Editor’s Note: In this article, the second of our series on all things digital retail, the authors examine how food, drug, and mass (FDM) retailers can leverage technology to raise efficiency and improve the in-store experience.
Our first article outlined the evolving competitive and consumer landscape driven by Walmart and Amazon. With this article, we focus on how FDM retailers are upgrading in-store technology to drive efficiencies and offer differentiated shopper experiences in ways that reinforce their underlying value proposition.
Cost competitiveness is critical to improving efficiency. Typically, the largest costs outside of cost of goods sold (COGS) are labor and shrink, and these are an important focus for efficiency-enhancing technologies.
Many in-store activities can be highly repetitive, making them good candidates for robotics and automation. For example, Walmart is piloting self-driving mechanical floor scrubbers: machines normally driven by humans are outfitted with technologies from self-driving cars, enabling autonomous, overnight cleaning. The company has also introduced shelf-scanning robots to monitor inventory, another repetitive task.
Among the technologies retailers are evaluating to minimize shrink are low-cost shelf and basket-monitoring software that helps maintain stock availability and ensure complete checkouts. They are also looking at ways to use off-the-shelf hardware, such as cameras and weight sensors, to augment inventory control. Weight and camera sensors in carts can ensure every item has been scanned, thereby avoiding shrink.
A number of retailers, including Walmart, Loblaw, Fred Meyer and Kroger, are using source-tagging sensors to help prevent theft. New advances in sensor technology are also helping retailers address another source of shrink: spoilage. These sensors are able to measure freshness via chemicals, temperature or smell, thus determining which need to be move most quickly. They provide a multitude of benefits to retailers, and manufacturers have partnered with leading sensor makers to drive retailer adoption.
Differentiating the in-store experience
Retailers also need to upgrade the in-store experience to remain competitive. Although not every aspect can be digitized, two important areas lend themselves well to technological enhancement: personalization and frictionless interaction. Personalization involves fully tailoring the in-store experience to each individual shopper, including revamping the shopper journey through integration into smart homes, customizing offerings to individual tastes, allowing customers to select among preferred service options (such as pickup versus delivery), and offering dynamic pricing or promotions (for example, targeted coupons). Frictionless interaction extends beyond omnichannel to provide a seamless shopper journey not only online and off-line, but out-of-store and in-store. The focus is on removing barriers to purchase. Opportunities include endless aisles (tablets or kiosks allowing shoppers to order in-store items that are not physically available), ordering kiosks, cross-channel shopping and fulfillment, and convenient payment transactions and clear shopper rewards for loyalty.
A number of technologies can enable both shopper personalization and frictionless interaction. For instance, interactive displays offer frictionless interaction via ordering kiosks and endless aisles, as well as shopper personalization through targeted promotions. Key technologies to consider are:
• Augmented reality (AR) and virtual reality (VR) yield richer consumer engagement and communication. Examples include virtual arrows for navigation, shopper testimonials, and virtual demos or classes. AR or VR can also extend a store beyond its physical limits. Some Whole Foods stores livestream to suppliers’ farms, and virtual immersion is a logical next step. Both AR and VR redefine retailers’ need for physical space, creating huge potential for small-format stores. Ordering kiosks and interactive displays. Like augmented or virtual reality, retailers use these technologies to drive deeper consumer engagement and communication. For example, Whole Foods is piloting touchscreens to provide beer and wine pairings, product demos and recipe instructions. It is also installing ordering kiosks so that shoppers can conveniently order prepared food from service counters. In other cases, interactive displays have been used to expand physical assortment: Tesco offers endless aisles via interactive displays in the United Kingdom, and Walmart is running similar pilots in the United States.
• Artificial intelligence and chatbots. These technologies can rapidly personalize shopper conversations by applying algorithms to troves of data. Conversable, a leading chatbot provider, partnered with Whole Foods to customize a chatbot that offers recipes. Shoppers message ingredients or cuisine types to the chatbot and receive personalized suggestions. This takes grocery shopping from a routine errand to exploratory adventure, enriching the shopper experience.
• Electronic shelf labels (ESLs). Digital shelf tags enable quick and consistent pricing adjustments from a central location. While not yet widely adopted, the display technology has recently shifted from liquid-crystal displays (LCDs) to e-paper, which is more cost-effective and has better display capabilities. As a result, research firms such as Global Market Insights, ResearchFox and TechNavio estimate the global ESL market will double over the next four to five years.
