KANTAR RETAIL PREDICTIONS Changing What Matters€¦ · Our 2016 U.S. and global retail marketplace predictions The General Session content from our 2015 Year End Forum in the U.S

The Retail and Shopper Specialists

K A N T A R R E T A I L P R E D I C T I O N S

Changing What MattersKantar Retail's view of 2016 and beyond


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ForewordThis document is an overview of our view of the world of 2016, and the most important ways in which we see the retailer/supplier ecosystem changing over the next 10 months. The title “Changing What Matters” reflects how broad we think this transition is. We detail trends that have been unfolding for some time and where the work may feel more like an incremental continuation than a reinvention. Simultaneously, other trends will eventually have an impact much greater than it may appear from the perspective of 2016.

For those changes, the famous Bill Gates quote that “we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10” is a useful one to keep in mind. Most of you reading this document work for big companies where change is slow and difficult. If the world is truly going to shift foundationally over the next 10 years, the one thing you know is that you had better get working on it today. What matters to your shoppers, trading partners, and shareholders/owners is shifting; the work required to win won’t just be faster and cheaper, but harder and different.

That notion of “harder” frames the two main sections of this report. In section one, we look at what we call a “smaller, harder

world” through three lenses – markets, shoppers, and retailers. In section two, we break out the work required to win in this “smaller, harder world” into winning stores, winning shoppers, and winning plans.

A Smaller, Harder World – Markets, Shoppers, and Retailers

Markets: The harder part starts with assessing growth prospects by country. Fewer markets appear primed for faster-than-market growth, and the ones that are form unusual clusters that most companies are not well-aligned to leverage. With most companies geared to use the U.S./Europe to generate cash, for BRIC growth that alignment gets challenged as the U.S. grows and the BRIC

countries slow. We focus the growth lens on markets being powered by rising incomes and younger shoppers and impacted less negatively by low oil prices.

Our key takeaway is that to find growth around the world, retailers and suppliers will need smarter, more targeted, and more efficient go-to-market strategies so they can outgrow the global marketplace overall. Specifically, 2016 will be a year in which many companies revisit their new market expansion strategies – many of which date back to a simpler world.

SmallerWorld


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Shoppers: Polarization continues to be the core theme. Income, age, ethnicity, and technological sophistication continue to be the “four horsemen” of the nonhomogeneous world. More granular understanding of these shopper dynamics will become increasingly critical to reaching these shoppers on crowded screens and in crowded urban environments; precision will be a critical competency. In particular, we explore the ideas of demand-chain transparency and demand-chain productivity, and explain why they will be so critical to reaching this polarized shopper landscape. Most major suppliers will undertake initiatives to rigorously evaluate how they spend money to create demand and to bring more focus and discipline to this process globally.

Retailers: Kantar Retail’s regular publications (available to subscribers) detail our predictions for individual major retailers and channels. We think six overarching themes are most important to focus on for the world’s major retailers. Of the six, the obvious one is that most successful retailers will continue to step change their eCommerce capabilities in 2016. We also forecast that most of the world’s winning formats will be stores smaller than the median store size in their market of operation.

The next two highlight the retailer’s existing stores. We forecast retailers trying to make their stores more local and (especially large stores) expanding their footprints

into new competencies/service areas. Food service, banking, and healthcare are the three most tangible and pronounced examples.

Major retailers will operate differently as well. They will continue to aggregate scale faster and in new ways in 2016, forcing suppliers to work even harder to make their investments at retail pay out. At the same time, the best global retailers will become among the world’s best analytics companies, using data and modeling capabilities to transform their businesses.

Winning in the Smaller, Harder World

Winning stores – ADDRESS success: We see the winning strategies for both physical and virtual stores having seven key attributes to navigate the opportunities outlined earlier:

�� Assorted optimally

�� Delivery platform

�� Discounted intelligently

�� Regionally appropriate

�� eCommerce-enabled

�� Small

�� Specifically targeted and designed

Winning shoppers – reach ACROSS platforms: Here, our predictions take a forked path. We think the questions retailers and suppliers will need to ask about their relationship with their best shoppers will revolve around four foundational questions:


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�� How: The big idea here will be companies using addressable, behavioral, and contextual marketing as their new A-B-Cs of success.

�� What: The mainstreaming of fresh/local/organic/natural/healthy (FLONH) and the flight from stuff to experiences and services will be critical change drivers.

�� Why: Great companies will blend correlation and cause into great strategy.

�� Where: “The negative one moment of truth” will change the way you think about activation, shopper marketing, and branding.

The winning answers will be suppliers that can reach ACROSS platforms to win shoppers wherever they are. These six ideas will be the keys to success:

�� Audience definition, activation, and measurement

�� Contextual category management

�� Redefined category strategies

�� Outlet selection understanding

�� Strategic shopper insights

�� Shopper path to purchase

Winning plans are FLATTER: The attributes of winning plans go in two directions:

�� Meaningfully more “shallow”: These plans feature more visibility into key variables. These metrics will be on a dashboard, not buried in piles of spreadsheets and impenetrable PowerPoints.

