COVID-Adaptation Future Scenarios: GROCERY RETAILING

June 20, 2020 by David Nitkin | Categories: Scenario Development and Testing | Tags: employment, sustainability

The Issue

In response to the coronavirus, grocery retailing has been undergoing an enormous change in just three months. Everything from consumer shopping patterns, supply-chain adjustments, worker-hero recognition, and much more. The industry is seen by insiders and consultant experts as being ripe for more substantive transformation even as we face the virus’s anticipated second wave. This blog explores three questions:

What are the key change drivers of change?
What major trends will potentially follow or conversely alter longstanding legacy practices?
What are three of the more interesting grocery retail scenarios that are being developed as part of a current EthicScan Scenario Development and Testing exercise including webinars with stakeholders?

Key Drivers of Change

1. Fear of personal safety for the shopper and salesperson: When three-quarters of your customers see grocery shopping as putting their health at risk, that’s bad for business. Surveys show only 24 per cent of Canadians are comfortable with going grocery shopping right now. Fears about health and safety are driving new habits in a way that imperatives like convenience and saving time did not. Convenience now has a different meaning. It’s less about saving time and more about survival and safety.

2. Recognition of Grocery as Essential Businesses: Grocers join pharmacies, home and garden, hardware, chain-drug stores, and farm-supply businesses as experiencing a boom in business as they were designated an essential service, while many other businesses and options were forced to shut down. This may contribute to a lingering effect in terms of where customers choose to continue to go for groceries after wave one of COVID-19. In fact, it may change consumers’ behavior about grocery shopping permanently.

3. Essential workers: Several chains stepped-up offering “danger pay” or “hero pay” —often in the form of a $2 per hour pay increase for front-line grocery employees—cashiers, shelf stockers, cleaners and drivers. How long these recognition, gratitude and reward initiatives will continue, will be a contentious issues, as Loblaw Cos. has announced ending this well-received program (by workers and the public) even as some consultants opine that it is likely here to stay.

4. Choice in Number of Products Carried: The average grocery store sells 15,000 to 18,000 distinct products (called SKUs in retailing). That has doubled or tripled over the last decade or so. It’s more expensive to manage more SKUs but that has been the strategy for the grocery industry. Some experts expect a change—that grocers and food companies will cut down on their product assortment in order to:

(a) shave costs;
(b) reduce in-store traffic per visit; and
(c) help streamline their supply chain.

5. On-line e-commerce shopping—a boost but unhappiness: E-commerce for groceries is up from previous rates of 2-3 per cent three months ago to 22-24 per cent today. Canadian consumers and retailers alike have embraced online grocery shopping in a way they haven’t before. However, sources of unhappiness are many:

(a) many first-time consumers have been frustrated by weeks of crashing platforms and orders that are cancelled or disappear;
(b) scant and delayed delivery patterns are common;
(c) consumer shopping for sales and evaluating quality has become more difficult; and
(d) the selection isn’t as extensive as what’s available in the store.

Over the last few years the food industry has been slowly gaining an online presence in order to counter the Amazon menace. That was all about Amazon. Now, purchasing on-line is all about safety and well-being.

6. Inventory is newly important, and overturns a Just In Time model: For years, many grocery retailers have been more focused on reducing cost in their supply chain rather than reducing risks. The coronavirus has proven the weaknesses in having an efficient supply chain with minimal inventory. Many retailers had only two to three weeks’ worth of safety stock in their facilities when the virus hit. Why didn’t grocery retailers reach out to Procter & Gamble, Unilever, or other food companies and say they would take everything the manufacturers could produce? Observers say it’s because of their current “Just-In-Time” business model, and going forward there will need to be a better one for how they fulfill groceries.

7. Use of robot technology: One solution proposed by analysts and forecasters is the possible use of robots within the warehouse and distribution system to improve efficiency – a technology which already exists and could be implemented to:

(a) increase the speed of shelf restocking and delivery to stores;
(b) support expanded consumer curb-side pick-up; and
(c) reduce total human worker wages.

Legacy Business and Customer Practices

1. High Volume, Low Margin Business: The grocery business is a high-volume, low-margin business. Increased operational costs through danger pay, salary top-ups and stepped-up sanitation measures in stores will hit the bottom line. This could lead to closures of less profitable locations and perhaps even the loss of certain banners.

