Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
Solution
Consulting
TCS Consulting Services to Achieve Success in the Digital Era
Highlights
- Growth in the grocery segment is bringing with it significant changes and challenges due to various dynamics–change in consumer preferences, inflation, supply chain issues, and availability of grocery products in general merchandise stores in the food industry.
- Digital technologies can help adapt to these changes effectively and power growth initiatives like online grocery, last-mile delivery, imparting a more integrated and unified experience across all shopping channels.
- Leveraging the ecosystem with strong focus on customer retention through technology, logistics, and harnessing the power of customer purchase history data will also aid growth.
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Shifting grocery dynamics
The grocery industry is navigating new paths in its quest for growth.
And in doing that, industry players are having to tackle different challenges as consumer demand for ‘fresh and healthy’ results in deeper scrutiny of food labels for transparency. The emergence of online grocery is reshaping the industry and throwing open exciting possibilities and opportunities.
The $848 billion grocery retail market in the US and the about $2 trillion food ecosystem saw double-digit growth over the last three years. The market is expected to grow at about 3% CAGR till 2030, mainly driven by online grocery.
As the market expands, grocers can look at health-conscious consumers, especially millennials, the growing demand for non-traditional groceries, sophisticated technologies for seamless digital channel and store experience, and deeper consumer connect as key focus areas for growth.
They must, however, adapt to changes to stay competitive, as consumers cut down on weekly trips to supermarkets and pick newer shopping behaviors.
Top imperatives for grocers include building online presence; transforming in-store customer experience; building a partnership ecosystem to offer a broader variety to consumers and a better reach to suppliers’ brands; and smoothening out supply chain issues.
Driving online growth
Omni-channel grocery shopping is now the de-facto model.
Online grocery is estimated to have contributed 11.2% to the total US grocery sales in 2023, and is expected to grow at 11.7% over the next five years.
Building a marketplace with a broader range of sellers under an integrated loyalty program is the new growth avenue. A grocery shopper coming for curb-side pick-up can bundle a sandwich or fresh salad from a restaurant within the grocery store.
Strategies to drive online growth:
Optimizing fulfilment cost (picking to last-mile delivery) will translate the growth of online commerce into profits. Optimize labor cost for picking and assure quality, fresh produce to encourage self-pickups at competitive pricing.
Ensure convenient, secure customer experience across touchpoints to influence online purchasing behavior.
BOPIS (buy online, pick in store), BORIS (buy online, return in store), vast assortment through marketplace, access to substitutions make the online shopping proposition more attractive.
- Provide ‘subscribe and save’ offers across regular needs items to ensure future purchases for replenishments.
As customers move away from BOPIS (buy-online pick-in-store) and demand door-step delivery, stores will have to be remodeled into dark stores, and there will be a need for more micro-fulfillment centers (MFCs) and central fulfillment centers (CFCs). Last-mile delivery is also trooping in 3PL, to add to the strengths of 1PL to enable seamless delivery. More ways are being explored to serve customers better and optimize costs.
Data analytics and customer data platforms are providing personalized recommendations for substitutions, timely replenishments, and personalized promotions.
Cybersecurity and fraud management are becoming essential as online payment modes, online accounts, return policies, and delivery options have higher exposure to fraud, leading to chargeback, loss of trust, loss of revenue and inventory. Addressing fraud with a holistic approach across touchpoints will ensure safe and secure experience for customers.
Going beyond grocery
To drive growth beyond core offerings, grocers must leverage and monetize store space, customer connect, supply-chain network and partnerships.
Online grocery is enabling deeper analytics of purchasing trends to run sharper marketing campaigns. Retailers are using first-party data and access to customers —both digital and at stores— to promote products in store, on digital channels, and on connected devices. The cookie-less world will further propel the growth of retail media network (RMN). Partnerships with social media platforms for customer engagement and building one view of the customer are essential to step into RMN.
Redefining customer experience
The customer expectations of shopping experience from a grocer are now the same as that from a general merchandise or electronics retailer.
Online grocery convenience, demand for farm-to-fork transparency, social media-driven awareness and choices are, to a great extent, shaping food choices for consumers as well as where and how they shop.
