

Finally, the proliferation of small-format stores is at an all-time high, leveraging their shorter distances and increased attractiveness (and omnichannel offers) with today’s shoppers. In fact, small-format stores are growing at 10X the rate of U.S. population growth. Forty percent of U.S. households (many highly sought after) now live in dense urban areas, allowing the rise of small-format stores. In the last three years alone, small-format store count grew +14% compared to all store counts, which grew stores just +0.7% over the same timeframe. Many small stores are invariably attracting shoppers, like planets attract moons into their gravitational pull. Mega stores are adopting small formats too, such as Ikea, Target and Nordstrom. These new small-format stores are leveraging the retail gravity equation model by decreasing “distance” to the customer but retaining their traditional attraction as larger stores.

To Win Today’s Consumer, Follow the Laws of Physics

While there are many ways to stand out in a fragmented marketplace, there are four laws of physics you can consider to win more customers:

1. Reduce the distance to the customer. As the new arms race in retail is convenience, consider how you can make the lives of your customers easier today—being there when, where and how they want to shop, and how they want their orders fulfilled.
2. Increase mass/attractiveness of your stores and brands. By improving the actual “wow factor” of digital and physical stores (store experience) and adding better customer solutions, retailers can increase their attractiveness and sales growth. Many retailers can already attest to improved store experiences with higher customer net promoter scores and greater sales growth. 
3. Eliminate friction/barriers to buying. Over time, advancements in technology will further simplify and personalize the buying process for consumers, including artificial intelligence, predictive machine learning, 5G speeds, voice technology, virtual reality, mobile commerce and scan and go--making the buying process more intuitive, immersive, customized and/or convenient as the customer wishes. But what about right now? Fix the basic areas of friction, from out-of-stocks to customer service.
4. Use momentum to increase sales.As the world changes around us, leverage global trends in your favor to increase gravitational pull to your stores. Look at the increasing need of Gen Z and millennial shoppers for greater product sustainability and transparency, the rise of health and wellness needs across all shopper segments, the addition of new flavors and foods reflecting the increasing diversity of growing populations, the highly personalized digital and physical pathways consumers take to complete their own “buy moments”, and the role that retailers will play as consumers adopt new technologies to shop, from 5G to mobile payments. 

When retailers successfully leverage the laws of physics, they not only increase customer loyalty, but also enterprise value in the long run. Fifty-seven U.S. retailers were not so fortunate.

What is your retail gravitation model?

For e-commerce and other shopper insights, reach out to your IRI representative or email IRI@IRIworldwide.com, and read about our consumer and shopper solutions.