Reva: You’re listening to Next in Retail from Publicis Sapient. The podcast that shares insights on unlocking what’s next in digital transformation.
Reva: As consumers, many of us witnessed the digital transformation in grocery like no other in 2020. Seemingly overnight adoption of seamless, checkout curbside and BOPIS, grocery delivery - You get my drift? All became all the rage. Groceries were forced to pivot rapidly and the acceleration of digital technologies that grocers needed to invest, and scale caught many off guard.
In today’s episode, we’re going to talk about the latest challenges and trends for grocers from supply chain constraints to managing the digital awakening. Joining me today is Hilding Anderson Retail strategy lead in North America and Andy Halliwell Retail Strategy Lead in AMEA and APAC. I’m your host for the session, Reva Bhatia. Now let’s dive in.
So, Hilding, you were just at grocery shop in Vegas. Any key insights from your time in Vegas?
Hilding: Yeah, hey Reva, thanks, thanks for doing this again, and it was fun to honestly just to knock the rust off a little bit and actually see people in person. We met with a bunch of clients. Met with a lot of great speakers, a lot of good conversation, I mean, and I think it’s I guess a couple things.
One is, you know, there’s always this debate about how many people are going to show up. But actually, the number of attendees and kind of the size and the overall experience outperformed my expectations. You know, there were over 2000 attendees there. It felt like it felt like a real a real conference, right?
And it felt like you know that you were getting you know, a lot of the lot of the sessions were quite full, and like you were getting what you wanted out of the conference. And so, as I said, it was a good chance to meet with clients and learn more about what’s happening in the space.
And to that point, I mean, I think you know we’re seeing digital penetration and grocery jump having jumped from, you know, 4% / 10%.
Hilding: We’re seeing a huge amount of lift. There are projections that came out that they’re expecting it to grow to 20% by 2025. Kerry Tharp talked about some of the from Google. Some of the increases they’re seeing in their data, for example, like one of the key pieces, is that it takes, you know, 60 days, I think, to create a new habit. And you know we’re now seeing especially the digital delivery and shopping now just become routinized and becoming much more of a habit.
So, I think there I think there are three or four things I’d highlight in terms of trends, and I’ll just bang these out. We can go into them Andy or Reva if you want to call my bluff on one of these, we could, we can go down that path, but you know first is you can’t swing a cat without a conversation about retail media networks. And I like cats, and I don’t swing them just for the record.
Retail media networks are all the rage. A huge amount of revenue we’re seeing from companies that have them. The companies that don’t have them. Anybody with significant traffic, I would say, and I think of kind of north of 10 million monthly uniques, can see a 2 digit plus in millions of incremental revenues. That was a lot of conversations on that. We’re seeing a lot of conversations around this kind of rollup of independent marketplace sellers that with the opportunity of creating this kind of next generation CPG company, so it’ll be interesting to watch that play out.
Hilding: A lot of conversations around the future of the store. I think as people kind of come back to real life, you see grocers particularly grappling with this question around what is the future of the store that that I saw in two different areas, one around a reimagining of the point-of-sale system. So, thinking through that check out, how do you enable the point of sale? To support multiple payment options, loyalty cards integrating with the App, a lot of kind of next generation point of sale technology based off of ecommerce technology that they’ve already built.
And then finally the yeah, the Amazon go kind of feature—the store cashierless store. There was a really interesting panel I saw there like OK; this will be widespread in two years. You know, a bunch of venture capitalists saying, OK, we’re going to do it in two years. You know, and then the others were saying, OK, it’s gonna be more like five. The thing that landed for me was whoever gets there first. This is a great sticky experience for customers. It’s a win for customers, you can you know you walk in, grab your stuff and then exit, and it’s also a win for retailers ’cause it manages down the number of staff that you need to have, and you can reallocate that staff to other areas, but there are very significant technical challenges.
And so again a lot of a lot of discussions there. And then kind of my bonus trend is around the MFC’s and CFC’s and dark stores. A lot of new technology, robotic players, and other things that no question that that’s coming. I think the jury is still out around what the best configuration is, but there’s a lot going on there, so and I’m sure Andy you’ve got some stuff from the UK that you’re seeing on these areas.
Reva: Yeah, awesome. So good transition, Hilding. There’s a lot to unpack and what you just teed up and we are certainly gonna hit on some of those notes you just mentioned.