�� Meaningfully more “broad”: The plans will also look at more reach platforms and functions to ensure success.

The plans that win will tackle these seven strategic platforms:

�� Free cash flow

�� Leverage vs. learning

�� Amazon/Alibaba-ready

�� Total market views

�� Total business views

�� eCommerce-enabled

�� Role definition – reach, resonance, and returns

Please reach out to me if you have questions, and check out the documents on which this summary was based. Have a great 2016!

Bryan Gildenberg Chief Knowledge Officer

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Over the past several months, Kantar Retail has published a number of forward-looking pieces of thought leadership that offer perspective on where we think the retailer and supplier landscape is headed:

�� Our U.S. and U.K. PoweRanking® studies that evaluate best-in-class retailers and suppliers and their strategies

�� Our U.S. and China Digital Power studies

�� Our 2016 U.S. and global retail marketplace predictions

�� The General Session content from our 2015 Year End Forum in the U.S. as well as select breakout sessions from that event, such as CPG 2025

�� Our 2016 U.S. Trade Promotion Industry Study1

From these, I would like to elevate the most important global trends we think are most significant for framing the work that best-in-class retailers and suppliers will need to do in 2016 to prepare for the changing future. Those trends fit in two primary buckets – a smaller, harder environment and the actual work needed to leverage that smaller, harder world for growth.

One important thought: “Smaller” does not mean that companies should have smaller aspirations, smaller goals, or smaller objectives. Big, important work can and should be done. It’s just that this big, important work will be made up of more smaller, good ideas that add up to big, transformational strategies.

A Smaller, Harder World, Part 1: The Global Growth MapIn our U.S. and global previews of the year ahead, we summarized the growth prospects for a number of key markets around the world. An executive summary of these markets reveals one simple fact: There are very few easy growth geographies in the world. Even the markets that are driving growth are driving it from challenging places. Here are some quick highlights:

Changing What MattersKantar Retail’s view of 2016 and beyond

1 For links to these reports and other resources referenced in this Executive Summary, see the Appendix on page 21.

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U.S. We base our U.S. forecasts on the most reliable underlying drivers of retail sales and consumption, which are related to jobs and income. Our employment forecast remains strong, so we expect a tighter labor market and upward pressure on incomes in 2016.

That upward pressure will have two mitigating factors that create smaller, harder growth pockets:

1. We expect U.S. economic growth to vary significantly by region.

2. A structural employment gap will remain between higher-income Americans (with a 2.5% projected unemployment rate) and lower-income Americans (whose unemployment rate will be more than double).

The key takeaway is that the U.S. will remain a market requiring more specific targeting to find growth and more targeted solutions to bridge this significant and structural income gap.

ChinaNo market in the world is simultaneously more globally important and self-contained than China. The Chinese economy will unquestionably grow slower in 2016 than it has in years past. However, retail sales as a percentage of GDP continue to rise, so the effect of the overall economic slowdown on retail may be less pronounced than the media would have us believe.

Chinese eCommerce will continue to be the largest and most poorly understood retail channel in the world in 2016, yet it is one of the world’s few big pockets of visible and identifiable growth.

Our key prediction is that 2016 is the year strategy becomes more important than spending in China. The growth environment will require channel management, shopper marketing/targeting, and much more strategic route-to-market work. The goal of this work will be to turn medium-sized, small-profit businesses into businesses that contribute significantly to a multinational’s return on capital. Our China PoweRanking® and China Digital Power Study provide great insights into the strategies we think are most critical to driving growth in China – and

reinforce the notion that Chinese retailers are increasingly interested in suppliers coming to them with clearer business strategies.

Our global preview looks at other global markets in more detail. Typically, markets are grouped as “developed,” “developing,” or “emerging.” We might propose a different view:

�� Sluggish scale: These are large markets struggling to grow. Western Europe, Northern Europe, and Japan are in this boat.

�� Stalled emergents: These are markets where we are forecasting markedly lower growth than they have shown historically. Brazil, Russia, Poland, South Africa, and Turkey are in this category, though we anticipate Turkey will have a softer landing than the other markets.

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�� Oil slicks: Historically low oil prices impact these markets. Saudi Arabia, Kuwait, the UAE, Iran, Canada, Nigeria, and Russia are in this segment. For 2016, it appears the factors driving oil’s global supply and demand will continue to mean a global oversupply of oil. Obviously, if we could reliably forecast the price of oil, we would be in a different line of work, but two fundamental things to watch from our perspective are:

1. U.S. productive capacity as the oil industry comes under financial pressure: Lower oil prices are causing stock market volatility in 2016. Lower prices are a harbinger of a global slowdown. The deep concern is that an oil investment bubble will hurt oil companies and financial institutions alike if it bursts. The primary driver of this is the U.S. oil industry. Simply put, much of the oil the U.S. produces is unprofitable with oil prices below USD40 a barrel. This pressure will almost certainly cause some U.S. oil producers to stop producing (either by choice or through bankruptcy), which could limit the global oil supply.

