The grocery retail dilemma
The following is an opinion and observation not a learned academic study.
The Grocery business model has evolved over decades and, in its simplest form centres around building a store filling it with products and enticing us shoppers to go there and buy. The sophisticated and expensive supply chains have been crafted to support this model and are built around "bulk," moving high levels of products in cases on pallets in big trucks as efficiently as possible. Squeezing every last penny out of the operation, (efficiency). The Grocery industry in the UK has become expert in doing this.
Enter the digital revolution; laptops giving way to smart phones. Amazon sales during the Christmas period were nearly 5 times up on previous Christmas and three quarters of purchases were made on Mobile devises. Customers now have access to every shape and size of retailer (almost) anywhere on the globe. This has given rise to the demand for "convenient" shopping, "where I want it, when I want it," 24 hours a day.
Omni Channel retailing, but from the consumer side, more "Omni Service."
This is translating into smaller transactions over much shorter timeframes. Very similar to the 50s & 60s when my mother had a wicker basket with which she went to the grocer, fruit and veg, butcher, etc. every other day to replenish her pantry that serviced our family for a few days
Today the smartphone is the wicker basket equivalent.
But whereas in the bricks and mortar model, the customer pays the cost of fulfilment, in the digital world, the retailer pays the supply cost and the fulfilment cost and is vilified when it goes wrong! Until recently the retailers also gave free delivery and still practice free returns.
There is a precision now demanded by the consumer that if the retailer cannot meet, they very quickly exposed. It reminds me of the start of the budget airlines, when upstart outfit’s like Ryanair and Easyjet came on the scene and the big lumbering flag carriers tried to compete and the operating model that supported the long haul scheduled airlines was unable to compete with the flexible and agile “budget” model.
Is this the fate for our major grocery retailers? Ocado showed the way and now Amazon has entered the game. How much longer will the digital model be able to coexist with the bricks and mortar model?
Watch this space.
Chris Bevan is a Co-founder and Managing Director at Outvie and an expert in leading large scale business transformation.