• Geo-fencing. Beacons were the original geo-fencing technology, but adoption was slow due to a variety of factors, including the need for shoppers to carry a communication tracker — usually a mobile phone — and communicate via an approved app. Recently, retailers have begun pairing beacons with other sensors, such as video cameras, to create a more holistic and passive geo-fencing capability. Furthermore, advances in analytics, including big data and machine learning, have increased the power of consumer data. Consequently, retailers are increasingly adopting geo-fencing as a customer engagement strategy.
Mastering the table stakes
There are a handful of table stakes technologies that all retailers need to be conversant in. However, both investment and execution should align with their relative importance to a retailer’s strategy.
With Amazon and Walmart battling at the intersection of digital and physical, all retailers will have to improve their e-commerce and omnichannel capabilities. Although strategies are generally similar — offering online, mobile and in-store shopping coupled with pickup or delivery fulfillment — execution differs greatly. Pursuing one approach, Ahold acquired Peapod, while other retailers have strategically partnered with third parties — for example, a host of retailers, including Aldi, Whole Foods, Albertsons, Kroger, and Wegmans, are using Instacart for deliveries. Companies may also shift or combine approaches. While Target had partnered with Instacart, it recently acquired Shipt, a grocery delivery startup. In France, Carrefour has both partnered with Stuart, which offers bike deliveries, and launched its own Uber-like platform, Merci Voisin, that allows neighbors to deliver groceries. And while Amazon and Walmart have received attention for planned airborne drone deliveries, Tesco has successfully trialed a self-driving ground-based robot to deliver groceries in London. In each of these instances, how a retailer operationalizes its omnichannel strategy depends on the degree to which e-commerce is central to its vision, as well as on what resources — people, capital, expertise — are available.
Payments is another table-stakes technology, with two key trends emerging in the checkout process — the integration of payments and shopper insights and distributed or cashierless checkouts.
Because consumers shop across channels, categories, retailers and brands, having access only to in-store data results in an incomplete picture. Loyalty cards, once the gold standard for consumer insights, have been replaced by payments, which offer a unique source for centralized user data. Leveraged properly, payments not only enable retailers to understand shoppers across channels, brands and stores, but they also offer another opportunity for loyalty programs. Target, famed for its loyalty program and branded card, REDcard, recently introduced Wallet within its mobile app. Wallet enables shoppers to not only check out in-store using their phone but also add any coupons or discounts from Target’s Cartwheel platform. Further, Wallet can be linked to REDcard, offering another 5% back on purchases. This well-integrated mobile payments and loyalty ecosystem will power deeper consumer insights and more-targeted promotions.
As consumers move toward digital payments and omnichannel shopping, centralized checkouts will disappear. Retailers are exploring distributed checkouts, from smart carts to wearables to mobile phones. Walmart offers Scan-and-Go, where shoppers can scan and buy products with their phones. Similarly, Nordstrom has deployed mobile point-of-service (POS) devices so that staff can check out shoppers anywhere. And of course, Amazon Go has gone full checkout-less with “just walk out” technology — cameras, sensors and algorithms that monitor shoppers and products to identify purchases and automatically charge shoppers on exit.
Protecting the in-store experience
Brick-and-mortar stores are forecasted to still be bringing in some 80% of sales in 2025, which means the in-store experience will continue to be critical to retailers for the foreseeable future. With Amazon and Walmart transforming consumer expectations, traditional FDM retailers need to redouble their efforts to protect and differentiate how customers experience their stores and adopt technologies that promote their value propositions.
One key to competitive advantage for retailers is big data and shopper analytics which, when used strategically, can supercharge many of their other technologies. This will be the focus of our next article.
Bryson Waterman is a principal in the Topline Transformation practice of A.T. Kearney, a global strategy and management consulting firm. He focuses on consumer goods and retail and can be reached at Bryson.Waterman@atkearney.com. Brent Duffin is a manager and Eddy Fong is an associate in the firm’s consumer goods and retail practice; they can be reached at Brent.Duffin@atkearney.com and Eddy.Fong@atkearney.com. In developing this article series, they collaborated with Randy Burt (Randy.Burt@atkearney.com) and Eric Gervet (Eric.Gervet@atkearney.com), partners in the consumer practice.