2. Saudi Arabia: One of the primary drivers of USD30 per barrel oil has been Saudi Arabia’s willingness to tolerate it. Saudi Arabia is the one oil producer in the world with “flexible production.” It can make money even when oil prices are very low, meaning it can keep producing (relatively comfortably) at USD30 a barrel and also control a high percentage of the world’s marginal oil capacity. In December 2015, my colleague

Sara Al-Tukhaim and I did a Kantar Retail Sound Bites podcast on the Middle East. Sara is very good at reminding me that the local drivers of Saudi behavior are often more significant

than global ones. In this case, the Saudis seem comfortable with lower oil prices because they are comfortable with the notion that investment in Iran’s newly unsanctioned oil industry will be less attractive to Western companies. We (candidly) have no idea how long that dynamic will prevail or what the trade-offs are. All else being equal though, this seems like a factor that will keep oil prices relatively low in 2016.

�� “China sneezes and we catch a cold” sufferers: The China slowdown impacts the “oil slick” markets, but in addition, these markets export many other raw materials to China and struggle to grow when China’s industrial output drops. Think Australia, Southeast Asia, and Chile.

�� Young guns: These markets tie a young population and economic emergence together into strong growth prospects. Mexico, Argentina, Colombia, India, Pakistan, and sub-Saharan Africa are in this category.

Our key takeaway is that to find growth around the world, retailers and suppliers will need smarter, more targeted, and more efficient go-to-market strategies so they can outgrow the global marketplace overall. Specifically, 2016 will be a year in which many companies revisit their new market expansion strategies. Many of these date to a simpler world with more optimistic growth projections for emerging markets in particular. We also expect companies to adopt more different – instead

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of more similar – new market expansion plans. Knowing where your brand(s) can win will be more important than a generic projection of market growth. Those differences can and should be reflected in the capabilities deployed to win in those markets.

A Smaller, Harder World, Part 2: The Shopper LandscapeOur prediction here is simple: The core drivers of global shopper polarization will continue to be the critical drivers of faster-than-market growth. Companies that leverage these factors best will win disproportionately.

Many Kantar Retail slide decks discuss these core polarizers:

Income: Being able to sell effectively in income-polarized markets will be critical. The U.S., China, Turkey, Brazil, and Russia all have markedly skewed income distributions.

Age: The key phrase for age polarization is “the no-longer young.”

In one sense, it means meeting the needs of older shoppers. Our key prediction here is that the health and wellness needs of older shoppers will fundamentally begin to reshape the retail landscape in 2016, but this is a multiyear process.

In another sense, it means recognizing that Millennials are growing up. In 2016, we will begin to realize that many of the differences in Millennial shopping behaviors versus previous generations relate to life stage. As Millennials settle into family mode, we expect their purchasing behaviors to become more consistent with other generations.

Urban complexity: Winning retailers and suppliers will win the urban landscape. A number of suppliers have urban strategies largely aimed at solving the route-to-market complexities of urban selling – fragmented, small-box retail and complex distribution and supply-chain networks. “The urban demand chain” will become a buzzword in 2016 as smart retailers and suppliers use these urban environments as microcosms of today’s polarized, heterogeneous world.

Technology: Supply-chain, operational, and demand-generating technology changes will be critical to supplier success.

On the supply side, my colleague David Marcotte in his presentations continues to explore technology’s impact on retail distribution and operations. Our prediction is that 2016 will be the year that understanding robotic technology and the intelligence that powers it will become an important part of retail operations work. By 2025, Dave predicts that robotic technology will be here and decidedly less machinelike than it has been historically; 2016 will mark the beginning of that journey.

At the same time, retailers will continue to both automate and enhance key elements of their strategic processes. Specifically, we expect that virtual rendering technology will continue to change how retailers think about testing and developing store prototypes. Over time, these improvements in the ease of use and immersive quality of virtual reality will change the way shoppers engage in “real” retail environments, not just test ones.

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On the demand side, mobile will permanently change how we think about shopper marketing in 2016. We’ll discuss this more later, but here are two ways to think about this permanent transition:

�� The medium itself: Messages delivered to mobile screens must be delivered more precisely.

�� The platforms: More shopper marketing will be done through apps. Yes, retailer apps will be important, but app use is intensely concentrated on a few key platforms like Facebook, Google, Instagram, and Uber. The key conclusion here is that 2016 will be the year we begin to grapple with the idea that a large part of effective shopper marketing will take place beyond the retailer’s captive ecosystem. That is a long-winded way of saying that suppliers and retailers need to mutually understand that if retailers really want to create more demand, they need to route resources away from vehicles that directly benefit their bottom line.

For this section, the key takeaway is two phrases that will become part of supplier and retailer vocabulary in 2016:

�� Demand-chain transparency: Walmart won the late 20th century by reimagining supply-chain transparency through sharing accurate, detailed, and real-time data to improve business performance between itself and its trading partners. This transparency fueled Walmart’s strategy of efficiency-based low prices and its famous productivity loop. Our hypothesis is that the retailer(s) that crack the code on the same thing for the “demand chain” will win the early 21st century: Which retailers will become famous for helping their partners decode the complexity of the new digital marketing ecosystem for mutual benefit rather than short-term data monetization?