But before we do that Andy, I know you just had an opportunity to attend a grocers award show in London, so do you mind just talking to us about what’s been going on your side of the pond? Any reflections on what Hilding teed up?
Andy: I mean yeah. So firstly, it’s good to see you guys again, and it’s great to be back on the podcast. So, I mean, there’s so much has happened in, in the UK and across the whole of Europe over the last couple of months, it’s crazy. Just to touch on some of the points that you are making, Hilding, towards the end around points of sales systems and cashierless stores.
I mean, there’s been a lot of discussion around that in the UK, so two major grocery chains here in the UK have launched their cashierless store technology into market and have just gone live with what one or two stores you know very much hot on the heels of Amazon Go opening their first store in London here in the UK. And there are plans apparently in in progress to launch similar kinds of technologies in Germany and France as well, so it is an interesting set of technologies that people are deploying.
I am going to double down on kind of my perspective on this, which is that it is not a suitable technology for the larger format stores that we have across the majority of Europe, where you know it does not scale for that, but it is very good for the convenience store. Kind of, you know, smaller sized sort of supermarkets that we do see in you know highly urban, densely populated areas like you know for example London or Manchester or Paris or Berlin to some degree.
But actually, there has been a huge amount of excitement and interest around the points of sale technology in general. So, a lot of organizations looking at you know how much they’ve invested in points of sale, how difficult it is to manage how long it takes to deploy changes and the fact that it’s not integrated into the rest of their kind of technology ecosystem.
So, people frustrated with the fact that you know it’s difficult to push promotions to tills, it’s very hard to get, you know, your loyalty platform to support both, online and in store transactions, and you don’t get real time updates on kind of points that are being earned or spent in various different locations.
Andy: And also, with the kind of the outbreak of the global pandemic over the last 18 months, BOPIS and you know, buy online return in store or reserve online and pick up in store or go into store and they haven’t got your size so get stuff shipped to home. These kinds of propositions are consumers Just expect them out of the box. And if you can’t support them, or if your point-of-sale system or your install technologies don’t support them, consumers will just walk out and they will go somewhere else or they will go onto their phone and they’ll just buy it from you know, Amazon or from eBay or from Zalando or from a source, right?
They have no patience for people who are not as modern as the rest of their competition. They just don’t. So, there’s been huge focus on, how does my in-store technology support the same experience that I can provides people online, or the same experience that you know my competitors can provide in in other channels. It’s a huge focus on that and then yeah, to your point, so, I was, I was super fortunate, I was invited back. I don’t know why I was invited back. I must have done something right the first time around, I guess. The grocer which is the big grocery retail journal here in the UK invited me back to judge the Gold Awards for the second year in a row, which was a huge honor.
And you know, I’m very appreciative to everybody at the team there to have the opportunity to come back. So yeah, I was at the Gold Awards ceremony on Tuesday last week and you know, lots of interesting discussions going on with all the grocers who were in the room.
It’s attended by pretty much all of the kind of the top ten big supermarket chains in the UK. The topics were very much just around supply chain concerns. Along with the lack of the lack of human resources, frankly across the board. Now in the UK, that’s kind of exacerbated by the Brexit.
Andy: It’s an interesting compounding of multiple different events, right? I mean you just got so much going on and then adding breaks it on top of that as well. I think just ’cause so many challenges. You’ve got indicators of the kind of impact it’s having by you know Marks and Spencers has just pulled out of Europe so they just stopped selling food, sorry to be absolutely crystal clear, they just stopped selling food across Europe because of some of the supply chain concerns and because they can’t get the product back into Europe.
So, you know, it’s having an impact. There’s no two ways you can argue it, but it’s not just the UK that is seeing these kinds of supply chain challenges, right? So, you know Germany has seen problems.
Hilding: US as well.
Andy: And not just things like. Yeah, but it’s not just things like shortages for microprocessors and silicone, right? So, I was reading recently about the one of the Chancellors in in Germany saying that they can’t get hold of paper and plastic, so they can’t even package product up to put in the post to people ’cause they can’t get hold of the paper products to be able to post stuff.
