Since 2020, retailers have had their hands full keeping shelves stocked, stores fully staffed and groceries affordable for consumers hit hard by inflation, leaving little time for innovation in the traditional sense. But in response to the problems brought on by the pandemic, they actually came up with some pretty creative solutions. So while innovation looked different during the past two years, it never stopped happening. And consumers have taken notice.
In fact, of 190 companies across 19 different industries, the one that recorded the biggest increase in perceived innovativeness between 2018 and 2022 is Ahold (+20.6 points). Albertsons (+11.2 points) was also listed among the top 10 gainers.
TRADER JOE’S LEADS THE WAY
The findings were announced last month by Fordham University’s Gabelli School of Business and market research firm Rockbridge Associates, whose American Innovation Index (Aii) is the only one that measures the innovativeness of U.S. companies based on customer experiences. Built around more than 7,000 consumer surveys, the 2022 Aii also breaks out results by industry. In the supermarket and drugstore sector, the most innovative companies are Trader Joe’s (the only supermarket listed among the top 25 across industries), Whole Foods, Publix Super Markets, Aldi and Kroger.
‘Product innovation is so important to retailers. They’re always looking [to offer] something new because it helps differentiate them. They rely on innovative assortments to get people in the store.’
— Joan Driggs
The diversity of the top finishers underscores the many different forms innovation can take. At Trader Joe’s, for example, it’s all about the highly curated assortment of unique, high quality own-brand products combined with engaging employees who seem genuinely interested in creating a positive shopping experience. But unlike, say, Kroger, which is innovating through technologies like its new KroGO carts and automated customer fulfillment centers as well as its data-driven customized offers, Trader Joe’s is about as low-tech as it gets. There’s no online shopping, no loyalty card, no digital coupons. Even the signs are hand-printed. But consumers perceive the chain as innovative nonetheless because it takes a different — albeit somewhat “old fashioned” — approach to retailing. And differentiation is the real goal, especially if you do what you do better than everyone else, says Joan Driggs, vp of thought leadership at Chicago-based IRI. Whole Foods sells the cleanest food money can buy, Aldi delivers rock-bottom prices and no-frills, and Publix offers industry-leading customer service. So it’s really no surprise that all three are considered supermarket innovators.
“It’s about knowing who your shoppers are and giving them what they need,” explains Driggs. “All the bells and whistles are great, but at the end of the day, if you ignore what shoppers want, those new technologies will fall flat.” As an example, she cites a recent decision by the Jumbo supermarket chain in the Netherlands to open up a “chatty checkout lane” after learning that many of its elderly customers are lonely. Now, senior citizens can go down a no-rush, low-tech checkout lane where a cashier will engage them in conversation and find out how they’re doing, offering the human connection those shoppers crave. “It’s back to basics yet so innovative,” says Driggs. “And it really helps set the chain apart.”
That said, technology that supports consumers’ need for fast checkout, online ordering, shopping lists, digital coupons, personalized offers and the like is important to many shoppers. But Driggs says that barring a few notable exceptions, the supermarket industry has been slow to jump on technological innovation, letting other industries take the lead. “Supermarkets and retailers in general are often hesitant to invest in technology because they fear it will be obsolete before they get enough bang for their buck,” she explains. They were able to get away with it for the last couple of years, but time is running out. “While supermarkets did great during the pandemic when one-stop shopping was what consumers needed most, those gains are starting to slip away as consumers are able to shop more channels,” says Driggs. Yes, this is a tough industry with narrow profit margins, she adds. “But if you’re too afraid to jump in on some of these things, you’ll get left behind. We see it all the time with traditional grocery.”
UNIQUE ASSORTMENTS HELP DIFFERENTIATE
Supermarkets do a better job with product innovation, but even that took a hit during the pandemic as retailers and vendors trimmed back their assortments to ensure best sellers stayed in stock. Driggs says large CPG companies in particular paused new product rollouts to focus manufacturing capacity on existing items, creating opportunities for small and extra small companies to fill the innovation gap — a trend that revealed itself in IRI’s most recent New Product Pacesetters report. So although new items continued to hit the shelves, they weren’t backed by big CPG marketing budgets. That decrease in promotion combined with changes in the way people shopped during the pandemic (fewer trips and a lot less browsing), resulted in less trial, reports Driggs. “But, repeat was much higher [than pre-pandemic] because once people found something cool, they bought it again and again, they told their friends about it, they posted about it,” all of which suggests pent-up demand for new and exciting products.
