Retail 4.0: the Future of Retail Grocery in a Digital World
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Retail 4.0: The Future of Retail Grocery in a Digital World Parag Desai Ali Potia Brian Salsberg The Future of Retail Grocery in a Digital World Introduction f there’s one thing that always stays the same Retail 1.0: Birth of the modern supermarket in retail, it’s change. New stores open, others Retail 1.0 had its start at the beginning of the 20th go out of business. Market leaders experiment century. In the grocery business, Piggly Wiggly I with larger or smaller store formats. They was arguably the earliest and most influential change the layout in their stores and launch new innovator, offering the first true self-service grocery private brands on their shelves. Loyalty programs store—at least in America. In 1916, at a time when are tweaked, new offers and affinity programs grocery shoppers presented their orders to clerks designed. Supply chains become more automated at a desk who then gathered the goods from the and efficient, resulting in increased product store shelves, often hidden from view, availability and improvements in Clarence Saunders founded the inventory management.But in oddly named Piggly Wiggly reality there are few really big in Memphis, Tennessee. innovations in retail. Most Saunders had developed of the change we see year a way for shoppers after year is relatively to serve themselves, incremental. True suddenly making transformation in this packaging and brand sector comes along recognition crucial only once every few for manufacturers. decades. And when According to its these transformational corporate history, events occur, they Piggly Wiggly was nearly always create the first modern new winners and leave grocery retailer to a trail of casualties in their provide open shelves wake. and checkout stands, and to price-mark every item in To understand whether today’s the store. It also put employees in innovations represent seismic industry uniforms, franchised independent grocers shifts, it’s useful to recognize the three preceding to also operate under the self-service method, “ages of modern retail”. This report focuses on and designed standardized layouts, fixtures and the grocery sector, but we also draw on the best equipment. Piggly Wiggly Corporation patented practices and experiences of leading retailers in the self-service format in 1917 and its franchising different categories from around the world. For model effectively propagated these ideas at high the purposes of this article, we’ll peg the birth of speed. By 1932, there were over 2,500 Piggly modern retailing to the 20th century and begin with Wiggly stores nationwide and other regional what we call “Retail 1.0.” grocery chains had started adopting the concept. 3 The Future of Retail Grocery in a Digital World Once the self-service concept was firmly enshrined old. A young man named Jeff Bezos decides that in the retail sector in the United States, incremental the Internet is a perfect channel to sell bulky items change took over. Lower prices, larger stores, like books. Yet Bezos’ innovation was no ordinary parking lots, category management, gondolas, in- bookstore. He had the foresight to create a much store promotions, shelf facings and planograms broader e-commerce universe. In order to get followed. Dozens of similar self-service supermarket repeat traffic and differentiate his online bookseller mega-chains followed, both in the United States from brick and mortar competitors, he added the (King Kullen, Kroger, Safeway) and in Europe. option for buyers to write their own book reviews, and he built the now-famous recommendation Retail 2.0: Hyper-size me engine, which has been as important to Amazon. Fast-forward fifty years to 1963, and the birth of the com’s success as anything. At the same time, modern hypermarket. Carrefour opened its doors Bezos took a big risk by tackling the biggest hurdle in the Paris suburbs around the same time the first to online shopping – delivery costs – by essentially Walmart appeared in Arkansas in the U.S., (although eliminating them and treating them more as a it would still be a number of years before the marketing expense. By 1997, Amazon.com had company offered fresh food). The key idea here was generated $15 million in revenue and e-commerce “everything under one roof,” with that roof being had become a buzzword that ushered in a new era a pretty big one. The modern hypermarket was a of retail – an era where creations like e-auctions radical step ahead in terms of space utilization, (eBay), online category killers (Zappos) and big data productivity, efficiency, and cost management. The analytics continued to add to the evolution of Retail value for customers increased dramatically through 3.0. Today, Amazon.com is very much part of the lower prices and greater choice. The format more retail