�� Demand-chain productivity: Most major suppliers are focusing on making the dollars they spend creating demand at retail more productive. Most will undertake initiatives to rigorously evaluate how they are spending money to create demand and to bring more focus and discipline to this process globally. At the same time, our Trade Promotion Study used the phrase “agility” to discuss how promotional spending specifically should evolve, and this is the fine balance. Best-in-class demand-chain productivity will be a combination rigor and appropriate flexibility to meet the increasingly different needs by retailer and marketplace.

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A Smaller, Harder World, Part 3: The Retail Ecosystem

We covered the forecasted growth in retail in great detail in our U.S. and global predictions pieces as well as in our Year End Forum presentation decks. Trying to summarize all of that information in any one place is a task for a different document, but six key trends apply to most of the major retailers we look at in the marketplace and have specific implications for suppliers working with those retailers:

�� eCommerce expansion: All major retailers in the world are trying to understand the role that eCommerce is playing in their portfolio, and 2016 will be the year that suppliers transition to more customer-specific eCommerce strategies rather than trying to solve this issue as one general problem.

�� Smaller stores: To varying degrees, Walmart, Carrefour, and Tesco are all emphasizing small stores as an avenue for growth. Discount and convenience will continue to be two brick-and-mortar formats growing faster than inflation in most of the world’s major markets. Continuing to understand how curated and smaller categories will drive growth will be a critical success factor for suppliers.

�� Expanded experience: At the same time, retailers that run larger stores will find they have to answer significant macro space-allocation questions as categories that shoppers used to buy in

store are fleeing. Food retailers will expand into restaurants (as many major U.S. grocers have), health and wellness retailers into healthcare, and general merchandise retailers into entertainment and education as retailers seek to use these new space opportunities and maintain productive stores. Retailers will call on suppliers to help them understand these broad, total store challenges; the suppliers that bring insights, ideas, and solutions to the table will disproportionately benefit.

�� Consolidating buying power/leveraging scale: We think several major 2015 mergers and acquisitions (notably Ahold/Delhaize and Walgreens/Boots) will mark the beginning of a period of intense concentration of buying power on the retail side. Yet acquisitions are only one way retailers are concentrating buying power. The continued rise of buying groups – particularly in Europe – will make negotiations more challenging and intense. In 2016, senior management will put more pressure on customer-facing teams regarding their spending in the retail environment. Acquisitions, buying groups, and “leverage” teams will push many suppliers to reconsider spending at retail more broadly.

�� Analytic power: Retailers are moving quickly to become far more capable with analytics. Witness Kroger’s internalizing of dunnhumby USA, the captive platforms Walmart and Target are building, Amazon’s continued expansion of its analytic footprint, and Carrefour’s strategic investments in Rue du Commerce and Partech Ventures. The major decision most customer teams will face in 2016 is how to wire their advanced analytics capabilities into major customer-facing teams. These resources are in scant supply inside most companies, so identifying and securing them is a critical skill set for supplier teams.

�� Localization/specificity: Retailers and their supplier partners will need more granular geographic trading insights to make sure great stores reflect their trading area better.

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A Smaller, Harder World: ConclusionNo one enjoys the conclusion that winning requires smaller, harder work. And the bigger the company, the harder this message is to understand and process. So much of large businesses’ strategic focus has been on fewer, bigger ideas and low-hanging fruit.

In October 2015, I did a podcast on this concept of “the fewer, bigger strategy,” which is a good resource for understanding the concept of smaller, harder work. The key conclusion details where you can find inspiration for smaller, harder work – the pointillism-style paintings made popular by a number of 19th-century European painters. Pointillists used tiny dots of paint to make masterpieces. In 2016, massive companies will begin to understand the transition to a pointillistic future – one in which millions of little dots are orchestrated together to make something beautiful.

Keep in mind that “smaller” is not meant to suggest that companies will shrink or limit the scope of their aspirations. We fully expect big and bold plans from best-in-class companies – just for those big and bold plans to be made up of smaller, distinctive elements.


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Three Keywords for Stores, Shoppers, and PlansWe can put the work that retailers and suppliers must do to win in the smaller, harder world into three major buckets, each with a corresponding keyword:

Stores: Our keyword for the changes taking place in stores is ADDRESS. The simple conclusion is that 2016 is the year we begin to think of stores as targeted marketing vehicles, as well as more specific and multipurpose distribution centers. We’ll see this keyword again in the shopper section.

Shoppers: The keyword for shoppers is ACROSS. This is the year that shopper marketing will become a cross-platform activity, as advancements in cross-platform tracking and attribution make a connected shopper journey map essential.

Plans: Plans will become FLATTER. A FLATTER plan lets you see more of what matters across multiple areas more quickly and dynamically.

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Winning Stores: The Right ADDRESS ADDRESS is not just a concept, but an acronym that highlights the seven key factors that retailers will need to build winning stores and the skills suppliers will need to help them. By stores, we mean shopping environments. While many of these ideas are rooted in physical stores, the concepts also apply to eCommerce.

