Groceryshop 2023

At this year’s Groceryshop event in Las Vegas, there were some recurrent themes that kept popping up from retailers, giving some great insight into the direction of travel for grocery chains – not just in the USA but the world over.

Some of these themes included the development of retail media networks, the adoption of AI, some fresh approaches to unified commerce, the challenge of shrink, the evolution of business models beyond the core and a re-evaluation of tech investments.?

As ever it was great to hear directly from retailers about the challenges and opportunities confronting them and how they plan to navigate their businesses through turbulent times in an era of mounting competition.

One topic that really shone through was the need to develop alternative revenue models: new sources of revenue and profitability that are adjacent to a retailer’s core business. Retail media stands as the most top-of-mind example, with major retailers in developed markets already implementing or planning their retail media programmes. However, the spectrum of alternative revenue streams can go well beyond retail media, encompassing third-party marketplaces, the monetisation of tech and insights solutions, foodservice, wholesaling and franchising and ventures into financial and healthcare services.

Kroger’s chairman and CEO, Rodney McMullen, noted that profits from its alternative businesses had already grown to $1.2bn last year, while Ahold Delhaize USA’s CEO, JJ Fleeman, highlighted that alternative revenue would be a third pillar of growth for the business going forward. He added that digital media income was up 70% year-on-year and sees it as an integral part of the core supermarket business.

Hy-Vee’s president, Donna Tweeten, meanwhile, in response a question of why they were building a significant healthcare business and launching a retail media network programme, stated that she wasn’t sure how a retail business would thrive in the future without these types of new revenue streams.

For many, diversification is an imperative, driven by pressing challenges such as rising labour costs, the dilutive margin impact of ecommerce, and the expenses associated with digital transformation and sustainability goals. Depending on their level of diversification and investment, retailers can evolve into full ecosystem models. Most will concentrate their efforts on developing retail media networks, third-party marketplaces, data commercialisation, and paid membership programmes—strategies with mass-market appeal.

Walmart stands as a leading example of a traditional retailer spearheading the shift toward an ecosystem model, with around eight new revenue streams in development. As Walmart's CFO, John Rainey, noted earlier this year, this shift is poised to reduce dependence on brick-and-mortar sales, ushering in opportunities for faster growth and higher margins.

In summary, the exploration of alternative revenue streams is not just a passing trend; it's a strategic necessity. As retailers chart a course towards ever-increasing levels of diversification, they hold the key to transforming the industry landscape and securing their prosperity in a rapidly evolving market.