Retailers Need to Master Mashup of Virtual & Real Worlds to Thrive

1999-AD-man-looking-at-wifes-spendingThe look on the 1967 husband’s face is priceless as he sits in front of the console contemplating his wife’s shopping bill.

It is part of a video predicting life in 1999 and was shown by John Phillips, Senior VP Customer Supply Chain & Logistics PepsiCo, at the recent Irish Executives ( @IrishExecutives) conference in Galway, Ireland.

There were some laughs at the husband’s tut-tutting, but the video got a lot right, Phillips said. Things such as the internet, online gaming, email, online shopping and video.

The point Phillips was making dealt with the art of studying current trends to make informed guesses about the future — an exercise not to be taken lightly by PepsiCo, the world’s second-largest food and beverage company. Based in Purchase, N.Y. the firm employs 297,000 and had annual revenues closing in on $101 billion in 2011.

Drawing on the work of the Future Value Chain, Phillips laid out current demographic and technological trends, and their implications, that businesses need to keep an eagle eye on.

Global Demographic Changes

The world will see an marked increase in urban living over the coming years, Phillips said. Combined with this will be an increase in the number of mega-cities, or those with populations of more than eight million.John Phillips SVP PepsiCo

This is going to mean smaller stores, more competition for shelf space and greater challenges in keeping stores re-stocked, Phillips said.

These cities’ growth is going to be matched by a new middle class in the developing world. In 2000, 56% of the world’s middle class was in the developed world. By 2030, 93% will be in developing countries, Phillips said. “If you get it right, there is new growth there.”

This newly affluent group will pose a new challenge since governments, anxious to keep their new middle classes on side, may be more inclined to be protectionist, he said.

But Phillips cautioned that breaking in to Brazil, Russia, India or China (the BRIC countries) requries homework. “To do it right, you have to get your product portfolio right, he said.

Addressing the audience, he asked, “Why would the world’s largest burger restaurant company have a problem going in to India?” Yet McDonald’s completely overhauled its Indian menu while holding on to its core competencies to break in to the 1-billion-strong market, he said.

Meanwhile, the Western world will see its population age. In practical terms, that means more mobility devices in (the smaller) stores and larger writing on packaging for old eyes, Phillips said.

Technology Changes

The younger generation, already entering the job market, is now adopting technology faster than business. This used to be the other way around because business were the only ones that could afford new tech, Phillips said. But now, companies face the Bring Your Own Device (BYOD) phenomenon where employees come in with smart phones and iPads and expect to connect to company networks.

Social media will have a huge impact on buying decisions, Phillips said. The power of peer recommendation is huge, and that is amplified enormously by social media, he said.

My M&M websitePepsiCo’s Gatorade division has a mission control where the Marketing Department monitors social media 24-7. Part of its mission is to monitor Twitter and foursquare updates by celebrities to ensure there are adequate stocks of the sports drink in the vicinity.

Looking at apps in the market, Phillips mentioned Red Laser which allows shoppers to scan prices and compare them to those in other stores.

Calling shopkick a “sleeper app,” Phillips said part of its function directs shoppers looking for specific items to the correct location in the store. Although some of the apps appear to threaten retailers, Phillips said people who use them spend 10% more on average.

Meanwhile, online shopping continues to pose headaches for the bricks-and-mortar segment, he said. Annoyed that consumers were hitting their stores to look only before buying online — a phenomenon known as “showrooming” — U.S. department store chain, Target, has demanded pricing from suppliers that will let it compete with cheaper online stores.

And some trends are scary for traditional shops, Phillips said. By 2015, 20% of diapers, or nappies, will be bought online. Seeing one-fifth of such a reliable-selling category disappear is worrying for retailers, he said.

In Korea, British chain Tesco has devised one of the most-talked-about online shopping experiences. It bought wall space in the underground and put up posters where people scan shopping using their smartphones while waiting for trains. The goods are later delivered to their homes.

Virtual shopping also looks set to change, Phillips said. Instead of displaying a list of goods, online stores are more likely to look like online games where shoppers stroll around a virtual 3D environment.

Goods themselves are likely to become infinitely customizable, Phillips said. Nike allows shoppers to adorn their sneakers with school logos and other designs. And, if you are so inclined, you can tweak your M&Ms to feature photos, the company logo or some personal message, he said.

Phillips, however, said the online world is unlikely to completely replace the physical experience. But the winners will be those that “master the mashup” of digital and real, he said.

  • M&M image is a partial screen shot of the My M&M website.
  • Image of John Phillips taken from the Future Value Chain website.
  • 1967 man is a screen shot of the video 1999 AD below.