Business is awash in digital acronyms these days and the grocery industry is no different. AI, AR, VR, ML, DL – or make that artificial intelligence, augmented reality, virtual reality, machine learning and deep learning, to name but a few. The digital age has more than arrived – it’s taken over.
But what does all this technology mean for those in the grocery or supermarket business? If “Be Prepared” is the famous motto of the Boy Scouts, then it’s doubly so for the grocery and supermarket industry. This article will show how preparation in the digital age is everything.
What happened to Treasure Island?
There was a time when the worst thing for a supermarket was for items to be out of stock. Lack of stock meant less sales. On-time stock-taking and availability was king of the aisles. This continues to hold true, of course, but digital technology has entered the fray and its ability to make or break supermarkets has become stark reality.
Treasure Island Foods of Chicago is a painful case study. This grocery chain had been a Chicago institution for nearly 55 years, with its mostly small-format stores, filled with both common and hard-to-find items. Julia Childs famously called Treasure Island Foods, “America’s most European supermarket.” You didn’t get higher praise than that in the grocery business.
Unfortunately, the iconic supermarket chain closed its final six stores on October 12th, 2018, to the dismay of Chicagoans. Russell Walker, author of From Big Data to Big Profits: Success With Data and Analytics cited five reasons why Treasure Island couldn’t compete in today’s marketplace. Razor-thin margins, along with increased competition from dollar stores and even pharmacies were partly to blame.
Another big factor: the birth and dominance of e-commerce. Treasure Island differentiated itself from it’s competitors by having a wide variety of hard-to-find items. With the rise of e-commerce giants, this edge dissolved. Giants like Walmart and Kroger fought back against the likes of Amazon by investing in technology and expanded delivery. Treasure Island Foods is one of many smaller regional chains who were unprepared, failed to capitalize on digital options and paid the price. Many may not recover.
All of this is exacerbated by the proliferation of highly popular European low-cost chains such as Aldi. Paradoxically, the larger chains are expanding at a huge rate. According to Business Insider, the U.S. has 4.15 square feet of retail food space per person, nearly 30 times higher than in 1950. The end result: tighter margins.
Is there really any way that supermarket chains, especially smaller ones, dare to compete with the evil retail behemoth known as Amazon. The largest company on the planet seems to grow and grow like Seymour the bloodthirsty plant in Little Shop of Horrors. Yes, there are possible means. And digital prowess can be a powerful tool.
Retail is a competition. What league are you in?
The future has arrived and, in this future, all grocery store chains are now tech companies. Every step of the process, from getting products on shelves to tracking how these products sell, involves technology.
As the grocery business gets increasingly complex, it’s critical that grocers understand two simple, but big things:
1. Each emerging technology that grocers use has different levels. Little League to Big League. Guppy to Whale. Basic Arithmetic to Advanced Calculus. Pick your analogy.
2. It’s equally important for grocers to understand what level they’re currently at. A host of decisions will follow from this starting point.
Take Big Data as an example. 99% of grocers understand that they need to harness Big Data. But there are tons of established retail technology companies and promising startups all using the same buzzwords to describe what they bring to the table. Understanding how Big Data has evolved will help you harness all that data. For example,before investing in analytics, learn the difference between descriptive vs prescriptive vs predictive analytics.
Descriptive Analytics is about the past. What has happened? – Descriptive analytics takes the raw data you have and summarizes it. Here’s what’s happened with grocery sales after the last recession we had.
Predictive Analytics is about the future. What could happen? – Here’s what will happen if we offer free same day delivery on groceries. What if we spend 10% more on advertising?
Prescriptive Analytics provides advice based on those predictions. What should we do? – Increased sales volumes won’t be enough to make free same day delivery profitable. You’ll have to charge a fee.
The layers don’t stop here. For example, not all predictive analytics solutions are the same. Some predictive analytics solutions use statistical models. Others use machine learning. There’s a significant difference in the benefits of each. Even a surface level understanding of the differences between these levels will help you understand where your company is. More importantly, you’ll understand the different benefits your team can get from each level.
Without this understanding, you could be getting left behind like Treasure Island. Imagine if a grocer adopted basic reporting tools (descriptive analytics) and then said ‘Welp, looks like we’re all good on anything involving analytics now that we have reports’. Believe it or not, this actually happens! Management then stops learning about or investing in anything related to big data because they assume that they’ve checked the “analytics” box.
Meanwhile, Amazon is investing heavily in machine learning. Kroger just unveiled a three year, $9 Billion plan that features machine learning and AI at its core. Money talks. Clearly, Amazon and Kroger understand that if they’re not leading, they’re falling behind.
Use Technology to Build on Strengths
Brick and mortar has a singular edge over online shopping: literal instant gratification. Nothing drives sales more than being able to touch, smell and taste your heart’s desire. Nowhere is this more true than in supermarkets. Smart grocers are using technology to amplify these strengths. In his analysis of UK supermarkets, technology executive and author Jonas Lind found that innovation by supermarkets has been focused on “attention-grabbing projects” related to omnichannel marketing. Lind argues that supermarkets also need to focus on the basics: simple replenishment and maintenance of inventory stock levels. U.S. supermarkets had an average of 8% of their inventory being out of stock. Every single time a shopper can’t find what they want in a store, they’re driven into the arms of both your brick and mortar and online competitors. Making sure that high demand items are in stock enables the instant gratification that is the core strength of grocers.
Another way that grocers are building on their strengths is by offering same day delivery. Target is one such company trying to achieve this with its same-day grocery delivery service via its acquisition of Shipt. Same-day delivery is becoming the norm. Sam’s Club commenced a same-day delivery service via Instacart in select Texas cities in early 2018. In the UK, Waitrose has upped the ante by offering two-hour grocery deliveries in London.
Big players have economies of scale on their side. Smaller, regional supermarkets can combat that in select areas by adopting online shopping platforms that complement their own advantages: proven market presence and brand loyalty among local customers. Imagine what Treasure Island Foods might have achieved with that strategy.
One example of a company that can help grocers achieve that is Rosie, a startup that helps smaller regional chains reach more customers. Rosie offers smaller grocers a seamless omnichannel shopping platform that provides data analytics, order fulfillment with delivery logistics and shopper marketing. Demand for these kinds of solutions is on the rise and Rosie is one of countless companies that have sprung up to meet this challenge.
Canadian economist John Kenneth Galbraith once remarked, “A person buying ordinary products in a supermarket is in touch with his deepest emotions.” How very true. Except that now those emotions have also become digitally inspired and influenced. As technology companies, grocers need to be hyper aware of the different evolutionary stages of emerging technologies. Block chain technology is poised to have a huge impact on retail. Successful grocers can apply the same mindset to block-chain as they did with Big Data. The routine should be the same: build up expertise on how a specific technology works, leverage that technology and reap the profits.
Treasure Island Foods should be respected for the strong loyalty it engendered in its local Chicago communities for over half a century. However, the larger trends in technology that made it impossible for Treasure Island to remain in business show no sign of stopping. Every supermarket chain needs to reconcile its business to that reality.