6 Nick Harrison Frederic Thomas-Dupuis At the January 2018 Board of Directors meeting at FMI Midwinter Executive Conference, FMI partnered with Oliver Wyman to explore the future of retail and consumer goods. Key topics included the rise of online retail, the changing role of stores, the risks of disintermediation and reintermediation, the emergence of new models, and the implications for CPG companies. After a content feature, a panel discussion was held, featuring Marc Poulin, Shelley Broader, and Paul Grimwood. The following pages summarize key elements from that discussion in January. Oliver Wymans full report on the future of retail, entitled Retails Revolution: How Retail and Consumer Goods Companies Can Adapt, delves deeper into how consumer preferences could further disrupt the retail sector creating opportunities for retailers and manufacturers to reach customers in new ways, while also giving rise to new competitors in the space. The full study and accompanying materials can be found at: oliverwyman/our-expertise/hubs/ retails-revolution. The Future of Retail It is difficult enough for retailers to cope with the emerging issues that we will discuss in this article. But even more disquieting is the idea that the greatest disruptions to retailers and product suppliers may be yet to come. 1. Countries: Austria, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom, United States. Source: Oliver Wyman analysis Exhibit 1: Food e-commerce share projection 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 27% 14% 10% 5% More areas become feasible to supply Current conditions continue All barriers removed Delivery fees are reduced Source: 2017 Oliver Wyman Digital Shopping Model7 THE RISE OF ONLINE RETAIL Todays retail world is changing like never before. The new generation is full of digital shoppers who have grown up speaking to Amazons Alexa and interacting with touchscreens. Something as simple as grocery shopping in the supermarket has become a special occasion, as weekly grocery orders are delivered to the doorstep. The prevalence of technology will continue to grow and shape how consumers define shopping. A question at the forefront of food retailers mind is: How will the rise of online retail impact the food industry? Online retail in other sectors besides food Before examining the food industry, it is worth assessing trends in the nonfood retail sector as a proxy for whats to come. For these categories, the penetration of online retail is already high and is expected to continue to grow. This growth has not come as a surprise, as barriers to adoption have decreased in recent years, greatly improving the customers online experience. For example, one major stumbling block to purchasing cosmetics online has been the difficulty consumers have in envisioning how products will look on them. L Oreal overcame this challenge by investing in an app, Makeup Genius, which demonstrates various looks on a customers face in real time. Another challenge for online sales is the time and effort customers require in picking from an endless aisle of seemingly limitless options. Cladwell, a startup in the clothing space, catalogs its users wardrobes and helps evaluate the incremental value of new items. The removal of further barriers will continue to raise the penetration of online shopping, so that it could comprise between 20 percent and 25 percent of the US market within five years. THE RISE OF ONLINE FOOD SHOPPING In contrast, online penetration has remained low in the food sector. Many industry leaders are skeptical that online sales will ever make up a significant share, given the high barriers to adoption. These barriers include discomfort with a cumbersome digital shopping experience and additional charges reflecting the cost of fulfillment and delivery. Exhibit 2: Online demand I would not shop online I already shop online some of the time I would shop online with fewer hassles ocer 42% 50% 8% 11% rel 54% 35% Exhibit 3: Key blockers in online food Sample blockers Example solutions Whisk“Buy this recipe” plug-in Dicult to choose from unwieldy product selection August Home In-fridge delivery Inconvenient to accept deliveries on schedule DHL Passive cooling to use existing networks Expensive deliveries