establishment – no longer a nimble attacker, or less took over the grocery sector in France and and it may have to face off against new threats of Spain within 15 years, and has subsequently spread its own. across the world, including to emerging markets such as China, Brazil and Thailand. In the U.S., E-grocery, however, has had mixed fortunes. The Walmart generated most of its growth during the first e-grocery players emerged in 1997, hot on the 1990s and 2000s from supersizing the hypermarket heels of Amazon. Webvan, named as the largest into the Supercenter. Once again, a transformational dot-com flop in history, serves as a cautionary tale. event in modern retail led to countless incremental The company went public in 1999 with innovations – from private label products, a customer satisfaction model that multi-format offerings, category killers and included 30-minute delivery ever more complex retail supply chains. windows. It grew too quickly and never managed to Retail 3.0: The rise of reconcile its high operating e-commerce expenses with the low Leap ahead another few customer adoption of the decades, to a time when big box idea of buying groceries hypermarkets and category killers online. were firmly entrenched as the kings of the retail world. The year is 1995, Overall, the e-grocery model and the first modern e-commerce has taken much longer to get transaction is only a couple of years right than other areas of retail, 4 The Future of Retail Grocery in a Digital World and successful companies in this space are a mix segment the online grocery store into its component of traditional brick and mortar players like Tesco parts, identifying aspects of the purchase that can and start-ups like Peapod and Ocado. Amazon. be “peeled off” in order to make money through com has been piloting its AmazonFresh service in things such as home-delivery, click-and-collect, the Seattle area since 2007. Only a decade after drive-through and centralized lockers. Quidsi, the e-commerce went mainstream, we are beginning New Jersey-based e-commerce company that was to see sustainable business models in e-grocery acquired by Amazon, for example, has profitably – companies that carefully manage their logistics, carved up the grocery basket to create online pricing and customer loyalty. How many of these category killers like Diapers.com and Soap.com, players will ultimately be able to build sustainable sectors that were once the preserve of the (i.e. profitable) business models remains be seen, supermarket. Of course, the success of the but we know that for the e-grocery pureplays, there e-grocery relies heavily on overall warehouse is a scale that will allow the very best to survive and utilization; customer penetration in densely thrive. As these business models begin to stabilize, populated areas; and order frequency/basket size. key players are implementing strategies that lead us In other words, we don’t expect to see the model to believe we are entering the next transformational succeed in all countries or geographies. But as change in retail – the dawn of Retail 4.0. e-grocery players become adept at their game, with virtual stores, low prices and effective delivery Retail 4.0: Multi-channel, or Omni-channel models, bricks and mortar grocery stores who don’t adapt may be left to play in the convenience store/ retailing With searching and buying on PC, tablet and mobile food service game, selling products at the lowest- phones becoming near ubiquitous, brick and mortar margin end of the spectrum. retailers are experimenting with virtual stores. Some are even converting their stores, or parts of them, 2. THINKING DIFFERENTLY to fully-functioning warehouses or “dark stores”. ABOUT THE BOX The role of the box, whether big, small or online, is Smart brick and mortar grocery retailers suddenly changing. Although it is not immediately are redefining themselves in response apparent what shape Retail 4.0 will take, or which to the threat of e-grocery attackers. company will get assigned credit for heralding this Seeking new ways to engage customers, new age, we have selected seven trends to watch they are creating purchasing occasions beyond the in this space with a focus on retail grocery. These physical store, blurring the lines between online trends bring into sharp relief the future role technol- and offline. Some are even going beyond individual ogy will assume in the business of retail, even for purchases and establishing on-going subscriptions for the most traditional brick and mortar players. customers. All this may mark the death of the big box retailer as we know it. At a minimum, we believe that all successful physical supermarkets or hypermarkets 1. CONTINUED RISE OF will have to offer a compelling customer experience. E-GROCERY “ATTACKERS” Price, assortment and convenience will simply There is a false comfort in believing no longer be enough.