How Food Retail Is Suddenly Leading Supply Chain Transformation

Grocers and convenience store chains are driving a wave of transformation across the industry due to three colliding effects:

• Massive shifts in customer expectations and behaviors driven by the COVID crisis
• Leadership shifts that are infusing grocery and convenience chain C-suites with non-grocery executives
• Dramatic increases in the available scale and power of today’s supply chain platform capabilities due to cloud computing, AI and edge technologies

In this blog, we’ll discuss each of these drivers, how they are coming together to drive a step increase in grocery retail interconnectivity, and how some grocers are undertaking strategic transformations to dramatically improve supply chain resiliency, increase customer service across channels and drive improved revenues and margins in the process.

Not too long ago, food retailers were one of the bulwarks of traditional retail and supply chain operations.  Nothing against my grocery brothers and sisters, and there are certainly some thought leaders that were bucking the trend, but generally grocery was defined by some of the longest held and most deeply entrenched behaviors as any retail subvertical:

• The Store Manager was the boss.  It was commonly accepted that the store manager best knew their customers and their local market, and essentially had carte blanche to drive things like assortments, pricing, labor planning and ordering. 
• ‘Supply Chain’ was all about efficiency.  Given the exceptionally low margins in the grocery subvertical, supply chain processes and capabilities were all about moving product quickly through the pipe from supplier to shelf, tightening each step for maximum efficiency, even though this meant a tradeoff that minimized flexibility
• E-commerce was going to take off ‘someday’.  Unlike other sub-verticals, the e-commerce penetration rate in Grocery was in the low single digits through the 2000’s and 2010’s, with modest but steady YOY increases.  Everyone knew e-commerce would arrive in the grocery space someday, but that day seemed a long way off
• Only grocers know how to run a grocery chain.  Just as it was a badge of honor for a CEO to have started as a bagger in a store, grocers were generally very insular and rather unwelcoming of individuals that had not spent decades in the industry

And then March, 2020 happened.

We all remember the empty shelves and dramatic disruptions, so I won’t go into all the details, but I will point out a few pertinent statistics from the last two years:

• 50 million additional people used e-commerce for groceries in the U.S. through the pandemic compared to 2019
• In-store continues to be the preferred grocery shopping model, but 1 in 5 shoppers now prefer BOPIS or BOPAC for groceries
• Nearly half of shoppers use a ‘hybrid model’ for grocery shopping, using online for some purchases and instore for others

Consumers are now comfortable flexing between in-store and ecommerce interactions, depending on the situation in the moment.  This is true for traditional in store purchasing, the newer but somewhat established models of home delivery, Buy Online Pickup In Store (BOPIS) and Buy Online Pickup at Curb (BOPAC), and some of the newer emerging models like convenience store Buy Online Receive at Pump (BORAP) and location based deliveries where you can have a picnic lunch delivered to your exact location within Central Park.

Customer expectations continue to evolve

In just a couple of years, an enormous swath of consumers have moved beyond the normal once-a-week in-store grocery shop.  Grocers need to be able to meet these customers with excellent service, regardless of how they are shopping this particular trip, which of course has implications across multiple functions within grocery retail:

Assortment: Consumers may forgive a grocer if they don’t have a specific version of non-gluten flour available for immediate delivery, but that same consumer will be disappointed if that option isn’t available in store

Pickup / Delivery options:  Consumers had a taste of all the different ways to receive product over the pandemic, and are going to want to continue with their preferred option.  This of course will be different across consumers, so a grocer needs to be able to know what each customer wants, and be ready to service them in their preferred method

Delivery times: Two-day delivery is suddenly old-school – grocers need to operate against a landscape of same day, same hour and even 10-minute delivery options

Substitutions and Cancels:   Consumers were remarkably forgiving during the pandemic related to substitutions and straight cancelation of items off an order — an extension of the ‘we are all in this together’ world we’ve lived through.  As the pandemic fades, and expectations reassert, this forgiveness will pretty quickly turn to disappointment.

