The present crisis imposed on us by the COVID-19 pandemic is likely to have a lasting impact on the strategies of retail businesses, even after this threat is over. We are likely to see more purchasing online, more home delivery, and more social distancing. The emerging digital technology revolution also seems key.
In this article, we shall discuss what seem to be several major shifts in retail firms’ strategies, using Swiss-based retail firm Migrolino as an example. This company, wholly owned by Switzerland’s largest retailer, the Migros group, consists of around 330 retail outlets, most of which are co-located with petrol stations. The typical Migrolino store is thus relatively small and caters primarily to the convenience-driven shopping needs of customers.
It should be noted that Migrolino was only one of two subsidiaries of the Migros group which experienced ultra-high growth in the midst of the COVID-19 threat (the other was a mail order business). Social distancing was a vital element!
The research methodology adopted in this note can be characterised as pre-paradigmatic (Glaser and Strauss), i.e. intended to frame key current dilemmas in such terms that they might then, in follow-up research, be suitable for more conventional empirical testing. The resource of large sets of data, combined with powerful computer-based algorithms, has been made use of in our research (Marmara; Schweidel).
Migrolino – a brief history
The senior leadership team at Migrolino saw it as a vital mission to initiate changes, to meet emerging customer demands (social distancing, for example) and to change the purchasing experience in stores, with more relevant product offerings and a better store layout. At the same time, adhering to social distancing was crucial. With help from McKinsey & Co., a set of four archetype stores were identified. It should be noted that the general manager (Markus Laenzlinger) did not foresee a significant demise of the future role of traditional filling stations, except for a move to relatively more methane gas filling, as well as more electric recharging.
So, who are the customers? There seem to be four major customer groups:
- Grocery shoppers, who demand, in particular, a complete assortment of ready-to-consume goods, as well as convenience.
- Lunch/snack shoppers, who perhaps particularly appreciate “ready” meals, such as ultra-fresh/ready-to-eat products, snacks, yogurts or chocolate.
- Commuters and night “crawlers”, who perhaps, above all, look for takeaway coffee, alcoholic drinks and tobacco.
- Fresh-goods buyers, who might also be inclined to go for typically small impulse shopping, including gifts (such as flowers).
New product concepts
Innovations have been perhaps the major driver of growth for Migrolino, indeed “inspired” by the new COVID-19 reality:
Inspiration for customers and their competition. As an example, Markus Laenzlinger spent much of his time talking with customers, in Migrolino stores as well as in those of competitors. The result was a carefully delineated pricing strategy, so that customers with different means might find products that fitted their particular economic reality. To adhere to social distancing was, however, a common factor for all four types of stores.
Inspiration from outside organisations, such as The Retailers’ Forum, as well as US-based Service Marketeers. Markus Laenzlinger claimed that he got a lot of useful new ideas from his active participation in both of these organisations. COVID-19 was a reality in many parts of the world, and he could learn by “cherry-picking”.
One such innovation was the so-called “Product Picker”, which picked an assortment of pre-specified products for any given customer. This concept was tried out in one store, but was considered to be inapplicable more broadly, in that the concept did not allow for sufficient tailoring to the specific preferences of the various customer groups in Migrolino’s many stores, even though it appealed to many customers who adhered to distance shopping.
McKinsey & Co. spearheaded the delineation of Migrolino’s customer base by analysing masses of customer data from the stores’ cash registers, by applying large-data analysis/cloud computing, and came up with the four store archetypes already mentioned.
Research reported on by Lorange and Rembiszewski indicates that innovations are more effective if they are also communicated well to the target customers (Lorange and Rembiszewski). And, while large, disruptive innovations might be relatively rare, Lorange and Rembiszewski found that so-called incremental innovations might, in effect, add up so as to become quite similar to disruptive innovations.
The customer in the era of COVID-19
For today’s customer, the concepts of safety and convenience seem key. Most of the Migrolino stores are thus located near, or form part of, petrol stations. So customers can also shop when they need to put petrol in their cars (there are no large crowds here!). What might be important for the modern customer, then? Some crucial factors might be: safety/social distancing, quick/easy shopping, healthy food, convenient opening hours, good hygiene, superb location/accessibility, friendly staff, ease of orienting oneself in stores, and perhaps also relaxation zones within the stores. The typical modern customer might look for safety and high-quality products, rather than requiring a lot of variety in offerings. And he or she is relatively insensitive when it comes to price.
They are, however, positively driven by what they might feel to be innovation and the “modern, safe profile” of Migrolino. The physical location is key. In line with this, Migrolino hired a US-based specialist to work on its store concept, to develop the so-called “go further” store. This involved self-service checkouts, easier payment solutions and strong, ultra-fresh assortments of goods. New packing designs, above all for the ultra-fresh products, such as sandwiches, salads, smoothies and ready-to-eat products, would also be developed. And safety is, of course, a vital factor when it comes to all of this.
Communication is particularly crucial in the COVID-19 era
Communication with customers has so far largely taken place through the physical layout of the stores, especially with prominently located disinfection bottles, floor markings, posters, etc., but also through conventional advertising (which was, however, limited by the relatively small budget for this at Migrolino). As noted, the advertising was mostly in-store, such as posters, rack advertising, etc. A local radio station was also used. Migrolino’s top management felt that word-of-mouth advertising would be a definite strength, above all given the close link with frequently visited filling stations.