Fundamental shortages of product, both sourced here in Europe or sourced from further abroad, so you know the cost of getting a shipping container from Asia to Europe at the moment I think the cost has gone from about two and a half $1000, which is where it was about two years ago to the latest number I saw was $18,000 a container. I mean, staggering inflation.
Reva: You gotta really want those goods. Yeah, it’s interesting ’cause the topic you raised around supply shortages and the corollary, Hilding, to what you mentioned on how grocers might be able to manage the headwinds they’re facing by implementing unique technologies that would require less staff, you know, because there’s the human shortage, then there’s obviously the supply shortage.
Interestingly enough, I was at Target the other day and they were straight out of Coke. Like Target was out of Coke products and it was like. It felt very apocalyptic, but anyways.
Hilding: When you’re out of Coca Cola in America, you are in trouble.
Reva: You know that is the sign.
Hilding: Yeah, that is this is this is the end.
Reva: It’s the sign of the zombie takeover.
Andy: Can people not just drink Tab instead?
Reva: I don’t even know what Tab is.
Hilding: I got new I got I got a box of New Coke in my in my closet somewhere. I’ll dig out.
Reva: Some vintage. It might be a solid at this point. But you know worth Investing in so anyways, it’s not lost on me all of the different levers potentially that grocers and retailers as a whole, but specifically for this episode grocers might be able to lean into in order to maybe address some of the challenges. But I’d be interested to get your guyses’ take on you know what are some structured recommendations we can offer to folks right now, given some of the headwinds both on human labor shortages as well as supply shortages. And do you guys see any end in sight?
Hilding: I do think as I think about the kind of challenges, a lot of grocers are facing, one is having more precise visibility into your supply chain, becomes much more important, and so you know we’ve invested in a set of accelerators around supply chain to really help develop a control tower to allow you to monitor the status of your supply chain as well as to provide optimization of the outbound supply chain.
So, understanding where in that supply chain, where your products are and how best to ship you. Choosing where to ship from, especially for digital solutions, so you know that’s going to be a key part, and then you know we talked about the point of sale, and we talked about some of the scan and go technologies that are now frankly widespread, but could be, I think, pushed a lot more. Especially in the, you know, for some of the larger grocers than they are today.
And so, the technology, I think Is there to allow you know a dedicated like a fast pass or fast lane type of exit model similar to what you see in airlines. You know with the pre-check type of solution, if you’re if you’re set up, you can do a scan and go, and that might be an alternative instead of the $100,000 NCR machines that are, you know, kind of where you stand there and have to weigh everything and go through that process.
So, I do think we’re seeing opportunity to do more, but you’ve got to be willing to move.
Andy: Yeah, I mean I agree with that. I think one of the one of the actually one of the key takeaways I took from the Gold Awards last week is that they have a number of categories for startups and small businesses that have kind of emerged, and the successful startups were the ones that had these super short supply chains.
So, you know, there were organizations that were based right next to the source and manufacturing’s that they were based close to the farms, or they were they were based close to the slaughterhouses, or they had a different approach to how did you package up the produce, and they could control the supply chain.
And you’ll actually see this. I mean, even Scott Galloway has talked about this. Like the more vertically integrated your organization is, and the more you control both the endpoints of the consumer, plus also the source of manufacturing, the more you can control, kind of where do you route product. How do you manage products? How do you make sure that product is sold in the market where you can drive the greatest level of profitability?
It also allows you to protect your brand more consistently and it just leads to a better return on invested capital and a better return for shareholders as well. What we’ve seen in you know, not just in the kind of the grocery sector, but also the kind of like the startups like, you know, HelloFresh or you know the companies that are delivering ice cream to your door or the companies that are delivering you know high quality steak to your door, these companies are doing really, really well at the moment because they control their supply chains. They know the products, they can assure the problems of it and if you look at some of our clients here in Europe, you’ve got examples like I mean there’s a jewelry company that I’m very close to at the moment that has just talked about the fact that they’re going to be only using recycled metals for all of their jewelry come 2025, and they’ve now taken to growing their own precious stones in a lab rather than digging them out of the ground because again, it’s more sustainable. It resonates with the younger audience.
But also, they control the supply chain. It is a vertically integrated business, so they control every step of it. So, this idea of you know, regardless of what category you’re in, controlling the end to end, it just makes a lot of the challenges that you just talked about, Hilding, around you know making sure you understand where your product is, making sure you know what’s in the supply chain at any point in time. Having a global view of inventory and then being able to resell it as effectively as possible, it kind of makes all of that stuff frankly simpler.
