Over the past 100-plus years, the food shopping experience in the U.S. has evolved primarily through large step-changes driven by innovative new store formats. Another such step-change can be expected in the not-too-distant future.
At the turn of the 20th century, food shopping was complicated and cumbersome. Consumers purchased their meats from the butcher’s shop; produce at “green grocers” or fresh markets; breads and pastries from bakeries; and shelf-stable, packaged food products at “dry grocery” stores such as A&P, the dominant such retailer at the time. In all instances, the stores were operated by clerks to whom the order was given and who would fulfill the order by picking items off shelves and displays behind a counter. Many of these stores allowed their customers to order remotely by note and later by phone, and clerks would prepare the order for pickup or even deliver it to the customer’s home.
A radical change was ignited in 1916 the dry-grocery segment when Clarence Saunders launched Piggly Wiggly, the first successful operator of “self-serving” food stores. In these stores, there were no clerks or counters between the customers and the products on shelves. Prices were displayed on tags, and customers collected their own items in hand-carried baskets and then went through a checkout station to pay for them. Customers very much liked the 20% reduction in prices enabled by the huge improvement in operating efficiency through the elimination of clerical labor costs.
Even more importantly, though, customers actually preferred this way of shopping over clerk service for two primary reasons. First, customers had direct access to product information and prices, enabling them to make purchase decisions at their own pace without feeling the pressure of occupying the clerk’s time. Second, they didn’t have to wait to be served by a clerk during busy periods. As a result, dry-grocery stores began a rapid shift to the self-service model, which transformed not just food retail but eventually all of retail.
The next evolutionary leap in food-customer experience occurred in 1930 when King Cullen opened the first modern-day supermarket, combining a dry-grocery section with a fresh market offering produce and meats and much more over time. And now practically every modern supermarket features a “center store” selling packaged goods and “perimeter departments” selling fresh goods.
While these two “markets” are conveniently available to shoppers under the same roof, the customer experience when shopping them is very different. The key difference derives from the fact that in most cases item-units of particular center-store packaged-goods SKUs are essentially identical and interchangeable, which is not true of fresh goods.
Digital changes everything
Even though the emergence of e-commerce has dramatically impacted almost every other segment of retail, it had very little impact on customer experience in food until quite recently. This is due to a variety of unique challenges associated with selling food online, the most fundamental of which are (a) the cost to the retailer of performing order-fulfillment processes that are free in the self-service model and (b) the fact that raising prices to cover these additional costs is not realistically feasible. Because very few food retailers found a way to sell their products online profitably, food customers historically had very limited opportunity to purchase their groceries online.
This situation began to change in 2017 when Amazon bought Whole Foods, making it clear that the dominant online retailer was going to adopt a physical-store strategy in food retail. Probably not coincidentally, Walmart had already begun scaling its online grocery pickup service, and in 2017 deployments reached 1,000 stores on the way to 3,200 stores today. Then came the COVID-19 pandemic in 2020, which triggered an enormous surge in the demand for online groceries across the country. These events have caused food retailers generally to conclude that e-grocery has become a new competitive frontier that will determine long-term success. Many have also come to see automated order-fulfillment as being essential to sustainable e-grocery profitability and are experimenting with automated micro-fulfillment centers (MFCs).
At the same time, innovative new automation solutions using autonomous roving storage-and-retrieval robots designed specifically for e-grocery are coming to market. These advances in technology make it possible to envision a new store format in which the MFC becomes an automated packaged goods market that entirely replaces the conventional self-service center store. All orders for packaged goods would be submitted by customers electronically, either remotely or in the store. These orders will be fulfilled by the automated picking system that operates within the store, and these orders would either be dispensed immediately to in-store customers or held in storage for subsequent pickup by or delivery to customers.
Automation changes everything
Fully automating most of the packaged goods categories represents a giant leap in customer experience, because self-service adds little or no value to shopping for packaged goods. Customers have access to far more decision-support information when they are ordering electronically than when shopping in the store, and the customer doesn’t care which box or can of a specific item is selected, because they are all the same. Moreover, ordering electronically would be far more convenient and save customers time, especially when using their purchase history.
Conversely, for many customers, self-service does add considerable value to shopping the fresh-goods areas, because they want to examine and select individual item units. Further, this shopping is inherently a more enjoyable and engaging experience than shopping the center-store aisles. In this new format, then, the fresh market would remain self-service, but it would incorporate a checkout-free technology to eliminate that critical pain-point.
If and when automation technology enables supermarket operators to install robotic “clerks” in their stores that pick orders for customers at a lower cost-to-serve than any other omnichannel operating model, this store format will trigger another transformational step-change in customer experience. Then it will be back to the future.
John Lert is founder and executive chairman of Alert Innovation. He can be reached at [email protected]