Grocery Retail Enters the Second Half of the Chessboard

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Grocery Retail Enters the Second Half of the Chessboard

By Gary Hawkins, Center for Advancing Retail & Technology (CART) - 03/08/2016

There is a legend involving the inventor of chess and his patron, the emperor of China. The emperor had so fallen in love with his new game that he offered the inventor a reward of anything he wanted in the kingdom.

The inventor modestly asked for just a few grains of rice in the following manner: the emperor was to put a single grain of rice on the first chess square, and then double it on every consecutive square (a chess board has 64 squares). The emperor immediately granted the seemingly humble request.

One version of the story has the emperor going bankrupt because the doubling of grains of rice on each square ultimately equaled 18 million trillion grains of rice. An alternate ending has the inventor literally losing his head. Regardless, it was in the second half of the board where the trouble started. 

Four technology trends accelerate pace of innovation

The grocery industry is entering uncharted territory as technology-fueled innovation explodes across every part of the supply chain, from product manufacturing (think 3D printed food) to distribution (self-driving cars or drones) to real-time marketing to the individual shopper (beacons done right).

What’s fueling this flood of innovation? Four underlying, synergistic technology trends:

  • Exponential growth in low-cost processing power: Ray Kurzweil, noted author, technologist, and current Director of Engineering at Google, has calculated that a $1,000 computer will surpass the brainpower of a human by 2023 and the brainpower of all human beings combined by 2045. 
  • Artificial intelligence: Solutions powered by A.I. are addressing complex problems based on the analysis of vast amounts of information by using powerful computers and sophisticated algorithms that mimic human capability. Artificial intelligence is tailor made for the vast amounts of data found in consumer goods retail.
  • Big Data: The growth in processing power and artificial intelligence are a result of a steady feast on big data. The explosive growth of big data - the latest buzzword is mega data - continues unabated.
  • Cloud computing: The development of the cloud has transformed access to technology, as companies no longer have to maintain expensive hardware and software on site, or support the requisite human resources to keep all systems operating efficienctly.

Waves of Innovation Threaten Incumbent Companies

Disruptive innovation can be thought of as a wave, creating change as it sweeps through an industry. Inevitably, as some established companies adopt new ways of doing business and new market entrants become established, some incumbents fail to adapt and disappear.

The tsunami of technology is powering waves of innovation that are growing faster and larger. Each wave as it moves through the industry takes out a growing number of incumbents, whether they are grocers, wholesalers or brands.

Democratization of Technology

We are witnessing the democratization of technology, as solution providers are able to put increasingly powerful applications in the cloud, making incredible capabilities available to even the smallest grocers.

Contrary to the past several decades, when large scale was requisite for significant technology investment, the cloud is fostering the delivery of increasingly sophisticated solutions to ever-smaller businesses. As the pace of technology-driven change increases it will increasingly favor nimbleness, long the province of independent grocers.

Rapid advances in technological capability enable younger firms to leapfrog older firms, unencumbered by expensive, established infrastructure. The same concept makes it possible for companies outside the traditional consumer goods supply chain to enter the marketplace; Amazon is expanding quickly into delivery of packaged goods, Blue Apron and others are now delivering ready-to-make fresh meals to customers’ homes. The day is rapidly approaching when groceries will be delivered by a self-driving car or by drone.

Organize for Innovation

It is worrisome that few grocers and retailers have stepped back to consider the implications of the constantly increasing pace of innovation to their organizational structures. Grocers of any size are hamstrung by their inability, and often unwillingness, to implement new technologies, solutions, or services in a timely fashion – and that means that some of them could be headed for extinction.

To say that grocery retail is undergoing massive transformation fails to convey the magnitude of what’s happening. The grocery industry is entering the second half of the chessboard – and things are about to get interesting.