Food retailers are working hard tobalance their response to surging customer expectations with the need to offset marginpressure. Automation can help, and the best way to use it is to focus first on reducing costs to help maintain margins and then use some or all of those savings to fund efforts to meet emerging shopper needs.

Automation and reduced costs

Over the past several years automation has gotten cheaper andsmarter. As a result, we see major retailersare starting to use it to reduce operating costs so the savings can be spent onactivities that add more value for shoppers, and it’s time for grocers of allsizes to consider following this strategy.

Walmart is using automation (acombination of robotics and artificial intelligence) to free up labor hoursfrom repetitive manual activities – and then “re-skilling” employees to betterserve customers. In Walmart stores, robots are:

• Scrubbing floors
• Using scanners to generate data on shelfconditions
• Sorting inventory and moving it to theaisles

Ahold Delhaize is rolling out automated scanners to identify in-store hazards so they can eliminate them fast, making the storesafe for customers and employees. While the overall benefits of this may not beevident from the P&L, they are real and include:

• Lower labor costs since less staff time needs tobe dedicated to this task, and savings from lower insurance premiums.
• Improved customer experience created byreallocating the labor hours to customer service.

Ahold Delhaize appears to find thesebenefits persuasive. It is now deploying multipurpose robots across 500 Giant/Martin's and Stop & Shop locations in what’sbeen called the largest rollout of robots in grocery history. (See below for a video of Marty in action at a Stop & Shop in Sparta, NJ)

How big is the benefit?

The cumulative benefit of these investmentsis significant. McKinsey estimates that with broad-based automation, thetypical retail store can operate with 50% fewer hours, and that automation can ultimatelygenerate 300 to 500 basis points of incremental margin.

The kinds of automation Walmart andAhold are using in-store today will help to better align retailer investments andspending with emerging customer demands and expectations. The automobileindustry found itself in the same situation several decades ago and transformeditself using lean work processes and automation to deliver more effectivelyagainst customer expectations on quality, price, and style.

This has led someanalysts to conclude that retail's transformation must be organized around similarprinciples.

• Dramatically improved labor and inventoryproductivity driven by automation
• Digital interfaces with consumers to delivermore personalized solutions

One big issue for grocery in this transformation is that there is less room for error since the retailgrocery industry is a lower-margin business than automobile manufacturing.

Longer term, automation in grocery

Today, the retailers who are adopting automation are focusing first on improving labor productivityand have already found applications with a strong ROI. Theseapplications target store-level costs, but it won’t be long beforeautomation is applied across the business, e.g. to increase top line sales by using applications toimprove promotional effectiveness (see Daisy Intelligence ), or to tailorassortments to each store’s unique local demand.

Longer term, we anticipate that automation willplay a key role in collecting information about a broad range of storeconditions and then in taking action to wring more value out of the business. This will range from more localized management of temperature and humidity tointroducing new items into planograms so they are available when the promotionbreaks. Ultimately, this is about accumulating the benefits of a lot of small wins.

Where to focus

Given the speed with which largeretailers like Ahold and Walmart are moving to implement automation, otherretailers will want to start (sooner than later) identifying andtesting where they can apply “off-the-shelf” retail automation that generates astrong ROI – and frees up labor to take better care of customers.

The cost saving generated by automationmay not be immediately evident, but as Andrés Oppenheimer explains in his newbook Future of Jobs in the Age of Automation , the savings will drive (and infact are already driving) rapid adoption.

As the speed of adoption picks up, both people and organizations willhave less time to reinvent themselves, so the planning needs to start now. The transition won’t be easy, and therewill be bumps along the way, but selective shoppers and more aggressivecompetition make it necessary. If not now, when?

Editor's note: Here's a video recently taken at the Stop & Shop in Sparta, NJ thatshows how Marty moves through the store, stops at a display low on product, and maneuvers around shoppers, displays and even the occasionalstroller.

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Brick Meets Click is a strategic advisory firm with unparalleled experience, expertise, and perspective on changes challenging the retail grocery industry. We work with organizations to create and evaluate the right path forward to growth in today’s integrated physical/digital ecosystem. Learn more about our services .