Hilding: It’s interesting, I mean reflecting on the broader arc in the last two decades. You know this was during my management education in Business School like identifying opportunities to shift low value work, you know, either whether it be offshore or whether it be to a third party you know, as epitomized by the automotive industry, which have gotten incredibly efficient and appliances as well.
You know there’s a lot of speculation now. OK, are we going to go back to just the complete vertical integration? I don’t think that that is going to be the answer, but we’re definitely swinging more towards that direction. And I think it’s gonna be fascinating to watch how this plays out. And obviously the smaller companies will be vastly more nimble than the larger ones where this has, you know, we’ve got to scale up and grow an entirely new department, or three.
Reva: Yeah, I mean, and this past year has certainly been, you know, a year and a half now has certainly been a test for what could go wrong when you’re a fully globalized country…
Andy: Anything and everything, you name it.
Reva: Who manages who manages distribution centers all around the world and a vast supply chain with vendors that are all around the world.
Reva: And when one cog in the wheel slips, everything slips, you know, falls like dominoes. And so not to be dramatic, but you know, I, I think it’s interesting and even the point isn’t lost that if the last mile is the most challenging, put everything in the last mile from your suppliers to your you know, full distribution infrastructure. Just mush it all into the last mile and you know obviously exert a lot more control over your supply chain that way, so again, really interesting to start unpacking what levers are available to grocers.
Andy: And actually, on that point I’m just going to call this out, but one of the one of the more interesting moves that’s happened in the grocery space here in the UK recently is that Morrisons was just acquired in a huge buyout deal, where they achieved the multiplier of it was like 2.8 times their kind of net revenues. And one of the reasons why they got a high multiplier compared to other grocery companies where you would see typically see a slightly lower multiple of revenue, Morrisons own more of their supply chain than almost any other grocery company here in the UK.
They’re closer to the farms. They own more of this part of the farms. They own more of the manufacturing. They own more of the supply chain.
And so they have more control over their supply chain so when there are all of the issues last year with you know supermarkets having empty shelves and like manufacturing, kind of like you know, selling through and not being able to resupply fast enough and not being able to repackage, grow up fast enough out of B2B supply chains and repurposing it into sort of supermarket supply chains, Morrisons had fewer of those problems, ’cause they owned more of their own destiny, more of a vertically integrated business. And I just thought it was an interesting move in the UK marketplace that I think is indicative of a kind of broader trends that you’re talking about there.
Hilding: Yeah, and I think it’s one of the groups. You know, I talked earlier about this kind of roll off of independent marketplaces, so one of the places that we just called out in some of our research around Amazon, particularly, is significant headwinds for a lot of the Amazon-based resellers because they source all of their materials from China, and it’s just so much, it’s four times more expensive, right? As you shared, Andy, to go from China to the US.
And so, it’s going to be some glee on the part of the traditional CP companies now are looking at this and that you chose the worst possible time to roll up ’cause your valuations are all boosted by COVID and your ability to get inventory for this holiday season is going to be significantly constrained, so that’s interesting and then, and then I think you get into like marketplace. There’s a lot of activity happening now as more groceries embrace online marketplaces and are going to try to sell more of this stuff, but then aren’t going to be able to aren’t gonna be able to get their hands on it. It’s a remarkably challenging time for grocery.
Reva: So, you mentioned something, Hilding, at the onset of the discussion, and we’ve tiptoed around the notion of a marketplace or the notion of you know, retailers as a whole becoming platform firms. That’s hard to say. That’s a mouthful, and you know, again, it kind of begs the question, what does this mean for grocers right? Is this a huge mechanism by which they can and should start extracting value or incremental revenue? I’d love to get your take on that, Hilding.
Hilding: Yeah, well when we talk, so we talk about retailer as a platform in the grocery scenario, I think it is a little distinct from what we see in apparel specialty, of course, and I think for grocers, a lot of it is linked to, you know, making good decisions, run your assortment so you know, kind of how broader than assortment do you need?
Do you really need 50 results for almond milk, probably not? But maybe there is that one shopper that wants that 51st almond milk and, Reva, maybe that’s maybe that’s you, I see.
