We are living through a time of creative experimentation: Retailers are innovating with new store sizes and formats, technology companies are building a physical presence, brick-and-mortar retailers are leveraging digital programs to connect with their shoppers, and everyone competes for the consumer share of stomach. Retailers have become manufacturers by building out private label programs and brands, and recently manufacturers have been developing direct-to-consumer selling models that bypass traditional retail. Everyone in the industry is striving to provide new levels of convenience, authentic experience and genuine dialogue between merchant and consumer.

Rob Hill

Though endless complexities will impact the retail industry in 2017, here are 10 themes that should be top-of-mind for every retailer this year. These themes will continue to shift and shape the marketplace and provide opportunities for retailers.

Importance of data and analytics
The rise of digital marketing platforms, near ubiquitous consumer adoption of mobile technology and expanding cloud-connected systems provide marketers with more data than ever before. The challenge facing retailers will be to ensure that decision makers have the ability to access the right data and have the right analytic frameworks that will enable them to improve operational efficiency, understand consumer demand and inform marketing and merchandising strategy while improving ROI. Systems need to connect internal point-of-sale, marketwide, consumer, digital and third-party data and provide analytic tools to enable effective decision making across all levels of the retail organization. Effective use of data and analytics is becoming the core competency that informs all aspects of supply, merchandising and marketing.

Personalization
Retailers have relationships with millions of customers. Personalization strategies are becoming increasingly important to strengthen those relationships in the face of digital-native competition from e-commerce. An effective personalization program will help retailers better understand the specific needs of customers, provide services such as predictive shopping lists that enhance the shopping experience and surgically target consumers with offers relevant to their expressed preferences. In addition, personalization programs can help forge a strong partnership between retailers and manufacturers as they jointly work to delight their customers with the right product, at the right place and at the right price.

Shifting Demographics
The face of the shopper continues to change, and with that comes a change in product preferences and shopping habits. By 2020, 57% of the U.S. population will be Millennials or younger. According to recent Nielsen research, Millennial shoppers are more likely than ever before to be multicultural. And they are shopping in new ways: Multicultural Millennials who are active on their mobile devices spend over $65 billion per year — with an increasing majority of those dollars being spent online. As the economic power of African-American, Hispanic and Asian segments continues to grow, it will be critical to understand which products best align to their demand and which channels they prefer to use to engage with retail. Although demographics are changing, we also can’t ignore the spending power of baby boomers as they demand products that support their changing life-stage ­classifications.

Localization
Closely related to demographic shifts is the continued demand by consumers for locally relevant choices. Social media and digital marketing channels are allowing consumers to discover niche products and identify with local brands. Craft beer was an early example, but as a trend we see continued growth of local, specialty and gourmet offerings that appeal to defined groups. Understanding what products resonate with local shoppers will be a key differentiator for any retailer, whether a local corner store or a national chain.

Shifting Methods of Consumption
The digital economy has also allowed for unprecedented information to be shared by consumers within social groups about the benefits of diets, lifestyle choices and personal health. This can be seen in the growth of natural/gourmet stores. Between 2010 and 2016, Nielsen TDLinx data shows that the number of stores in the natural/gourmet classification increased by 48%. New product offerings in categories such as milk, in which we have seen growth of substitute products such as almond and rice milk and lactose intolerant formulations, reflect the growing consumer demand for products that fit lifestyle choices. Although fads come and go, the changes we are seeing today can be more accurately characterized as an explosion of choice — choices that will establish a lasting and significant presence in retail assortment offerings. Questions such as what to carry, how to stay in-stock, how to be first to market and how to stay ahead of emerging trends will require integration of sales data, custom research and social listening in a manner that helps marketers act decisively in order to maintain customer ­satisfaction.

Winning the Food War
Recently dollars spent on meals sourced away from home exceeded those spent on purchases of food-at-home. Consumers are demanding convenience, and new meal options have appeared across all outlets. For example, traditional convenience stores have been adding options for freshly prepared breakfast, lunch and dinner. This puts them in direct competition with quick-serve restaurants, and also with deli and prepared meal offerings at supermarkets. Retailers across all channels are responding with updated and new format ideas: fast-food restaurants are doing makeovers to appeal to Millennials, grocery stores are trying out in-store dining options and even including comfortable seating and free WiFi and new formats are appearing that create a unique experience that is a blend of food court, food store and culinary experience. These developments require that marketers focus on the needs of their target customers and continually innovate in order to create a rewarding and value-driven experience.

Economic Trends
2016 was the first year since 1967 in which food-at-home prices showed annual deflation. A primary driver was the deflationary trend in commodities prices, and a strong dollar reduced demand for agricultural exports, thus increasing the domestic supply. At the same time we are seeing increased price competition from value-focused retail formats. Despite unit volume remaining relatively steady, this will create challenges for retailers who are experiencing declines in total revenue. Where can retailers make up the revenue shortfall? While we can’t predict if prices will continue to decline, level off or reverse trend, we can anticipate that economic trends in an interdependent global economy and unanticipated policy changes due to a shifting political landscape will create new challenges for retail. Navigating the landscape will require analysts to track key economic indicators and integrate multiple data sources in order to build forecast models to guide business planning. And while revenue declines due to price level changes are painful, it will be important to stay focused on unit volume to ensure that the business is growing versus diverting to competitive channels or solutions.

Mergers and Acquisitions
We’ve seen large retailers merge to make their operations more efficient, and that has led to retailers acquiring digital companies in order to gain talent, technology and market traction. Native online retailers have merged with traditional brick-and-mortar stores to gain access to existing customer relationships. The common thread is that in today’s low-growth economy, everyone is looking to maximize operational efficiency, break into new markets and improve profitability.

Evolution of Omnichannel
Omnichannel retail continues to evolve at an astonishing pace as retailers experiment with new store formats and new ways of integrating digital into the shopping experience. New market entrants are reinventing the customer experience by building on strength in technology platforms. In this challenging competitive environment, all retailers need to continually explore how to blend the best of the in-store experience with digital support in order to maintain relevance as customer expectations evolve.

Collaboration
As an industry, we collectively want to provide value to the consumer. The best insights happen when retailers, manufacturers and industry suppliers work together to understand the total consumer.

At Nielsen we believe that an open, connected and collaborative ecosystem of data and analytics provide the strongest foundation for understanding and delivering value to the consumer. That’s why we have invested in the Nielsen Connected System, an open and collaborative data exchange ecosystem to provide retailers and fast moving consumer goods manufacturing partners with the broadest array of insights that will drive growth and ­profitability.

The year 2017 will be challenging, engaging and rewarding for the FMCG (fast-moving consumer goods) industry. But with great opportunity comes great risk. The winning manufacturers and retailers of tomorrow will be those that continually develop and refine their processes to best serve their customers. Risk in our digital age can arrive swiftly — fail to innovate and consumers will be one click away from forming a new relationship elsewhere. Success in the future will increasingly rely on an integrated and connected view of the consumer, supplier and vendor so that each has the best information to make decisions and meet consumer needs and demands in a rapidly developing and changing ­marketplace.

Rob Hill is executive vice president of U.S. retail services at Nielsen.