US retail CEOs expect growth in near term, driven by wave of M&A

02 August 2018 Consulting.us

US consumer and retail industry CEOs expect their firms to grow over the next three years, driven by mergers and acquisitions, as well as strategic alliances. In order to compete and advance, retail firms are likely to ramp up tech spending – with acquisitions or alliances, for example – in order to strengthen and personalize the customer experience.

As part of its annual CEO Outlook, KPMG dug into the results from the US consumer and retail (C&R) industry. The consultancy found that most US chief executive officers (83%) in the C&R industry were very confident about the growth prospects of their firms over the next three years – almost thirty points higher than their global counterparts (54%). Retail CEOs expect mergers and acquisitions (M&A) and third-party alliances to drive company growth. CEOs also expect to bring in new digital technologies and to improve customer experience.

38% of US retail CEOS identified M&A as the top growth driver for their firms over the next three years, while ‘strategic alliances’ placed second with 23%. CEOs expect M&A to transform their business models faster than organic growth – while reducing costs, increasing market share, and bringing in new technology.

The report cautions however, that though CEOs in the retail industry are bullish on growth, actual increases over the next three years may be moderate. Retail sales declined for three straight months between December and February (the longest losing streak since 2015), before rebounding in March, April, May, and June. KMPG recommends effectively integrating the right tech – whether through M&A or alliances – while personalizing customer experiences in order to realize the highest growth.US retail CEOs expect growth in near term, driven by wave of M&A“The future of retail is more about the experience than the product or service,” remarked Mark Larson, national leader of KPMG's Consumer & Retail practice. “Powerful technological advancements and the surging of the experience economy are driving forces in the retail industry.”

Indeed, 94% US retail CEOs expect a significant return on investment from digital transformation and artificial intelligence in the next five years. A further 88% already report that the tech investments made in pursuit of customer experience personalization have delivered the expected growth benefits.

"Personalizing the shopping experience by leveraging technology, customer data, and insights is key to delivering an outstanding, individualized experience for consumers," said Julio Hernandez, leader of KPMG's Global Customer Center of Excellence and U.S. Customer Advisory Practice. "Retailers also have an opportunity to engage in conversations with consumers to learn how to better serve them. In others words, asking consumers directly how they would like to be engaged."

However, collecting the vast amounts of data and personal information needed for experience personalization exposes firms to higher levels of digital risk in the form of breaches and cyber attacks. “Managing cyber and technological risks, therefore, become paramount for retailers to transform to remain competitive, and importantly, to grow,” added Larson.

Though US retail CEOs overwhelmingly see tech disruption as an opportunity rather than a threat (98%), they concede that tech risks like cyber attacks could hinder top-line and long-term growth. Retail CEOs identified cyber security and disruptive technology as the greatest threats to their organizations’ growth (25% for both), with operational risk ranking third (21%).  As such 90% of US retail CEOs said protecting customer is a top priority in order for their firms to grow.

"Since the various risks in retail are heavily interconnected, rapidly evolving, and impact each retailer in a unique way, companies need to be creative in taking a balanced approach in managing risk and maintaining consumer trust, particularly as it relates to technology,” concluded Duleep Rodrigo, risk consulting industry leader, consumer & retail, KPMG.

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US grocery sector in store for further hard discounter expansion

01 April 2019 Consulting.us

Hard discounters offer customers bulk food at low prices in an unassuming shopping environment. German firms Aldi and Lidl have considerable clout in Europe, and in recent years have globally expanded their store footprints. Aldi is well-positioned in the US, garnering high-level support from consumers, while Lidl, which entered in 2017, has quickly built a strong reputation. As the rollout of the discounters continues, local brands face stiff competition.

Competition among supermarkets has heated up in recent years as consumers increasingly sought out discounters and moved away from hyperstores. German discounters Aldi and Lidl in particular have asserted their dominance across global markets with the former opening of hundreds of new stores and the latter entering the US market in 2017.

New analysis by Bain & Company analyzes how far the rise of discounters has affected grocers in the US market. The report, titled "How US Grocers Are Standing Up to Europe’s Hard Discounters," is based on a survey of 17,400 consumers, among other data sources.

Hard discounters NPS

To better understand the impact of hard discounters Aldi and Lidl on the US market, the firm’s recent survey of consumers asked respondents about their grocery shopping habits using the Net Promoter Score function. The Net Promoter Score measures how likely it is that a consumer will recommend a product, service, or brand to friends and family. 

In terms of the regular grocery shopping trip, hard discounters have managed to top the market at 43 points, with supermarkets around seven points behind. Mass merchants have the lowest score in the category at around 20 points. For big stock-ups, hard discounters, with their large bulk offering and appeal, score 60 points – well above that of warehouse clubs (45) and supermarkets (38). The analysis shows that even for quick trips for a couple of items, hard discounters top the score at around 10, compared to six for supermarkets and negative scores for warehouse clubs and mass merchants. The only category in which the hard discounter segment performs relatively poorly is buying prepared foods for today – at 25 compared to 50 for warehouse clubs and 35 for supermarkets.

Aldi customer advocacy

Aldi, which has been in the US market since 1976, has resonated strongly with consumers, coming in the top three for NPS for consumer advocacy. The company has managed to increase its position on last year by nine points, arriving at 55 – 15 points behind the leader. Aldi was noted in particular for its delivery of “best everyday low prices” and “best value for the money.” Lidl, a relative newcomer to the market, has a middle-of-the-road score.

Consumer advocacy is crucial to success within grocery

The success of discounters generating high consumer advocacy scores, according to the Bain, mean they are likely to show strong performance in the future, The firm notes that promoters purchase more than twice as frequently as detractors, with 70% of promoters shopping two times a month or more compared to detractors at 32%. The firm also found that the average monthly amount spent among promoters is almost three times as high as detractors, at $111 against $39. Promoters additionally tend to be more loyal to their chosen company, netting 28% of the total wallet compared to 11% for detractors.

“Lidl and Aldi are just beginning to flex their competitive muscles,” Mikey Vu, a partner with Bain & Company’s Retail Practice and a coauthor of the report, said. “What we’re seeing is that US grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”