Migrolino’s top management also developed an innovative new system for communication with its customers, with special focus on COVID-19-related issues. This system was to be tailor-made to each of the four types of stores and would make broad use of the Web. For instance, when approaching a “ready-to-eat” store site, there would be an automatic alert that this given customer would be coming!
A new store concept
During several months in 2020, since the outbreak of COVID-19, Migrolino had developed a novel ultra-compact retail concept, with a “corner shop” character, i.e. very small. This ultra-small version of the Migrolino store concept, with retail area from 30m2 to 80m2, was rolled out in various urban locations, starting in the fourth quarter of 2020. Small urban locations as well as the smallest gasoline filling stations were identified for this. So far the experience with this new store concept has been positive.
The main competitor was Pronto, owned by Switzerland’s second-largest retailer, COOP. Valora, another convenience-store chain, was also a competitor. In addition, conventional retailers were also a source of competition, as well as butchers, bakers, etc., and other filling-station stores, too!
How would these differ from Migrolino? Pronto had, in the past, benefited a lot from being profiled as a food company, with a clean, “white” appearance. In contrast, most filling-station-based stores were seen as “oily”, with traditionally a heavy dominance of car accessories (batteries, motor oils, window cleaning fluids, wiper blades, etc.), so that, to an extent, they were seen as somewhat less clean, or even less safe! However, Migrolino followed suit, by developing more of a “clean” food profile! Its strong emphasis on safety and fresh products has contributed a lot to this.
One might ask: “Is Migrolino doing things better than the competition?” Migrolino needs to be completely focused on its type of retail business and have total control over all elements of its own organisation in order to do an effective job in this regard and, above all, to improve safety measures. Migrolino also benefited from its parent, Migros’, strong position in the market when it came to both its safety image and good quality!
Are there exceptional opportunities these days?
What might be seen as further opportunities? To build on the advantage regarding health and safety in its relatively small stores would be crucial. Then another key would be to further evolve and broaden the store concept. In Switzerland, this might above all imply the introduction of more ultra-fresh products, including freshly made gastro-convenience products. Safe wholesale activities might be a second area of opportunity.
Third, perhaps a convenience house or multi-brand store-within-a-store type of outlet might evolve (such as McDonald’s or Burger King), as well as motoring supplies (wipers, batteries, oils), tyre-exchange centres and classic petrol outlets.
It should be pointed out that, traditionally, Migros filling stations (Migrol) consisted of an outlet for petrol and a store. The parent Migros organisation then split these two functions and moved the stores into Migrolino, and thus also created more “pure” petrol filling stations. The result was not only added focus, but significantly added returns in both the filling-station stores and in the retail stores! And this also made it easier to implement safety-related measures.
More customer traffic was an essential element. The more effective the Migrolino stores were, the better also for Migros. And modern Migrol filling stations would benefit Migrolino too! The strategies of the two sister divisions were becoming increasingly interdependent. COVID-19-related safety measures seemed to be key to this.
We have discussed how new innovations, particularly those related to COVID-19 safety, have propelled the emergence of new types of retail purchasing concepts, driven by safety and convenience. We have seen that the concept behind Migrolino might represent a full-fledged, modern, freestanding retail approach of its own, indeed built on several smaller innovations, and thus, in total, representing disruptions relative to traditional retail options (Christensen). The concept of the large supermarket and shopping-market stores, which in the past drove out many of the traditional, relatively small retail stores, may now itself be under pressure, not least because of safety-related issues such as the inability to guarantee social distancing. Until recently, these large stores, typically parts of large chains (either owned or franchised) would have both a cost advantage and a diversified product portfolio advantage, but that was before COVID-19. Now, the concept of safety and convenience associated with the smaller Migrolino-type stores may become the new winners.
Will this be sustained? We are already seeing home-delivery services for several categories, above all fresh products, made available through the rise of the modern internet. Shopping online is becoming more and more key – witness Amazon’s food business! But customers do need to purchase petrol. And this could mean that the Migrolino-type concept might continue to grow and be viable too. Only time will tell!
About the Authors
Peter Lorange, after having sold his shipping company in 2006, has been a successful entrepreneur and owner of a highly diversified family office. He has been regarded as one of the world’s foremost business school academics, holding the position of President at IMD, Lausanne for 15 years, as well as several positions on shipping company boards. His entrepreneurial journey spans across key areas such as education, shipping, investments, and pre-dominantly Family Businesses. Peter founded the Lorange Network, a digital learning and networking platform, in 2017. Peter is Norwegian, residing in Küssnacht am Rigi, Switzerland.
Since 2009, Markus A. Laenzlinger is the Managing Director of migrolino AG, a subsidiary of the Federation of Migros Cooperatives in Zurich. migrolino AG is a wholly owned subsidiary company of the Federation of Migros Cooperatives, which has been operating convenience stores under the “migrolino” brand since 2009. It has in total 326 sites across the nation (as per October 2020). Mr. Laenzlinger has a Dual MBA from GSBA Zurich/Switzerland and State University New York, NY, USA, and has completed the Executive MBA from Lorange Institute of Business, Horgen/Switzerland in 2009.