What Should a Grocery Retailer Do?
By Juha Maijala, CEO, Blockstore Group
Beginning of a new year is a good moment to look forward. I have been studying more quick commerce, online, and brick and mortar supermarkets - as avenues for grocery retailers towards future success - What should a grocery retailer do in 2023?
Few things at first:
Please do not mix grocery retailing with retailing in overall. This text is all about grocery.
Online continues to grow, but physical stores are also needed in the future (by deploying more technology to stores and to supply chain, brick-and-mortar stores will stay competitive).
The rise of online grocery shopping has shaped the market’s development. And online has had a great meaning for Blockstore Group too. Without the development of online delivery model, our smart grocery store solution could not scale. Thus, our smart store and smart supply chain solution would not have been possible 20 years ago, not even 10 years ago.
My learnings for the grocery – Where to focus on 2023?
Take omni-channel under serious planning (the future will not be only about online).
Go online and with automation.
Rethink logistics, supply chain and IT infrastructure (Omni-channel retailers will need to integrate online and offline supply chains to realize synergies) – and thus to become cost competitive and at the same time more sustainable.
By taking these actions I believe the outcome is:
Total cost for the consumer and availability will be more similar between hypermarket, online and local supermarkets. Consumers select the channel they prefer (and the cost for getting the product should be comparable).
The differentiator factor will be fulfilling the consumer need and providing the experience they want.
I found out that many studies give guidance to look for consolidation, automation, better customer access and experience shopping in each channel. And that makes sense. Nevertheless, one thing I am missing is productivity and automation improvements of local physical supermarkets to work seamlessly with online and different delivery methods.
I also know the reason why that is not considered in detail yet. There has not been such technology available to implement. Automation should go throughout the business and consolidation can happen internally also. The supermarkets built and operated with traditional technology are currently the weakest link in omni-channel development. They will not survive as independent units, without the connection to other units.
We at Blockstore have been focusing on physical store automation for the last two years. Having strong in-store technology complemented with supply chain automation offers a solid foundation for true omni-channel approach likewise for autonomous operations.
Analyzing the grocery market and new innovations deployed, I see that omni-channel is finally starting to happen. Quick commerce is on a hill ride - unfortunately a bit downhill ride now - but they had their moments, and “the grocery laws” of profitability and volumes are influencing. Online grocery is facing “hangover” phase after the Covid, but the share will definitely grow. Nevertheless, as I stated before, there will not be only one way of selling groceries and therefore we need to understand how to make the best of each channel and make them work together.
Next let´s take a look what is the omni-channel model? What will it look like?
It is hard to vision the omni-channel if we don’t start to describe it. Here is my view:
“Omni-channel grocery is a setup of online sales with suitable warehouse and delivery capabilities, combined with digital and automated local supermarkets as delivery and service hubs, backed up by more traditional hypermarkets and supermarkets as experience centers”.
The newest PwC-study “The Future of Grocery” describes well the future and brings together the right building blocks as shown in the picture below. However, what I am missing is the volume view. The critical mass for business to be profitable comes from volumes in grocery.
The combination of three instead of many dispersed
Each of the building blocks can operate separately but together they build bigger entities. However, my view is to focus on these blocks:
a) metaverse, mobile shopping and grocery showrooms serve online,
b) grocery showrooms, smart fridges and automated minimarkets are the base for automated local supermarkets (but they just cannot be small – it is economically impossible equation) and
c) experience and showroom shopping take place in these malls and hypermarkets.
Why would automated supermarkets serve also as delivery hubs?
My reasoning for the above question is:
a) It increases the merchandise availability and more customers visiting the stores. Smaller store SKU availability combined with digital and seamless online integration provides better and more sustainable SKU availability.
b) Automated supermarket coexisting with online will reduce costs and enhance revenue through overall efficiency. This allows online grocery to become profitable. And the local supermarkets also.
c) Not only the profitability but consumer preference will keep the stores to serve as stores, as picking locations and as distribution locations.
These three points have also been the main drivers for Blockstore Group to develop our technology and solution to serve online, last mile delivery and the automated store.
Profitability of local automated stores
The reason why local grocery stores should transform towards higher level of automation and to become part of the omni-channel model is that with current profitability levels and technology, the future is expected to be ugly:
“The continuing growth of eGrocery will likely cannibalize in-store sales. Because these have high fixed costs, their profitability is expected to plummet by up to 80 percent. The bigger the shift to online grocery purchasing, the bigger the decline in profitability of traditional stores.” Source: PwC – The Future of Grocery.
And more insight from doctoral dissertation from Stockholm School of Economics (Profitability Performance of Supermarkets, Mikael Hernant, 2009):
“Supermarkets achieve the profitability that they do primarily due to their profit margin, i.e. due to their ability to maintain a spread between gross margin and operating costs.”
“Lower prices, greater merchandise variety, higher service level, and more promotion are associated with larger volume of sales.”
We at Blockstore Group believe in omnichannel model with automated supermarkets. The new model will provide success for the grocery retailers.
Blockstore solution provides autonomous and automated supermarkets with smart supply chain. Our solution reach is beyond the store i.e., it is not only a one module - like check-out-free - but full store solution, enabling unmanned store operations with Walk-In Walk-Out shopping experience, real-time item level inventory with best before date tracking, and warehouse module to enable scalability.
After calculating the number of stores of 17 European based grocery chains the estimate is 74887 grocery stores operating in the market. The estimated share of hypermarkets vs local supermarkets is 5%/95%. If those local supermarkets are not developed and utilized in profitable way with online, would it be total waste of time and resources?
PwC future of grocery retail (https://www.strategyand.pwc.com/de/en/industries/consumer-markets/future-of-grocery-shopping.html)
Profitability Performance of Supermarkets, Mikael Hernant, Dissertation for the Degree of Doctor of Philosophy, Ph.D Stockholm School of Economics 2009.