Smaller Store Formats
What we will likely see is that the bigger retailers will try to finetune their business model by prioritizing geographic proximity to customers and creating smaller stores where shoppers can feel more in control and safer while having a more personalized shopping experience. For instance, Esselunga, which is one of the main players in Italy, is already starting to open a lot of new smaller formats that are closer to where people live. This is meaningful for the future. We think that this move to smaller formats will probably be one of the biggest innovations and it is not only a matter of size. The new hygiene rules and habits together with people’s new anxieties are here to stay. Access to larger stores is difficult and the customer experience at larger stores is more anxiety-inducing due to long lines and wait times. Some stores, even the smaller and independent ones are creating their own solutions to queuing with very basic online booking systems where you can book an appointment to go into the store. This will no doubt have implications for the shopping experience evolution.
What we can expect to see is a transformation of the shops over time. Smaller shops will be much more focused on the consumer experience. It will also be an opportunity to find the right balance between physical and online commerce. We will see the shop becoming more experiential and closer to where the consumer lives, and e-commerce will not necessarily be an alternative to but rather a complement to physical shopping. The big retailers are already discussing this because they need to change their formats. They are building their e-commerce capabilities, and all these things need to be balanced and inter-connected. We think this will be a big innovation in the coming months or even years.
It is now clear that the other big innovation has been and will be in e-commerce. E-commerce was under-developed in Italy in the past. The retail landscape in Italy is very fragmented and it was very difficult to create the critical mass to build and maintain a proper structure in place.
However, this has changed because of the increase in consumers wanting groceries to be delivered to their homes. We know from experience that when consumers start demanding something, conservatism and defensive positions are quickly swept away, and necessary innovation always finds its way through. E-commerce in Italy will not be an exception to this.
The speed of innovation also depends on geographies in Italy. Broadly speaking, the south of Italy is more flexible and agile and therefore is more open to new creative solutions and innovations to combat problems and issues. This is because there is less legacy infrastructure in the South to support supply chains and adapting and applying new models is simpler. The retail industry in the North of Italy is more saturated with larger retailers and as such it requires more effort to transform and change. The South is much more fragmented. This fragmentation creates winners and losers. Some retailers are growing quickly because they are finding solutions by having cashflow and ideas, while others are really struggling. The “cave syndrome” will influence the size and type of experience consumers will have and how e-commerce will grow. They say e-commerce in Italy will do a leap forward of 10 years in 6 months. In Italy, we were probably 5 years behind other countries in Europe in e-commerce. This will change.
Prior to this interview, Massimo and the Italian team surveyed FMCG professionals from 32 suppliers and retailers at the peak of the COVID-19 crisis to understand their performance and partnership needs during and post-crisis.
For this analysis: How Italian Suppliers and Retailers are Coming Together During COVID-19