Grocery Transformation in the Post COVID-19 Era
As digital increases to 50% in food, grocery stores as we know them will be gone
Grocery is facing a new truth in 2020: an exponential growth in digital food shopping (either pick up in store or home delivery) that has gone well beyond the pre-pandemic predictions.
According to “eGrocery’s New Reality: The Pandemic’s Lasting Impact on U.S. Grocery Shopping Behavior”, online grocery will account for 21.5% of total grocery sales by 2025 – an estimated $250 billion (60 %+) increase over pre-pandemic levels.
So far, grocers have typically responded with customer-facing order-taking processes, but if you dive deeper, that’s just the tip of the iceberg to support the “new normal” PROFITABLY. And the needs for great in-store experiences and the need to efficiently support digital can be in conflict.
While other retail segments have made significant progress, grocers will need to transform to this digital reality now or risk losing out to their competitors.
4 major areas to focus on for a successful digital transition
Many areas of the business need enhancements to support online and make the end-to-end fulfillment processes efficient. There are 4 major areas affected:
Effective reallocation of the workforce within the grocery business is critical and is different among grocery departments, so grocers have even more to consider. Shifting workers from tasks or admin-related activities to focus more on value-added processes would help make the most out of the workforce to support this new normal.
Online grocery orders will be transacted during the day, so you need to allocate your resources appropriately to balance workers for online pick/pack/delivery and store shelf replenishment.
More efficient use or the workforce will also help keep costs down.
As you focus on allocating the workforce differently, it is equally important to keep a tab on what the customers actually want from the stores.
Some ideas to enhance both in-store and digital customer experience could include:
- For online top-valued customers, you may want to consider a “personal shopper” experience. Customers want to know that the people who pick their groceries understand what they want so they aren’t disappointed. Notes/substitution information isn’t sufficient. Chat while shopping can help.
- You also may want to spend more on value-added services to keep in-store customers happy, like nutritionists/dieticians to help customers to make healthier choices.
One of the major worries from grocers headed down this digital transformation is the potential decrease in impulse buying. This could be alleviated with AI-powered recommendations in online ordering, tracking customers’ shopping lists and detecting their buying pattern to push the right products to the right customers. And not necessarily at promotional pricing that eats margins. For example: if the customer’s online cart looks like a pasta dinner, but she hasn’t added meat, bread or fresh herbs, then recommend those (not on sale) along with a slight discount offer to buy together – but no meat if she’s a vegetarian based on her buying patterns!
While this is happening to some extent today, AI isn’t necessarily being applied effectively in product recommendations…yet.
Think about allowing vendors to participate with category managers to decide the best deals and fund the cart suggestions, and cut your costs.
In order to support both digital and in-store customers effectively, current store formats will need to change and some changes may result in significant format changes such as
- More room for order fulfillment: pick/pack and multiple temperature storage areas
- Smaller aisles and tighter category representation
- A potential reduction in POS registers as the majority of orders shift to on-line
- Direct paths for customer pick up and workers to delivery curbside
More store automation, having dark stores as warehouses or a mini-warehouse within stores should be considered to support curbside and touchless deliveries.
And visualization of a category on less shelf space needs to both attract customers and be based not only on the look and feel of the product displays but also digital order fulfillment processes. Accurate planograms and better inventory management can help keep the costs to support the countervailing requirements of in-store customer experience versus efficient order fulfillment.
For large format grocery stores space may be easier to divide into both fulfillment and store visualization for in-store customers. Smaller stores may need more retooling.
Supply chain considerations
The grocery industry has pushed heavily towards a leaner supply chain even before Covid. And for grocers, the cost is simply too high to maintain large, non-moving inventories especially as they navigate the pandemic challenges. Grocers need to re-evaluate their product assortment based on new priorities and changing buying patterns. Maintaining the right inventory will remain a challenge for the near term.
Efficient real-time supply chain management is necessary. DC replenishment needs to be directly tied to the store replenishment requirements - sales at the register triggers multi-echelon replenishment keeping inventory at the right levels and can free working capital. The days of buying excess inventory based on “deals” will be replaced by pure demand driven replenishment.
The real impediment in grocery going digital is its profitability
The bottom-line issue for grocers going through this journey is profitability. These orders are costly. Grocers need solutions that optimize these processes to keep costs down. This isn’t going away anytime soon, so making eGrocery more profitable is an imperative now.
Transformation is here – what are you going to do about it?
As partners, SAP and Applexus are uniquely positioned to help the grocers leverage solutions for the ‘new normal” including one stop, tightly unified solutions for local delivery, in-store or curbside pick-up, home delivery, as well as numerous grocery requirements and customer loyalty processes.
Making the best out of SAP SuccessFactors and Applexus’ AI-powered digital store and consumer experience platform, SimpleRetail, grocers can always have an upper hand on each step of your grocery supply chain, right from accurate inventory management to optimizing the store operations both online and in-store to boosting employee productivity.