I had the opportunity to participate in two conferences in the last few weeks that had a particular focus on fast moving consumer goods ( “FMCG “) retailers, especially food and drug retailers. The conferences were hosted by two companies that are strong players in the FMCG technology space: Symphony GOLD and Revionics. Although neither solution provider caters exclusively to FMCG retailers, they each have been successful in addressing the peculiar needs of food and drug merchants in particular. And that’s important, because although FMCG retailers may be the last retail vertical to be impacted by consumers’ omni-channel shopping behaviors, they are now feeling the heat too. Just like their brethren in fashion and apparel, specialty, and consumer electronics, they are now finding that they need to reconsider their Brand proposition and the processes and technologies that support it.

FMCG has been the last major vertical to have to address the consumer revolution because food is best consumed fresh, and whether something is fresh or not has to be determined in the physical domain, not the digital one. Consumers have to go to a store to experience the product before they buy it – or so it has been assumed up until very recently (more on that in a second). FMCG retailers carry a big number of SKUs that must be replenished very frequently and have brutally low margins because of extreme price sensitivity on the part of consumers. The way these retailers have survived to-date is by carrying highly standardized assortments, leaning heavily on vendors to manage whole categories of merchandise, and perfecting the customer-self-service model. And as every grocer knows, building each basket size is the key to not only a bigger sale, but more margin per-sale, and so (as my RSR partner Nikki Baird has said), store designs are intentionally inconvenient, to cause customers to dwell in the store for a longer time.

In the end, most FMCG retailers depend on shopper’s habits as much as anything. Assortments don’t really vary that much from one store to another and prices are relatively equivalent. As another of my RSR partners, Paula Rosenblum has said, these retailers are “swimming in a sea of sameness. “

But threats loom on the horizon. First of all, slowly but surely economies are improving, and when consumers can afford more choices, they make them. That is part of what is driving grocers to feature organic products more aggressively. Additionally, new consumer “digital ” shopping behaviors have finally hit the FMCG space. At the Symphony Gold conference, CEO Graeme Cooksley outlined how new consumer behaviors are driving the need to change: from shopping in stores, consumers are moving towards browsing and shopping online, and headed towards making shopping a 24X7 anytime, anywhere activity. And that brings up the darkest cloud on FMCG’s horizon: new competition from consumer-direct retailers.

At the Revionics event, industry analyst Deborah Weinswig spoke extensively about how, after years of trying, grocery direct delivery is becoming viable for consumers outside of major urban areas like London and New York. Players like FreshDirect and Amazon Fresh are pushing the boundaries beyond urban centers, and companies such as Safeway and Kroger in the U.S. have responded with programs of their own. And Deborah pointed out that with new consumer “smart home ” technologies such as the Amazon Echo, the consumer path to direct ordering only gets easier, while the way forward for traditional retailers only gets harder.

Netting it all out, the imperative to change is “now “, and that means that FMCG retailers have no choice but to course-correct after years of systematically sacrificing consumer convenience in favor of ratcheting down operating expenses in order to deliver something to the bottom line. On top of that, while the consumer shopping revolution is driven by dramatic improvements in the availability of information and technology, FMCG retailers have deferred technology investments for years.

So it’s pay-up time for FMCG retailers. Technology companies like Symphony Gold and Revionics know it too, and they are more than happy to offer help.

Formula One Racing And The Walgreens Story

At the Symphony event, a keynote presentation was delivered by David Coulthard and Mark Gallagher. David is one of the most successful British drivers in the history of Formula One racing – a real rock star in the sport, and Mark comes from the “business ” side of the sport, having held executive positions with the Jordan and Red Bull Formula One teams. These might seem like an odd choice for a retail technology event, but the logic of it became clear almost instantly. The racers talked about how the sport has changed dramatically in the past several years as a result of data analytics. As David said, successful teams use data not to report past results but to continuously improve. “The simplest changes often make the biggest difference “, said David. Underlying it all is establishing performance metrics for every aspect of the operation. Coulthard explained, “the culture must be established at the outset to pay attention to the tiniest detail. Process can evolve as the data improves. But it takes leadership and belief – the team must believe that it is empowered to take ownership of what happens – there is no blame. ” Mark showed a very specific example; he noted that a pit stop is measured in seconds – literally. By observing every movement of each team member at a pit stop, the Red Bull team was able to knock one second off the time it took to change the tires and refuel – the difference in a winning race.

The parallel is obvious. “Retail is detail “, as any old-time retailer knows. Today, it’s not just about measuring success based on how many units sell through by time and location, but on all the activities (employee, partner, and customer) leading up to that sale.

This was outlined further at the Revionics event by Michael Darer, Vice President of US Commercial Insights at Walgreens. Walgreens now has 13,000 locations in 11 different countries resulting from the acquisition of Boots. But until 2012, Walgreens was known principally as one of the “last men standing ” in a brutal consolidation of the drug store industry in the United States, along with CVS and Rite Aid. Relentless reductions in the reimbursement rates for prescription drugs by insurance carriers, along with the ubiquity of non-prescription products like health and beauty aids and over-the-counter remedies (both easily available at your local Walmart, Target, or any grocery store) has put incredible downward pressure on drug stores since the late 1990’s, and some analysts wonder out loud if the sector even has a future.

Walgreens doesn’t seem worried about that, however. According to Darer, the company is using information gleaned from its loyalty program (only launched in 2012, it already boasts 150M members) to retain their best customers, drive sales, and gain new customer behavioral insights. Michael pointed out that Walgreens is using the information to identify customer needs within categories, creating “customer buying trees ” to understand how consumers make their purchase decisions. Said the speaker, instead of merely understanding “how she shops “, Walgreens seeks to understand “why she shops “.

What the company learns from data analysis and insights is supplemented with direct customer research, which in turn drives assortment decisions and shelf layouts. Ultimately, the Drugstore chain is pushing towards true personalization via its loyalty program, using a variety of touchpoints to build loyalty (emails, direct mail, preferred customer call routing, personalized paperless coupons, category conversion campaigns, weekly ad “sneak peeks “, and 1:1 offers based on buying preferences). When it comes to pricing the drug store studies perceived price gaps, elasticities, demographics and customer segments, and the cross-channel buying characteristics, in order to determine the best strategies.

Insights Move To The Core Of The Business

Both the Formula One Racing and Walgreens stories have a common theme: data analysis and insights, once a sidebar activity to report past performance, has become a core activity affecting the operation of the business in real-time. And at the heart of that is a key tenet: measure everything, and use what is learned to continuously improve the operation, always adjusting not only to the competition but to satisfy each customer according to her need.

Both Revionics and Symphony Gold have adjusted their messages and offerings accordingly, pushing the need for retailers to go faster (Symphony: “Xcelerate! “) based on data and analytics (Revionics: “Insight! “). Those are timely messages, and ones that FMCG retailers must heed in order to survive.