Boards are looking beyond veteran grocers for leadership roles

The forces currently roiling the grocery industry have been in play to a greater or lesser extent for years in industries like soft lines and CPG, so it is no wonder that boards of directors are willing to look beyond traditional grocers as they work to fill out their executive leadership teams.

Some of the best known Global grocery companies and convenience store chains are adding executives from other industries as they work to expand the knowledge and experience base of the C-suite.  This trend started in the late 2010’s in IT and digital roles, but has accelerated and elevated as we now see some CEOs from outside grocery taking the helm at multiple large scale grocers.  This even includes some examples of family-owned companies that have forever had the same last name at the top now branching out and bringing in non-grocery executives.

This shift is bringing a new diversity of thought to the entire grocery industry and is causing a significant re-think of those same core tenets I spoke of earlier.  Store operations is becoming a blend between localized activity and being a source of customer-facing insights to the broader organization’s decision making.  Supply chain design and execution now includes tradeoffs between efficiency and resiliency.  Omnichannel capabilities have become table stakes.  All of these disruptions have been navigated before in other industries, and the grocers that are able to break out of the traditional mindsets and embrace the opportunity inherent in these disruptions are those that will not only prevail but excel in the coming years.

Technology is changing the game

If you read my blogs frequently this will sound familiar: 

We all know that “Retail is Detail.” Artificial Intelligence is “Detail at Scale”

We live in an incredible time for retail broadly, and grocery specifically.  The convergence of artificial intelligence, hyper-scalable cloud computing and edge technology has made possible things like Blue Yonder’s Synchronized Supply Chain Platform that ties together the many pieces of the supply network in ways that would have been inconceivable just a few year ago.

“Detail” is the life blood of retail – knowing what your customers want throughout the year.  Getting the right price from the vendor and then optimally pricing for the customer each and every time to maximize margin.  Buying enough inventory to deliver against service targets while not so much that waste starts to go up.  Having the right labor available to process picks at the DC and deliver against e-commerce orders and still provide exceptional customer service in stores while managing the expense line.

All of this requires synchronized planning and execution – this is where the power of three comes in:

Hyper-Scalable Cloud Computing: A typical grocer can generate billions of data points each day. This includes the ‘normal’ information we have always looked at – sales, margin, inventory movement, labor activities and the like.  But it also now has to include all of the other pieces of information that we need to excel in today’s world.  How is our brand trending on social media?  What are the individual clicks that our customers are making on our website?  When and why do they abandon a shopping cart?  What are my competitors up to?  Collecting, collating and curating these data points has only become ubiquitous through the application of hyper-scalable computing power

Artificial Intelligence:  Collecting this massive set of data and presenting it back in the form of reports and trend charts is good, but still limited by the capacity of individuals to review, understand and take action on this information.  This is where AI comes in. We now have models that can look across functions and even applications to find the patterns and automate responses.  Sifting through 200+ potential demand influencing factors to accurately predict demand at the item/location/day or even hourly level.   Understanding the confounding influences that demand has on price, but also that price has on demand. 

Edge Technologies: This is the true game changer – integrated edge technology.  Imagine a virtuous loop where edge sensors like cameras, IOT, RFID, robots, shelf weight sensors and some we haven’t even imaged yet, combine to create a continuous stream of data feeding into the cloud supply chain platform and being analyzed by the AI models in real time to take automated actions and present curated recommendations to your business.  This may sound like hyperbole or even science fiction, but it’s not.   It is the here and now.

In some ways, grocers are in an enviable position — people will always need food, so the customer base is at least somewhat stable.

That said, today’s grocers and convenience store operators are having to navigate a remarkable set of disruptions and upheavals in the industry. Customer expectations have dramatically changed and will continue to do so for the foreseeable future. Competitors are coming out of the woodwork to fight for a share of that customer’s wallet. The hybrid omnichannel grocery shopper is here to stay, and companies need to meet that customer when and how they want to be met. 

This means investing in capabilities and talent that will carry the organization into the future.  Because if you are not, I can guarantee that someone else already is.