Reva: I’m still I’m the only person I think left on…
Andy: No, that’s me.
Reva: It’s Andy. I think I’m the only person left in the world who when I go order coffee, and they rattle off everything you could possibly milk and things I didn’t even know you could milk, I’m like please just cow, regular cow milk please.
Andy: Oat milk all the way. Qat milk is the way forward. I’m telling you.
Hilding: Nice.
Reva: I mean, it fills you up for 72 hours, so that’s a plus.
Hilding: So anyway, so I think there’s there is this sense that you know for large grocers, assortment expansion matters, but we’re actually seeing more, especially a lot of the grocers that are doing some ecommerce but really want to double it, say in the next year or two, really saying OK, where do where is enough assortment and how do I manage that much more tightly?
And that’s compounded, I think by some of the some of the supply chain issues that that everyone is facing right now, but it also highlights the other aspects of the value proposition, which is, you know, high quality product data, right? So good descriptions, good you know good information, the ability to You know have one SKU that has multiple you know sizes if you’re selling hard goods and thus or so some of that PIN based data and the more sophisticated metadata becomes pretty important, and then you think about seasonal content, you start to get into the content, play around grocery. Some of the top areas of investment we’re seeing is around, you know, enhancing that content and linking it to the products you have available, of course, and using that to drive more repeat purchases.
Reva: It’s interesting, Hilding, you mentioned, you know upstart CP firms, and I know this podcast is more about grocers and less about CP’s, but obviously There’s a naturally symbiotic relationship.
So, and I think like if the opportunity now, if I were to want to start my own beef jerky company and start cooking up my own beef jerky and like bidding, well, you know and start bidding for space on grocers, platforms and grocers ecommerce websites, right?
Like the opportunity for digitally native CP firms is incredible.
Hilding: Incredible yeah so, I was part of an angel investing group for many years in the last, you know, the last five, probably for four out of the last 10 years. And one of the most popular areas was exactly this idea of kind of creating your own brand. And the reason is that fundamentally the gatekeepers are gone now. And if you have $100,000 you can create a product and you can reach a segment a very narrow niche segment, but you can reach a segment affordably and grow them into customers in a way you couldn’t before. I mean the interesting flipside to that is that what we’re seeing with these roll-ups is the opposite of that, right?
We’re seeing these no name brands literally a string of random words put together by an overseas seller now get tried to roll those together and actually brand them and start to create some stickiness.
Reva: It’s incredible. I’m going to go around my house and try to milk things and start a little company of with like the latest milk.
Hilding: Facebook ads are your friend.
Andy: There’s two interesting elements, this right? So, so number one, you’re absolutely right. It’s never been cheaper for new brands to kind of micro target their audiences. And you know, full disclosure here, right?
So Publicis just acquired Citrus Ad, which is a platform which I don’t know, Hilding, if it’s been deployed much across North America but certainly here in Europe. It’s used by a large number of the bigger online grocery supermarkets here in Europe.
Hilding: It’s huge in the US as well.
Andy: Yeah, so you know, full disclosure, but you know citrus ad and the other technologies like it when deployed in conjunction with things like You know the supermarkets loyalty platform allows you to kind of micro target consumers and niche segments and niche categories and you can literally buy only those consumers that go into the milk category that you know are vegans and have a tendency towards oat milk rather than almond milk, so that you can hit them with your latest oat milk offering only when you know they’re the right person for it.
And that kind of micro targeting does make it very, very easy for a new brand to kind of win over a new segment very quickly. Look at the success of Oatly here in Europe, and I believe is also making progress in North America as well. Oatly has literally come out of nowhere over the last few years and destroyed the established competition, right? And it literally cornered the entire kind of barista independent sort of coffee segment here across Europe in the space of six months. I mean astonishing because they knew who they were trying to sell to.
But the other thing that people always forget with this kind of platform discussion that we’re having and the kind of the supermarkets trying to be a platform, is that if you’re going to be a platform, you need a way of scaling almost infinitely with the same level of infrastructure investment, right? And the problem that supermarkets have, especially online supermarkets, is that you can’t do that because you have to fulfill the order somehow or another you have to bring a product into your infrastructure into your supply chain, so that you can get it through the last mile to your end consumer.
