People need food; people need stores to buy food. Sounds simple and easy, but it isn’t. Many grocers have struggled with challenges in recent years that range from price wars to shrinking margins, and from aggressive new players entering the marketplace to omnichannel shoppers demanding costly new conveniences.
Still, the basic principles remained clear for many years and cash registers kept ringing for fast followers who evolved with just the right speed to avoid letting competitors sprint too far ahead.
However, the pace of change lacked urgency, which was due to the belief that web-based revenue had minimal impact on the overall financial health of the enterprise. But Whole Foods + Amazon signaled the game had changed overnight and the digital transformation of grocery took on a new sense of urgency.
In the second annual Grocery Tech Trends Study, created in collaboration between RIS News and Progressive Grocer, changes in the grocery ecosystem are examined in detail and next steps identified as grocers rapidly shift to the next phase of their digital transformation.
58 Solutions that make a difference
POS is the core of the store for grocery retailers (and other retail segments, too). It not only manages checkout and keeps a record of transactions, it also connects the information to dozens of other essential enterprise applications such as accounting, supply chain, merchandising, marketing, analytics and labor management.
Traditionally, POS hardware and software dominate the lion’s share of a grocer’s IT budget and this trend continues with 42 percent of retailers reporting they will start a major upgrade of their POS hardware and software within the next 12 months. (See Figure 3.)
However, this high level of activity is surpassed by the 47 percent of grocers who plan to invest in click-and-collect technology (in-store pickup of web orders) in the next 12 months. Click-and-collect is the ultimate blending of bricks and clicks and a pure expression of grocery’s rush toward digital transformation.
This high level of investment is one of the most significant takeaways in the study, because click-and-collect tech not only surpasses POS investment plans, but it also emerges as the top investment choice among all 58 technologies tracked in this study.
Another impressive number in the store systems category is the grocer’s focus on home delivery of web orders, which has a huge number reporting they have actually started a major upgrade (47 percent). Is omnichannel just a buzzword? Is digital transformation and the blending of brick-and-mortar with online shopping fake news? Not according to the large number of grocers who are investing in them.
Examining merchandise management plans, we see a more traditional approach emerging. For example, the top three merchandise management technologies planned for the next 12 months are trade promotion management (selected by 42 percent, replenishment (39 percent) and allocation (33 percent). Each of these has omnichannel crossover, but they are essentially the basic blocking and tackling of the retail business model. (See Figure 4.)
Part of the reason that many merchandise management technologies do not have high future investment numbers is that they have been the beneficiary of steady investments over time. For example, the following technologies show high numbers for being currently up to date: category management (54 percent), price management (42 percent) and new product or private label development (42 percent). Also, many others show heavy activity in the “started major upgrade” column, which means they will be up to date soon.
Despite being hit by a tsunami of marketplace disruption, grocers enjoy a slight advantage — they have seen it happen first in other retail segments such as apparel (where a bubble has burst) and department stores (where everyone is struggling, with a few exceptions).
Also, website or digital shopping is still a relatively small part of overall revenue for grocers — 44 percent say it is less than 10 percent of sales (See Figure 9.) Although small, it is a growing segment and smart grocers realize they need to stake out their claims today.
As noted earlier, there are five technology solutions (among the 58 tracked in the study) that grocers are heavily investing in (and another four in the second tier). Still, it is far from clear how the winning playbook for digital transformation will take shape.