2. Food Self-Sufficiency: Canada is among fewer than ten countries (alongside the U.S., France, Australia, Russia, India, Argentina, Thailand and Burma) that thankfully can supply enough food to feed itself. This is a measure of could, rather than does, as we export a lot. Like other sectors, grocery retail executives will have to address decision choices about whether to emphasize shorter distance Canadian sources versus long-distance offshore sourcing.

3. Changing Consumer Heath Expectations: Virtually overnight, hitting the grocery store went from a routine outing to a surreal experience requiring extensive pre-planning and hyper-vigilance. While we do not expect to continue wearing a mask once the crisis has passed, there may be carryover of other new grocery shopping habits:

(a) using hand sanitizer,
(b) wiping down the cart,
(c) using debit instead of cash, and
(d) disinfecting or washing groceries once home.

Enduring management changes for stores seeking to anticipate any future natural disaster could include:

(a) physical distancing markings on the floor,
(b) reducing the number of customers allowed in the store at any one time,
(c) Plexiglas barriers,
(d) special sanitizing stations, and
(e) special shopping hours for seniors.

4. Changing Definition of Brand Strength: Retail brands that have a sufficient footing in the marketplace, not only from a brand awareness and equity standpoint but also now from a staple extended shelf-life and comfort-food standpoint are more fit to survive the COVID stress

5. Bigger, Stronger, E-commerce Competition: Online behemoths, Amazon (AMZN) and Alibaba (BAB A) controlled one-third of the e-commerce market globally in 2019. Store closures during the pandemic have extended their dominance. Amazon, for example, hired 175,000 new employees as consumer spending on Amazon jumped 35%. These titans may well come out of the pandemic even stronger, permanently reshaping the retail landscape and driving a winner-take-all race that was already in motion.

Grocery Retail Emerging Change Trends

COVID-19 challenges have the potential to fundamentally reshape nearly every aspect of the grocery business once the immediate crisis is over, resulting in everything from higher salaries for front-line workers (leading to increased automation), to a rise in e-commerce, increased demand for discount banners, and even reduced product assortment. Among the twenty or more emerging trends and forecasts experts and industry thought leaders identified are these:

1. New Locavore Home Delivery Micro-Fulfillment Competitors. Certain bakeries, coffee shops, and the like are retooling to offer premium and local products through locavore grocery delivery. They are newly using drivers, vans, warehouses and on-line delivery apps to offer next-day delivery of produce, meats, cheeses, baked goods and prepared foods, finding immediate traction with house-bound consumers.

2. Democratization and Shortening of the Supply Chain: More consumers are discovering farmers’ markets they hadn’t noticed before. They not only are buying eggs, meat, baked goods, preserves and vegetables directly from the producer but also signing up for subscription-type services to stock up on staples from regional suppliers and supporting niche markets in their neighbourhoods.

3. Growth of Digital Promos: Fear of virus transmission is encouraging:

(a) shorter duration store visits;
(b) replacing of paper flyers heretofore given out door-to-door or in-store; and
(c) more promotion using new digital, on-line apps, some linked to loyalty cards.

4. New Click and Collect Model: The Vending Machine model is strong in Asia. The customer orders online, or in a subway station, or in the store and then goes to the store to pick up groceries. This requires grocery retailers to invest in micro-fulfillment systems that they can put in the middle of their store or the back room to automate and speed up grocery picking and fulfilling. Examples include pickup windows so customers can walk or drive up, place an order, have the machines fulfill it, and then pick up the order right there. By changing their business model so that their stores become vending machines/warehouses, grocery retailers can operate 24/7, 365 days a year. The benefits are:

(a) automate the packing of the groceries,
(b) reduce labor costs,
(c) increase the density of deliveries going to specific regions;
(d) offer direct-express home-delivery options;
(e) gain market share, and
(f) generate more profits.