And so, this idea you know for a long time I thought, well, you know. Why are companies like Tesco, why are companies like Carrefour or Intermarché or MMS, why are they not leaning more into this idea of you know, just positioning themselves as a marketplace where they own the consumer and then they just resell the CP clients’ products through their platform into that consumer audience that they have captured. And it’s because of that investment you have to make in in fulfillment and the infrastructure and the fact that scales linearly with the size of your audience and the number of orders you’re getting, and it’s proven to be very, very difficult.
Andy: Tesco’s is a good example of this here in the UK they actually pulled out of their marketplace platform and shut it down. Tesco Direct back in I’m going to say no nearly five years ago now. And the reason they shut it down was because the model couldn’t work, then they couldn’t do it profitably.
And they couldn’t drive the reseller acquisition ’cause they couldn’t lure them away from Amazon, they couldn’t put enough of their own product onto the platform to make it viable without incurring additional significant costs they couldn’t do the drop shipping.
Reva: Yeah, and the translation of that is, you know, when I buy my groceries from Whole Foods every week, like I expect everything to come all at once and come all fulfilled from Whole Foods.
You know, when I buy an order from Target or Zara or name another marketplace, Amazon, I’m OK with getting 3 boxes of separate goods, all received separately, and I understand that they may be coming from different sellers. I actually recently purchased a pair of shoes from Target that ended up being Steve Madden shoes, and they were fulfilled by Steve Madden, and I was OK with that. And so again, I think this ties directly to the fact that grocers are facing a different flavor of challenges when it comes to the rest of the retail crew as we’ve unpacked quite a bit today.
OK, so any final parting words before we break?
Hilding: I think it’s going to be another crazy six months. I mean, I think you know everybody like, OK, you know COVID is done. We were back to normal, and it’s just not. I mean, it’s just we’re really not. And this is you just have to be flexible.
I I do think you know the late kind of Q2 Next year we’re going to be in a much better spot than we are right now. I think that this holiday season Is going to go to some of the larger companies that were able to get their orders in or you know are able to buy their entire ships to get you know to get their aluminum, so that they can get their manufacturing lines going at Coca Cola.
But it’s just going to be you just have to be dynamic and agile, and I think technology can be a key enabler for that. And so, there’s a lot of the conversations that we’re having is how do I enable our strategy with some of these tech investments?
Andy: Yeah, I think it’s slightly bleaker here in Europe. I was listening to an interview with one of the British MP’s who was talking about the famous winter of discontent in the late 70s here in the UK. And he was describing many of the current challenges that we’re seeing in supply chain, kind of the challenges we’re finding with not being able to recruit people to actually do the more manual labor roles that we need in in supply chain.
Andy: So, be it HD drivers, be it warehouse workers, be at People to actually Work on the shop floor and zoom. And he was drawing a lot of parallels between what happened in the 70s and what he’s seeing right now. And I do think here in Europe we are fast heading into a period of…
Reva: Discontent?
Andy: Some level of discomfort, some you know. I think people are going to be very disappointed over Christmas, not because they can’t get their Christmas toys because I genuinely don’t think they’re going to be able to buy Christmas dinner this year. I think there’s going to be some interesting repercussions of the current situation. So, I unfortunately wish everybody you know you know has a has a good fall, has a good Thanksgiving, but I think you know here in Europe, I don’t think it’s going to be particularly happy this year unfortunately. I wish it was otherwise, but I can see…
Reva: Just be prepared to have cereal. Cereal with oat milk for your Thanksgiving dinner instead.
Andy: It’s looking a little bit bleak.
Hilding: And Coke. And Coca Cola. Will send you will send you some cans.
Reva: You’re a little bit, you’re, you’re a little bit of a Grinch, but, you know, that’s a, it’s a hot take, and I hope it’s not true. But you know?
Andy: Yeah, me too.
Reva: I think all signs have been pointing to this being a challenging season ahead so…
Andy: Exactly
Reva: On that positive note…
Hilding: Thanks, Andy.
Reva: Thank you guys so much for joining today. This was a good discussion.
Hilding: Reva, always great to talk to you.
Andy: Yeah
Reva: Cool. Thanks guys
Andy: Cheers, guys. Thanks very much.
Reva: Thanks for tuning in to Next in Retail. Be sure to subscribe, so you don’t miss a beat on the future of digital and retail.