ADDRESS stands for:

Assorted optimally: In 2016, we will see a step change in how best-in-class

retailers and suppliers understand the economics of truly optimized assortments. In a world of smaller, harder wins, great retailers will find labor-efficient ways to use tools and analytics to assort stores more appropriately by specific layout and trading area.

Delivery platform: This is more of a continuum, but more and more of

the supply-chain work suppliers do with customers will involve understanding their stores as delivery hubs and shopping environments.

Discounted intelligently: I wish I could think of a simpler sentence for this, but it might be the most important point in this whole

document, so please read it carefully. In 2016, retailers that do not understand their pricing relationship with competitors that can charge structurally different prices than they do will begin to face existential, not just temporary, pressure. A number of retail growth formats can use national brands very differently than mainstream retailers, which

use them as a combination of traffic and profit drivers. In particular, retailers will need to manage promotional pricing more dynamically and actively. Promotion management systems will need to be more responsive, dynamic, and operationalized to be effective. In our U.K. PoweRanking® study, Tara Benjamin outlined the European customer challenges as “DiCE – Discount, Convenience, and eCommerce.” This DiCE framework is a good one to understand this key point from a channel perspective:

�� Discounters: The role national brands play with respect to discounters’ largely private label assortment is different from the role most retailers play. Their limited-assortment, high-velocity private label strategy makes launching a price war against these SKUs dangerous. However, rather than respond with confusion and paralysis (as they have done so far), smart suppliers and retailers will begin to create a smart, competitive response to discount in 2016. This new response will be deeply rooted in shopper insights and the smart use of larger stores with broader assortments.

�� Convenience: A war to define convenience from a shopper – not an outlet – perspective will break out in 2016. The very foundation of this landscape will change as convenience becomes a blend of proximity and delivery and as multiformat retailers develop proximity formats engineered to lock in shoppers as well as make stand-alone profits.

�� eCommerce: This year will mark the start of a multiyear journey to a category strategy incorporating eCommerce’s disruptive pricing into its projected economic outcomes. We’ll cover category management in eCommerce in more detail later.

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Regionally appropriate: If a store does not reflect its trading area, it has no reason for being. In most scaled, national markets, a

national strategy will be insufficient for growth. Assortment, messaging, marketing, and management must focus on making physical stores rooted in their environment.

Ecommerce-enabled: We made this point earlier, but 2016 will be the last year we think of stores as “just

stores” rather than “stores plus eCommerce distribution platforms.”

Small: Winning suppliers and retailers in 2016 will perfect making assortments work in half

the space they are used to. Stores smaller than the median store size in their respective markets are fueling almost all store-based retail growth globally.

Specifically targeted and designed: Distinctive retailers will gain share in 2016, and

distinction will be far more predictive of future growth than scale or efficiency. Massive retailers that historically have aimed at the middle market will need help from their best suppliers to build stores and platforms that reflect this distinction. Most large retailers and brands will lose more share in 2016 to small, distinctive competitors than to large ones.

Key Capabilities: ADDRESS – Four Pillars and a Shared Vision

The four capabilities retailers and suppliers will need to tackle the seven ADDRESS factors successfully are:

1. Optimization: Most of the pricing and assortment step changes will require strategy iterations. Relentless optimization of assortment,

spending, and pricing will be essential, but it must be rooted in external reality. It cannot be simply a tool to achieve boardroom-driven, top-down internal performance targets.

2. Testing: While most companies think they are good at testing, smart ones realize they are probably not. The systemic idea generation, development, evaluation, and improvement process that

testing implies is the critical success process for 2016 and beyond. Companies that do not learn how to innovate constantly and more effectively will come unglued in this world of perpetual optimization. Companies like Google and Facebook are dominant not because they are “digital” or “smart.” They are dominant because their business processes are wired to perpetually test, learn, and improve. Testing technologies (like virtual reality) that speed this process will be an essential pillar of this critical skill.

3. Shopper missions: Knowing why time- and attention-pressed shoppers are where they are will be essential for communicating with them in smaller stores and on smaller screens. Without this context, shopper

communication will get lost in the shuffle.

4. Space deployment: Best-in-class suppliers will be in a strong position to help retailers make decisions about layout and merchandising density in physical stores. Just knowing your category is insufficient. Retailers will value suppliers that can offer a perspective on multidimensional space problems.

Any one of these pillars can be impactful on its own. However, to be most effective, best-in-class suppliers will anchor these capabilities in a category growth strategy. Without an overarching theme/objective, there is a risk these capabilities could work toward unclear or conflicting outcomes.

Optimization

Testing

ShopperMissions

SpaceDeployment

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Winning Shoppers: Four Big Questions You Will Come ACROSS We have put our predictions about the smaller, harder shopper landscape in two buckets: the big questions retailers and suppliers will be looking to answer and the capabilities they will need to leverage (or develop) to answer them.

The Four Big Questions: How, What, Why, and Where

How Can We Reach Shoppers?

It’s as simple as A-B-C: In October 2015, I did a presentation at our eCommerce Strategy Forum in New York City that introduced this A-B-C concept as a framework for reaching shoppers. The A-B-Cs I laid out were:

Addressable: This concept refers to targeting specific people rather than segments, clusters, or the mass market. In 2016, “addressable” marketing will generate another “A” word

– “audiences” – that will become the lingua franca of marketing. Shopper marketers will increasingly avail themselves of media technologies and strategies for aggregating groups of actual people on which to build look-alike models or to find audiences for highly targeted content.

