The New Need for Robots, AI and Data Analytics in Supermarkets
- by 7wData
Robots patrolling grocery store aisles and warehouses; so-called dark stores dedicated to online-only orders; data crunched in the cloud that allows retailers to identify and even tweak shoppers’ habits. U.S. grocery retailers thought they had years to prepare for these futuristic elements, but then COVID-19 hit.
It’s like we climbed into a time machine back in February and woke up on this date—but it’s five years in the future. Case in point: The percentage of online orders doubled during pandemic lockdowns to 40 percent—from 13 percent pre-COVID—according to a March survey by strategic advisory firm Brick Meets Click. And it’s expected that consumers will stick with these click-and-collect behaviors.
Retailers are making big changes in a hurry — and need new technical solutions to help them manage the transition. Amazon opened its first Brooklyn permanent dark store in September to fulfill online grocery orders. Kroger had already announcedits own home delivery initiative in 2018.
With this speed of change, this is a moment where tech innovators might get an audience from big grocery chains for new ideas. After all, tools that might have fallen flat with grocers a year ago — shelf sensors, inventory management software, grab-and-go stores, robotics, AI for better order personalization — will likely get more than a hearing today.
Here’s why: As retailers rush to keep customers by meeting surging online demand, online grocery ordering has terrible economics — especially the way most U.S. stores do it today. The extra costs of picking and delivering items tend to crush retailers’ margins. Add to that P&L pressure from huge tech capital investments to support the online model.
Suddenly you have big money problems in search of big money innovation. The most successful grocery chains will be those with the balance sheets and analytical insights to bend the curve on that margin compression through smart tech investment.
This creates a tremendous opportunity for venture investors and founders with the vision to help solve retailers’ online pain points.
The life-and-death metric that all grocery retailers will chase in this new world is units per hour (UPH), a measure of how fast online orders are processed. By that measure, U.S. grocery operators are still in the Stone Age of online ordering, averaging around 40 UPH. That compares poorly to operators abroad. U.K.-based online specialist Ocado, for example, recently reported its UPH was nearing 200.
Low UPH scores in the U.S. stem from retailers’ reliance on traditional stores to service both walk-in and online customers. Even before those one-way social distancing directional stickers were affixed to the front and back of every aisle, supermarkets weren’t designed to fulfill online orders. Employees working as pickers are competing with customers for items in the aisles, slowing things down and worsening the consumer experience. There’s also a big jump in labor costs when a store’s online orders suddenly make up 15 percent of sales, compared to less than 1-2 percent previously.
The ultimate solutions are tech-driven: automated picking, inventory management software that can help identify and stock higher-turnover items, and new supply chain models such as vertical farming. Much of this is already being tested: Walmart has robots picking out online orders, calling the effort “transformative” to its supply chain. Kroger has partnered with Ocado to leverage robotics and build up to 20 automated grocery warehouses.
The reward is that online grocery shoppers buy more in each order, and are more loyal over time. Average transaction sizes online are 20-30 percent larger and online shoppers tend to stick with one provider, increasing their lifetime value to retailers. Maybe they can make it up on volume.
Retailers are seeking to optimize for the benefits of digital while managing the downsides.
[Social9_Share class=”s9-widget-wrapper”]
Upcoming Events
From Text to Value: Pairing Text Analytics and Generative AI
21 May 2024
5 PM CET – 6 PM CET
Read More