“Product innovation is so important to retailers,” says Driggs. “They’re always looking [to offer] something new because it helps differentiate them. They rely on innovative assortments to get people in the store.”
‘We’re seeing the full spectrum of innovation across the store. Part of it is the products themselves, but part of it is how people shop and engage with categories.’
— Anne-Marie Roerink
In fact, adds Anne-Marie Roerink, president of San Antonio, Texas-based 210 Analytics, 2% to 3% of total food sales come from new items, with even higher percentages in categories such as candy and salty snacks and, in our business, frozen novelties and frozen snacks. However, she says, innovation is a primary driver of category growth. If nothing changes, there’s no reason for new shoppers to enter the category or for existing shoppers to buy more or buy more frequently. But when CPG companies come out with new items that tap into megatrends such as convenience, health and wellness, premium quality and international cuisine, they can jumpstart growth in even the most mature categories. (Consider what microwave steam-in-bag technology did for frozen vegetables back in the day or, more recently, what smoothie kits have done for frozen fruit, dairy-free options for ice cream, or cauliflower crust for frozen pizza.)
“I was just touring a Safeway and noticed a bag that included meat, veggies and sauce, ready to go into a slow cooker or instapot — bag and all. No preparation, no cleanup. That’s a whole new level of convenience while tapping into popular preparation methods,” says Roerink. That’s the kind of innovation that drives growth.
Driggs adds that, in many ways, frozen food manufacturers are leading the charge on product innovation. Of course, frozen food is inherently convenient (though manufacturers continue to make it even easier), and there are literally thousands of new better-for-you items, from plant-based and gluten-free to organic and allergy-friendly. “But there are also so many interesting new products that are particularly appealing to younger consumers with a penchant for food adventure — and no lingering preconceptions about the quality of frozen food. Plus, you’d be hard pressed to make some of this stuff on your own even if you could source all of the ingredients,” she explains, citing Tattooed Chef’s portfolio as an example. “There’s a lot of creativity there.”
But manufacturers aren’t the only ones innovating in the frozen space. Retailers are also evolving their approach to frozen foods, albeit slowly. For example, Driggs says one chain in her area did away with the full service meat counter in favor of more self-serve options, which meant adding more freezers. And many retailers are carving out space for frozen products in other parts of the supermarket, a strategy popularized by the pet food folks. “We’re starting to see more merchandising like that throughout the store — ‘solutions’ versus ‘silos.’ And I think that’s noteworthy,” she says.
Roerink agrees. “We’re seeing the full spectrum of innovation across the store. Part of it is the products themselves, but part of it is how people shop and engage with categories.” That said, both Roerink and Driggs say the shift toward online shopping presents some challenges when it comes to innovative new products.
“New items underindex online where shoppers are much more loyal to past purchases,” explains Roerink. So retailers need to find creative ways to promote new launches among customers who may not see them in stores (think new item e-mails, a section on the website dedicated to new items, etc.). Driggs, on the other hand, would like to see retailers adopt augmented reality, so consumers could shop online the same way they do in-store, walking up and down virtual aisles and scanning virtual shelves. That way, consumers could actually see products they’d like to try.
SOCIAL INNOVATION INCREASINGLY IMPORTANT
In addition to overall innovation, researchers at Fordham University and Rockbridge Associates also measured social innovation — innovation that benefits society and the environment — also based on the experiences of customers. Again, of all 190 companies included, Ahold (+16.9 points) registered the biggest gain in perceived social innovation. However, Whole Foods (72.1), Trader Joe’s (70.0), Aldi (69.8), Publix (69.3) and Albertsons (64.2) grabbed the top five spots among supermarkets.
“I think social innovation is going to be very big,” says Driggs. “Right now, everything is about the environment — renew, reuse and recycle is hot. But Gen Z and younger Millennials in particular are increasingly interested in the ESG (environmental, social and governance) of the companies behind the products they buy. It’s gaining in importance every year.”
“More shoppers are aware that they can vote with their wallets around social responsibility and environmental stewardship,” confirms Roerink, though she believes that in most categories, price and quality are more important, especially for repeat purchases. “But there is a gap between today’s majority shoppers (Boomers and Gen X) versus tomorrow’s, so it’s going to start to matter a whole lot more.”