ALEXANDRIA, Va.—‘Are retailers confusing innovation and disruption?’ asks a Forbes story by Jose Gomes, managing director of North America for data science company Dunnhumby.
Many people assume that innovation and disruption are highly correlated, Gomes noted. It’s a reasonable argument to defend one’s position through innovation and technology if you are being disrupted by innovative competitors, which explains why most traditional grocery retailers are building up their digital and e-commerce capabilities.
Gomes believes the disruption in the grocery market has not been driven primarily by technology, but by a bigger, more fundamental driver—value.
The grocery market has seen many waves of disruption. In the early 2000s, Walmart, Costco and Trader Joe’s grew by providing a combination of price and quality that was superior to most traditional retailers. During the Great Recession, price and value became even more important to many shoppers who began to try these less expensive, less traditional retailers. Plus, two of the three maximized their value perceptions through their own private brands.
In the future, look for Aldi, Lidl and Amazon to be the new disruptors, Gomes said. Their robust value perceptions will continue to disrupt the grocery market, particularly for traditional grocery retailers. Many retailers have invested heavily in technology and e-commerce thinking they can remain competitive by developing their own e-commerce solutions. But it’s the gap in value perception that needs to be addressed and not an e-commerce offering.
Moreover, investing in new technology is likely raising the costs for smaller retailers that must pass the costs onto customers, exacerbating their value perception issue. Even if a retailer has the best e-commerce solution, website and phone app, it will not drive incremental value unless their price perceptions are in line with the industry and consumer expectations.
It is essential that retailers carefully align their own unique abilities with opportunities in the market before embarking on an expensive technology spending spree, Gomes said. Walmart, Costco and Amazon versus traditional regional grocers is a modern-day David and Goliath story. And as David chose not to use the same weapon nor the same heavy armor as Goliath, it is important that regional grocers carefully consider how they can leverage their strengths to compete and coexist with the retail Goliaths of today.