Behavioral: Understanding what shoppers do specifically will be the key to reaching them in the right place. The “B” words that will key off “behavioral” represent the link between

“buying” and “branding” data. In many cases, marketers seeking to validate their marketing efforts will require purchase data, which will bring them into the retailer/shopper ecosystem.

Contextual: In a world of mobile communication, precision does not exist without context. Practically speaking, shopper marketers will increasingly need to reach shoppers with some

sort of message on a very small screen. Just knowing who shoppers are is insufficient to target that nugget of communication well. Context means also knowing where someone is and why. Context will become important in 2016 because it ties to another “C” word, “categories.” Retailers and suppliers will realize that online category management is contextual as well. Expect some writing from us on this topic in more detail later in the year (and a little more later in this executive summary).

Addressable

Behavioral

Contextual

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What Are Shoppers Buying?

At a 2015 investment conference, I heard an acronym I had never heard before, which was “FLONH” (pronounced roughly like “flan”). FLONH stands for fresh, local, organic, natural, healthy. These terms will continue to be important and (almost as importantly) to be confused with one another. A major 2016 theme will be mainstreaming FLONH. We predict somewhere between 25% and 50% of innovations made by major suppliers and retailers between 2016 and 2020 will have a FLONH component to them.

The other major trend our global previews highlight is, generally speaking, a flight from stuff. Great companies in 2016 will begin to understand how they will grow share of wallet from shoppers who are looking to buy services and experiences, not just stuff.

Why Are Shoppers Buying?

We predict that smart companies in 2016 will have major discussions about how to balance the “what” and the “why.” In a more digital world, path-to-purchase analysis will be characterized by more tightly correlated data. Correlation is a wonderful optimization tool because it allows us to discover what happens if we take certain actions: If we do A, then we get B. This type of A/B testing has become one mode to improve the digital ecosystem.

Many of our clients are rushing headlong to understand this type of decision-making. However, companies that grow by investing significantly in assets to capture opportunities will need to balance this “correlation-driven what” with “insight-driven why.” There are two reasons for this, one real and one pragmatic:

�� Real: Capital investments have a lifespan, so without a “why” thesis, estimating the useful life of that investment is almost impossible. Uncertainty about the viability and lifespan makes capital investments look less attractive. This, by the way, is a one-sentence summary for why most large companies are posting record profits with limited capital investment – there is too much uncertainty surrounding success and lifespan of that success to make investment models pay out.

�� Pragmatic: In the end, capital investment decisions are made by people – typically smart, highly paid people – but people nevertheless. People base major decisions on emotion as much as fact, and without a story/narrative about the “why,” no one will stake capital on an idea.

Where Are Shoppers Buying?

Rob Norman from our WPP sister company GroupM coined a terrific phrase to capture one of the big shifts in purchase understanding for 2016 and beyond: “the negative one moment of truth.” In 2016, shopper marketers will start to understand that they will need to create activation opportunities before shoppers even think about buying. That means before the “zero moment” of outlet selection or the “first moment” of shelf selection. Amazon’s Dash and Echo devices are wonderful examples of reaching back into nonpurchase moments to find purchase. Understanding how to harness these tools will become an essential part of understanding

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shopper journeys. Keep in mind, this “zero moment” differs from traditional “preshop communication” in one critical way. It needs to be flexible enough to lead directly to activation from that moment. The seamlessness by which consumers can move from receiving messages to acting on them immediately will force this type of communication to have a much stronger activation component.

Key Capabilities: ACROSS

The idea of ACROSS is a powerful one for future shopper marketing. As our Trade Promotion Industry Study highlights, even the trade promotion landscape is starting to fragment, making the need to understand ROI across multiple touchpoints markedly more important. ACROSS helps capture the six critical capabilities that great companies will begin to build in 2016:

Audience definition, activation, and measurement: How aware are marketers of the new audience-driven marketing ecosystem?

Contextual category management: Category assortments and even decision trees vary by context today (i.e., by format or shopping

mode). In the online world, “context” may be modal, but it may also be personalized. We think 2016 will be the year we begin to understand how to bring category management skills to the online world far more effectively.

Redefined category strategies: Great companies will look at underperforming categories to understand if their strategies

are really and truly tied to the consumer and shopper trends fueling category growth.

Outlet selection understanding: Although I love the “negative one moment of truth” idea, 99% of global purchasing in 2016 will still

happen when someone chooses a store and a product in a relatively active way. Great joint retailer-supplier business plans will be rooted in a deep understanding of why shoppers choose the stores they shop in and what the strategy should be to leverage the “choosers,” win back the “leavers,” and attract the “avoiders.”

Strategic shopper insights: In most companies today, shopper insights live on the “activation” side of the business, with the purview

to influence how previously developed strategies are executed. Great companies between 2016 and 2020 will fuel their strategic processes like brand strategy and product innovation with insights into how people make buying decisions within the category.

