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Thinking Allowed: Back to the Future of Supermarkets II



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Thinking Allowed: Back to the Future of Supermarkets II

 Heads up! 

Online shopping growth could seriously impact grocers’ profits.

The online grocery space race is accelerating in the UK and France and about to get going in the US, adding to existing competitive pressures on traditional supermarkets from limited assortment discounters below and premium/niche operators above. UK-based Ocado, which now claims to be the global leader in online groceries, is actively looking to export its know-how to the US and other developed markets, potentially pitting it head to head with Amazon, whose Fresh service has just been extended to San Francisco.

Marc de Speville of Redburn (and a BMC Black Belt) presents a strong case in his new paper Back to the Future of Supermarkets II: Beginning of the end of e-Commerce? that, without major reinvention of the retail model, growth in online grocery sales will significantly dilute brick and mortar margins and returns.  

BMC POV: 

While it isn’t always evident, retail models are in a perpetual state of reinvention.  Most of the innovation focuses on giving the shopper more of what they want at a lower cost. 

The challenge that comes with making these changes is that retailers must modify their beliefs about what shoppers want.  For example, the belief that shoppers will always want to select their own meat and produce.  These changes are hard to make, but will be essential.  Be sure to read Marc’s report. 

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Rod Averbuch said:
Not only are shoppers looking for a better price, they’re also looking for a sustainability strategy. The large amount of food waste is a lose-lose situation for the environment, the struggling families in today’s tough economy and for the food retailers. We should address the food waste problem in every link in our food supply chain. For example, the excess inventory of perishable food items close to their expiration on supermarket shelves causes waste.
The consumer “Last In First Out” shopping behavior might be one of the weakest links of the fresh food supply chain.
Why not encourage efficient consumer shopping behavior by offering him automatic and dynamic purchasing incentives for perishables approaching their expiration dates before they end up in a landfill?
The new emerging GS1 DataBar standard enables automatic applications that offer dynamic incentives for perishables approaching their expiration dates.
The “End Grocery Waste” application, which is based on GS1 DataBar standard, encourages efficient consumer shopping behavior that maximizes grocery retailer revenue and makes fresh food affordable for all families while effectively reducing the global carbon footprint. You can look this application up at EndGroceryWaste site.

Rod,
Chicago, IL
Bill Bishop said:
Rod, thanks for your comment. It makes me think that we may be at a time when the definition of Efficient Consumer Response (ECR), developed in the 1990s, should be extended to include more efficient consumption. While initially this idea may only appeal to a small percentage of shoppers, it’s not hard to imagine that it could morph into something with much broader appeal.

Assuming that a significant number of shoppers would “catch the wave”, it could be a force to lower overall food prices and, at the same time, provide savings for those who had the time and motivation to shop these “dynamic purchase incentives”.

It seems to me that your ideas could dovetail nicely with the Reimagined food marketing/distribution retail system that Marc is advocating.

Are you aware of anyone who’s begun to apply some of the new GS1 developed capabilities you described? It would be particularly interesting to see if the implementation was or could be quicker, easier, faster when done in an online grocery shopping environment.
Rod Averbuch said:
Bill,
LOTTE Mart, a major hypermarket in Korea performed a pilot of this concept.
“GS1 DataBar standards were used to automatically create a discount depending on the number of days remaining until the expiration date: Products were given a 20% markdown when they had four days left before expiring and a 40% discount when there were three days left.”

The pilot was performed on soybean sprouts and milk.

“The pilot clearly revealed the quantifiable benefits: For soybean sprouts, increases in total sales and net profit were 60% and 22%, respectively; for milk products, these were 32% and 48%. For the retailer, the automatic markdown process resulted in improved efficiency that allowed employees to focus on other tasks”

The quotes are from a GS1 publication: http://www.gs1.org/docs/barcodes/databar/1_2_GS1_Korea_LOTTE_Marts_Business_Case_for_Automating_Expiration_Date_Management.pdf

Please let me know if you have further questions or ideas to promote a pilot for this concept in the US.

Best Regards,
Rod Averbuch
Rod@EndGroceryWaste.com
BlackBeltBill Davis said:
The majority of traditional grocers are not prepared for the rollout of Amazon Fresh in 2014 and beyond, http://www.click2houston.com/news/amazons-online-grocery-delivery-service-to-expand-in-2014/-/1735978/20545956/-/h6nvhw/-/index.html . Amazon has been building the infrastructure to enable same day delivery in the top metro areas in the US, http://money.cnn.com/2013/09/04/smallbusiness/amazon-expansion/ , which no other grocer except for maybe Walmart is prepared for.

Add in that Amazon is also setting up shop inside of Procter & Gamble's warehouses to expedite shipping, http://www.bizjournals.com/seattle/blog/techflash/2013/10/amazon-moves-into-pg-warehouses.html , and they are clearly well positioned for entry into this market which as Marc de Speville suggests "will significantly dilute brick and mortar margins and returns".