PUBLISHED DATE: 2021-10-13 01:25:22
Grocers Encounter Fresh Challenges to Compete With Amazon
Publicis Sapient Insight
Frans Van De Schootbrugge
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Amazon’s recent expansion into the grocery market is setting the company up to become the first truly digitally native omnichannel grocer. In 2020, its Amazon Fresh service rolled out across the United States and the United Kingdom, with digital-first supermarket locations in select pilot cities, along with same-day and next-day delivery incentives for e-commerce shoppers. Many believe Amazon Fresh is primarily a threat to larger retailers, but lower basket thresholds for free same-day delivery could seriously affect smaller grocers as well. With online shopping volumes more than doubling for grocery retailers in the wake of the COVID-19 pandemic, smaller convenience stores should begin to consider what this means for their existing technology and service offering.
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Amazon’s service offering starts with a partnership
What sets Amazon apart is its ability to define strategic partnerships along with a data-driven, tech-first approach that’s been inherent to its core business model. Their system is completely event-driven, with total visibility across the entire supply chain. This is in stark contrast to “traditional” grocery retailers that, at their core, still have monolithic technology stacks. Apart from superior technology, Amazon’s breadth allows the company to enter the market at a loss. According to a 2020 price comparison study from Ascential, Amazon Fresh pricing is 5.5 percent lower than its nearest competitor. Interestingly, that competitor is Morrisons, which entered a strategic supply arrangement with Amazon to offer Morrisons products to Prime members, with free delivery options in select areas for both Morrisons and Fresh orders over £40. Amazon Prime members are already accustomed to the convenience of next-day or even same-day shipping – an uphill battle for grocers challenged by slower fulfillment models or an abundance of product substitutions.
Think about a traditional grocery delivery experience. Consumers go online or access an app, book a slot, submit their order and typically get a delivery in two to five days. But with outdated technology, traditional grocers struggle to guarantee fulfillment in time and in full. Though traditional grocers achieve a reasonable order picking and fulfillment performance, many lack real-time visibility of what is available and where, making slot and pick location fixed and not flexible in a way that accommodates shifts in demand. If digital disruptors like Amazon start taking market share from traditional retailers, it will put their margin under increasing pressure. And without significant change, traditional grocers cannot compete on a level playing field.
A multi-step approach
How to compete with digitally native grocers
Looking to compete takes a multi-step approach to tackling digital business transformation:
- Align digital transformation goals across the organization
- Technology and commercial/business departments within grocery retailers are often not fully aligned, which can make it difficult to secure buy-in for transformation projects if value is not communicated effectively. Monolithic systems have many limitations, and grocers have often created workarounds regarding those limitations, resulting in costly upkeep and lost sales due to inability to deliver optimal customer experiences. To succeed, grocers must consider how digital transformation projects strengthen the whole organization, with data shared across silos to unite different processes under shared goals.
- Refresh the tech
- Hesitancy to upend outdated technology is often burdensome, with a common argument being that it is difficult to replace, re-engineer or migrate legacy systems. However, once grocers have aligned commercial and operational parts of the business under a shared data infrastructure, the business can begin to improve e-commerce operations and generate detailed and relevant customer insights. More data means better application of artificial intelligence and machine learning capabilities, fueling better business decisions in real-time settings.
- Use data to improve order picking
- Once goals are aligned and data is used across the organization, grocers can begin to get smarter about managing inventory to meet customer demand. For example, smaller grocers could designate select products to always have in stock, current staff can easily pick the orders, and customers can collect quickly. Doing it that way does not need many changes in infrastructure and investments can be minimal, often funded from the increase in revenue this could bring.
Going digital
COVID-19 has fundamentally changed the grocery retail sector. This rapid shift gave digital natives like Amazon the opportunity to accelerate entrance into the grocery market. For grocers to remain competitive, investment in reshaping the business and embracing a digital-first mindset now is critical to remaining competitive and owning a share of the market.
Frans Van De Schootbrugge
Director of Program Management, EMEA/APAC
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