Shopper path to purchase: One critical 2016 success factor is having a strong understanding of the new connected shopper journey.

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Winning Plans: FLATTER

Now that we understand the work required to win stores and win shoppers, we can look at how we think the planning process will change. FLATTER plans mean plans that are:

�� Meaningfully more “shallow”: These plans feature more visibility into key variables. Metrics will be on a dashboard, not buried in piles of spreadsheets and impenetrable PowerPoints.

�� Meaningfully more “broad”: The plans will also look at more reach platforms and functions to ensure success.

FLATTER also helps identify the critical areas in which to win:

Free cash flow: Our global year-ahead preview extensively details the need for success measures to move beyond simple trading

margin to something more focused on cash flow. Doing so will require better analytics to measure spending and translate the many items we measure today into free cash flow outputs. Another step change in 2016 will be understanding the cash that retailer and supplier activity generates.

Leverage vs. learning: Suppliers will finally come to terms with the fact that their retail customers are getting both bigger and

smarter in 2016. This is especially true when it comes to the major European retailers that are forming buying groups and increasing their digital marketing and analytics capabilities. This combination ramp-up will require suppliers to drive step changes in account team capabilities in category analysis, event evaluation, digital marketing, and negotiation skills.

Amazon/Alibaba-ready: If Amazon or Alibaba is a factor in your market – and your plan with your retailer does not talk about

them as a disrupter or competitor – redo the plan.

Total market views: So much of today’s strategy is a prisoner of available data. This situation is particularly acute in the U.S.,

where the Nielsen-centric universe for consumer goods forces the gravity of strategic attention away from which retailers are actually growing. Best-in-class suppliers and retailers in 2016 will use multiple data sources and models to build the most compelling view they can of their total category and true competitive set.

Total business views: Companies will begin to link their analytic efforts together more effectively in 2016. Whether it is brand

equity and sales results or something more granular like linking trade promotion analytics directly to execution data, the ability to see how decisions link through the value chain will be a critical success factor for best-in-class retailers and suppliers in 2016.

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Ecommerce-enabled: We tend to think of the four E’s in “eCommerce strategy” as the pillars of a successful eCommerce

strategy. Winning eCommerce companies in 2016 will discuss these four key questions:

�� Equity: This is really the connected shopper journey work we referenced earlier. How will shoppers find my brand in an eCommerce world?

�� Extend: What incremental opportunities does eCommerce present? Are we planning to reach new shoppers or new markets through our eCommerce plan?

�� Engage: How are we connecting with shoppers most meaningfully?

�� Embed: How do we make eCommerce capabilities stick?

Role definition – reach, resonance, and returns: This last one really focuses on suppliers specifically. Toward the end of 2015,

my colleague Dan Raynak and former colleague Jonathan Phillips built an interesting framework called “Reach, Resonance, and Returns” to understand the work suppliers need to undertake:

�� Reach brands bring new money into the category from new shoppers or trade-up dollars from shoppers buying a different solution than they were before. Many reach brands come from small companies run by management teams trying to drive valuation, rather than value. At some point this year, I will explore what this concept means more specifically, but two specific predictions related to reach are:

�- Great 2016 category plans will overfocus on the brands driving growth, even if the brands are individually small. Most big brands are losing more share to this aggregation of small brands than they are to any one big one.

�- Great companies will find ways to acquire and leverage these reach brands without destroying what makes them unique.

�� Resonance brands (and companies) are the ones whose strategies best harmonize with their retailers in the key areas of work outlined in this summary.

�� Returns brands cannot do that and have not mastered the work outlined here. These brands pay for the complexity the retailers are taking on to function in this smaller, harder world. In 2016, expect suppliers that are not reach brands to be tiered as either resonant leaders or returns-based laggards.

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Best-in-class companies will win by deploying the right resources against the new “things that matter.” These companies will:

1. Know their shopper’s total journey to purchase as holistically as possible. They will be able to tie that journey to the places where shoppers get to know and love brands well before purchase intent, since this new path can move from anywhere to purchase instantly.

2. Become fluent in the digital ecosystem for shopper connection. The language of addressable, behavioral, and contextual marketing is new to many of us, but we need to learn it and act upon it quickly.

3. Own the strategic narrative with their trading partners. Their strategies will be fueled with great insights on where the world is going, and they will have a clearly articulated vision of where their categories are growing and how to get there.

4. Radically rethink their go-to-market strategies at both a national and city level. The palette of global growth has changed hue significantly, and few companies are well-prepared for a genuinely multipolar growth world (as opposed to a big bet on China and hoping the rest works out). And a new eCommerce-enabled urban world will require new trading relationships and new ways of evaluating existing trading relationships to ensure our brands are where shoppers want to spend.

5. Make physical stores generate cash more effectively. Asset owners need those assets to produce cash far more effectively, and that cash flow equation will be more granular and complex. Assortment and space optimization will be critical components of this cash flow generation process.

6. Make virtual stores generate engagement and sales more effectively. Best-in-class companies will move from experiment to expertise in the world of mobile and digital purchase occasions.

