Retailers focus on shopper convenience
What struck me from the Walmart and Target investor presentations in the past week was the focus on frictionless shopping trips. Target is expanding its capability to process drive-through returns (available by the end of the summer) and combine those drive-through trips with other transactions. The idea is that the customers can, for instance, both return an item and pick up milk from a pickup window at the same time while their children sleep in the back seat. Target is still working on including Starbucks orders as part of the drive-through transaction. According to the retailer, same-day services (pickup, drive up and delivery) increased 4% in the fourth quarter and now represent more than 10% of sales.
Meanwhile, Walmart is ramping up its Scan & Go program, allowing consumers to scan each item on their phones and then walk right out the door with payment processed automatically via the Walmart app. I’ve seen a similar concept from Amazon’s boutique in-person stores (I’m thinking of the one at Ogilvie train station in Chicago where you had to scan your Amazon app before entering the store), and I’m glad to hear that that concept has expanded more broadly.
With Walmart targeting such a broad cross section of the population, one might wonder whether Scan & Go will give rise to additional shrinkage. If walking out of a store without breaking stride at the register becomes normal, it might, but I also think that retailers have conceded that we have entered a period of higher lawlessness. At its analyst meeting Tuesday, Target’s management said it expects additional shrink in 2023 to be a financial headwind. Last year, the company started calling out unusually large shrinkage on its analyst calls and, apparently, the retailer expects that to continue.
Personally, I hate standing in lines and I love the convenience angle for a number of reasons. Both Walmart and Target want greater penetration with busy, higher-income consumers. Amazon, the (former?) king of convenience, taught us that consumers value convenience and its customer demographics overlap heavily with Target’s. And perhaps the best reason for the convenience focus is it makes shopping at Costco (my worst nightmare) seem even more inconvenient by comparison.
Bringing this back to CPG (this is supposed to be a CPG newsletter, not a retail newsletter, we have one of those here), as more convenience initiatives gain traction, that could reduce impulse purchases, such as those at checkout counters. (Selling sweets at checkout counters and end-of-aisle displays is now banned in the U.K.) Less time spent in stores also elevates the importance of strong digital and targeted marketing and promotion. I expect CPGs to make a big push into leveraging retail data (which could be enhanced after the pending completion of the Kroger-Albertsons deal) to target individual consumers based on their past shopping history.
Other takeaways from Target’s investor meeting:
- The company’s same-store sales outlook for 2023 ranges from a low-single-digit decline to a low-single-digit increase. That outlook is more cautious than Walmart’s expected U.S. comparable sales growth of 2%-2.5%, which I believe primarily reflects Walmart’s larger presence in grocery.
- Target expects an operating margin of 4%-5% this year and plans to hit 6% longer term. Last year at this time, not realizing how challenging 2022 would be, the company’s longer-term operating margin target was 8%.
- Supply chain and transportation costs should be lower this year compared to 2022.
Consider truckload capacity excesses when negotiating freight rates
I recommend an article, Truckload market has 25% too much capacity, published Sunday by Zach Strickland, FreightWaves’ head of market intelligence. There is no perfect way to measure that, but Zach offers an interesting way to estimate oversupply by comparing the latest volume of accepted tenders to the surge in September 2021. That appears to be a reasonable way to look at oversupply given that changes in capacity are reactionary and change little month to month and carrier exits are just now starting to outpace entrants.
Around the web:
Domestic sugar prices likely to stay elevated (Food Business News)
Mondelez poised to take a big slice of the Chinese sweet snack market (Confectionary News)
Why Reckitt’s corporate VC firm takes a ‘swords and shields’ approach to investing (Glossy)
Beyond Meat’s lean inventory is key, CFO says (Retail Dive)
What latest BMO numbers tell us about trucking health: Weakening but not rapidly (FreightWaves)
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