Amazon’s expansion into grocery with Amazon Fresh online and Whole Foods stores is altering the grocery shopping experience. Automated shopping lists, convenience of shopping and returns, social commerce, live commerce, and online reviews are influencing product sales and brand images.
Since in-store sales still have the major share, grocers are adopting technology to create a holistic experience for shoppers through features such as smart carts, getting product details by just scanning with a phone, and in-store navigation app to quickly spot products.
Grocery retailers realize that better the customer experience, higher the growth. They are coming up with various offerings to tap into this opportunity:
Since consumers are willing to pay extra for convenience, Walmart is offering services to put delivered items directly into refrigerators, leveraging the trend of smart homes.
Easy-to-use loyalty program that allows one-click visibility and redemption of paper and digital coupons or reward points can improve customer retention.
Digital marketing with personalized recommendations to show products at different stages of a shopping journey drives up the basket size.
Customer service powered by AI chatbots with human-touch intervention based on customer sentiment will improve customer experience as well as loyalty.
Make operations seamless, intelligent to improve efficiency
In grocery trade, providing food of choice at the right price on the tables is a complex competitive challenge for retailers.
It requires a combination of three sub-segments namely demand forecasting and supply chain efficiency, value chain optimization through analytics and measurements, and talent management and productivity improvement.
Strong capabilities for accurate demand forecasting, replenishment, capacity planning, and visibility across all stages of product movement are, therefore, crucial.
An optimized supply chain can be built using demand forecasting- (sales across channels, shrink, shelf life, out of stock), promotions, personalizedrecommendations, price change intimation, alerts for change in demand patterns due to internal or external factors like business decisions, environmental impact, and global and local events.
Forecasting can be made more efficient and predictable by adopting AI-ML, leveraging the right technology to ensure the agility and resilience needed for fresh data and analytics to build inventory visibility.
Value chain optimization through analytics and measurements
The ability to make quick decisions across the value chain can ensure customers are offered better value and that margins are also sustained. Digital twin and 360-degree view of supply chain drive contextual decisions based on accurate data. Digitally connected systems with a real-time view of product movement, along with vitals across the value chain, would offer a competitive edge.
Multiple options are driving up the cost of fulfilment. Deeper analytics of picking, packing, assortment handling, and delivering to recommend the best options can optimize fulfilment cost challenges of modern retailing.
A connected system powered by AI-ML, data, analytics, IoT, and cloud will ensure end-to-end process visibility between forecasting and fulfilment.
Talent management and productivity improvement
The single biggest line item in selling, general, and administrative expenses (SG&A) for grocers is people cost – warehouse and store staff. This people-intensive operation with rising wages is becoming even more challenging with newer warehouses and store models. Grocers must formulate plans to incentivize staff retention and attract seasonal staff.
AI-powered flexible workforce planning and scheduling can reduce labour cost by 10%. Activity-based labour scheduling and budgeting could further cut the cost by 12%.
Automation and digital transformation of stores and warehouse operations to execute mundane tasks, and track execution and performance are important levers for workforce optimization.
Self-checkout and automated cash management reduces staff costs. Upskilling store staff with training programs helps serve customers better and addresses labor issues.
Sustainability, social commitment, and the brand
Consumers are increasingly becoming socially responsible. They are conscious of the food they eat, and what the food and retail brands stand for.
Globally, approximately 14% food produced is lost between harvest and retail in supermarkets. In the US, about 10% food is wasted – dairy, eggs 29.3%, while fruits and vegetables at 32.6%. Food systems are responsible for one-third of global greenhouse gases (GHG) emissions, with grocers contributing around 4% (own operations, purchased electricity and heat).
Grocers are now coming up with initiatives to contribute to the green cause. They are developing innovative ways to reduce plastic use and wastage in packaging.
Consumers are increasingly becoming socially more responsible and are conscious of the brands they shop with, what they shop for, and what the brand stands for. Grocers must build their brands around values they stand for, for example, fresh, healthy, sustainable products.
What the future holds
Grocery is a resilient industry that has traversed rough times and evolved.
Data and analytics will aid the evolution journey by enhancing customer reach and experience and drive growth. Digital channels and social commerce mean customer experience is crucial for continued growth and retailers must redefine customer connect with value-driven pricing, targeted promotions, personalized recommendations, and store digitalization to improve customer loyalty in the highly fragmented grocery business.