7. Make every dollar they spend to drive shopper demand work as effectively as possible. Trade promotion effectiveness across channels and platforms will be critical for suppliers and retailers as every dollar of expense faces increased scrutiny.

8. Test and learn faster and smarter. They will use great tools and smart process to turn their insights into practical prototypes they can trial and adopt quickly.

9. Ensure execution in the physical and digital world. Through shelf compliance and online tools to assess findability and shoppability, best-in-class companies will not leave a single dollar of generated demand unconverted due to poor execution.

10. Embed these new capabilities within their organization.

In Conclusion

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© 2016 – Kantar Retail LLC. All Rights Reserved.

Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or otherwise supported, by the management of any of the companies covered herein.

Copyright Notice: No part of this publication may be reproduced in any form or by any means without the express written permission of the copyright owner.

AppendixThe following are the Kantar Retail insights referenced in this Executive Summary: 2015 U.S. PoweRanking® Executive Summary: http://www.kantarretail.com/wp-content/uploads/2015/11/Kantar-Retail-2015-PoweRanking-Executive-Summary.pdf

2015 U.K. PoweRanking® Executive Summary: http://www.kantarretail.com/wp-content/uploads/2015/09/Kantar-Retail-UK-PoweRanking-2015-Executive-Summary.pdf

2015 U.S Digital Power Study Executive Summary: http://www.kantarretail.com/wp-content/uploads/2015/09/Kantar-Retail-2015-US-Digital-Power-Study-Executive-Summary.pdf

2015 China Digital Power Study Executive Summary: http://www.kantarretail.com/wp-content/uploads/2015/09/Kantar-Retail-2015-China-Digital-Power-Study-Exec-Summary1.pdf

U.S. Preview of the Year Ahead: http://www.kriq.com/ContentIndex/SummarySlideDetails.aspx?id=1486031

Global Preview of the Year Ahead: http://www.kriq.com/ContentIndex/SummarySlideDetails.aspx?id=1486394

2015 Year End Forum presentations: http://www.kriq.com/Events/EventDetails.aspx?id=661767

CPG 2025 Year End Forum presentation: http://www.kriq.com/ContentIndex/EventPresentationDetails.aspx?id=1485205

2016 U.S. Trade Promotion Industry Study: http://www.kantarretail.com/wp-content/uploads/2016/02/Kantar-Retail-2016-Trade-Promotion-Study-Executive-Summary.pdf

2014 China PoweRanking® Executive Summary: http://www.kantarretail.com/wp-content/uploads/2015/04/Kantar-Retail-2014-China-PoweRanking_Summarized-Report_EN.pdf

Kantar Retail Sound Bites podcasts: https://itunes.apple.com/us/podcast/retail-sound-bites-from-kantar/id1011370105

It’s As Easy As A-B-C: How Addressable, Behavioral, and Contextual Will Change Marketing to “Shoppers” eCommerce Forum presentation: http://www.kriq.com/ContentIndex/EventPresentationDetails.aspx?id=1483432

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K A N T A R R E T A I L P R E D I C T I O N SOur Core Capabilities

Shopper Insights We help you turn shoppers into buyers by understanding shopper needs, motivations, behaviors, barriers, and triggers across the path to purchase

Sales Process Automation We help you to optimize and automate sales force, KAM activities, and investments through our Sales Master 1 application, increasing your ROI

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Category & Shopper Solutions We help you unlock future sources of real growth through the development of fact - based Category Drivers and Activation Platforms. These are tailor-made for specific channels and retailers and are purpose-built to influence purchase behavior

Retail & Purchase Data Analytics We help you to apply best-in-class analytical tools and consulting services to create winning strategies in store and online across assortment, merchandising, promotions, and price

Retail Virtual Reality We help you to create virtual retail environments and product content for virtual merchandising, store design, category management, retail execution, and shopper research so you can make better, faster retail decisions

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K A N T A R R E T A I L P R E D I C T I O N SThe Kantar Retail NarrativeWe areThe Retail and Shopper Specialists

Our PurposeWe help our clients sell more – effectively and profitably

Our Belief and PhilosophyWe connect a world-class set of retail and shopper assets with pragmatic, solution-oriented people to grow client businesses

Our Brand storyEvery business challenge requires a unique solution.

We bring together a collection of retail and shopper assets – insights, tools, analytics, and experienced consultants who think pragmatically while building and delivering integrated solutions. Our passion is using the right combination of these assets to grow your business.

Our teams create real-world solutions to deliver faster growth, and we plug in seamlessly as part of your extended team. We connect these solutions to your core work, embedding them so your organization benefits systemically and continuously.

These solutions are aimed at your critical business decisions – how to best drive future growth, where to play, how to win, and how to optimally allocate resources. In turn, our solutions help you win the critical decisions made by shoppers and buyers along their purchase journey. Our specialized knowledge and expertise can be targeted toward specific business issues, while our integrated solutions transform businesses and generate breakthrough performance improvement.

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Documents

KANTAR RETAIL PREDICTIONS Changing What Matters€¦ · Our 2016 U.S. and global retail marketplace predictions The General Session content from our 2015 Year End Forum in the U.S