5. Leveraging AI and Monitoring Hardware: Amazon “Just Walk Out” technology, Grabango, Zippin, Standard Cognition, Grabango and Trigo are taking a different approach, leveraging quickly-advancing technologies like computer vision to eliminate grocery checkout lines. This includes:

(a) Installing overhead sensors in a store, which use advanced machine learning and computer vision algorithms to monitor the location of every item in the store.
(b) Monitoring inventory — keeping track of its movement off the shelf and out of the store –this can help the bottom line by reducing shoplifting, and no-fault charging shoppers for all items they have on their person, even if it’s hidden from view.
(c) Customers have the option of downloading an app, so they can just walk out of a store with their purchases without a cashier present, and see the charges show up on their credit card.
(d) Those who don’t want to bother with the app — or who want to pay with cash, food stamp benefits via an EBT card, or any other kind of tender– can go to a checkout station, where the system will tell a cashier how much they owe. See the second scenario below.

6. Fewer and Shorter Shopping Trips: It’s unlikely people will be shopping as frequently as before or spending as much time in-store. According to a consumer-behavior survey released by Florida-based marketing agency Acosta, shoppers are currently making 52% fewer trips than they were before the pandemic. And 47% said it’s extremely or very likely they’ll continue to make fewer trips post coronavirus. If stores keep up two-cart social distancing rules, the days of impulse buys while waiting to checkout may also be a relic of the past.

7. Customer Plan and Stock Up Strategies: The survey also found that nearly half of respondents think they’ll continue to stock up more in the future. Now that people have adopted the habit of shopping for seven-plus days at a time, the stockpiling impulse is likely to continue, but without hoarding such vast quantities of essentials. Stocking-up is a skill people could keep using to save time once regular pace of life takes over again.

8. Curbside Pick-Up and Online Ordering is Big: COVID has forced older consumers in particular to learn how to use and appreciate digital technology to shop and take advantage of curbside pickup. Shoppers may continue to order online, especially those who, before COVID, struggled to squeeze shopping into their busy schedules or found shopping to be physically challenging. See scenario three.

Scenario: Future Grocery Retailing

Here are three interesting scenarios from among others that are available in Resource Kits and are being discussed in free admission EthicScan seminars and workshops.

	Little Change	Significant Change	Pandemic proof
Description	Tweaking Existing Store-Focused shopping	Experience Model Combined with Monitoring	Vending Machine Model
Management	Take workers’ and (possibly) customers’ temperatures. Restrict the number of customers inside the store at a time.	Eliminate grocery checkout lines. Charge customer for everything in their basket.	Go “dark” to the public and convert operations to direct home delivery. Supplement with warehouse curbside pickup.
Customer	Mark safe distances with tape. Install Plexiglas at every till point.	Keep track of inventory movement off the shelf and out of the store.	Shutter stores and repurposing them for pickup and delivery only.
Workers	Essential workers required to clean, sanitize, test for virus, and cashier.	More surveillance training. Fewer cashiers.	Protect health of workers. Fewer of them in stores. More working in order fulfillment warehouses.
Services	Offer new locavore, specialty and upscale products. Offer learning opportunities in cooking and nutrition.	Reduce or eliminate checkout system. Reduce shoplifting.	The customer orders online and then has groceries express home delivered.
Delivery	Traditional shop, pay (more by credit card) and carry out, supplemented by home delivery option.	Many customers will embrace online shopping for staples;	Stores become like vending machines/ warehouses. Operate 24/7, 365 days a year.
Social media	More digital, rather than paper flyer promotions. Encourage families to cut back on their trips to the store and shop alone if they can.	Emphasize attractiveness for time- pressured, technology-savvy clientele.	Point and click at wall-mounted displays in public places or online. Point and click on-line during specialty broadcast shows.

Conclusion

Experts offering forecasts in this sector differ in opinion on which legacy patterns, supply-chain management choices, and new technologies will become dominant in the future. Most agree the potential for “new normal” transformations is higher than at any time in the past half century. Some see changes as massive as those that accompanied the Green Revolution in food production.

EthicScan Webinar – Fundamentals of COVID Scenario Development and Testing: June 25

10am – 11am

This webinar (June 25) is your introduction into the Scenario Development and Testing Methodology. It is designed for a business professional who has responsibility for CSR, public affairs, or sustainability. The approach is to review the challenges for business posed by COVID-19, explore the legacy of previous “normal” business practice, and identify necessary steps to assess the future through the use of robust scenarios.

There will be a presentation followed by questions and answers.