The Future of Grocery Stores & Supply Chain

Developing resilient and flexible supply chains to reflect the demand for a variation of consumer shopping services

The intensity of transformation to curbside pickup, increasing demand for ecommerce home delivery, and an acceleration of technology investment to meet the demand for digital are some of the biggest challenges to the grocery industry. Digital strategies must address connected processes, real-time transactions, and develop the capability to have higher visibility into the store-level inventories. The importance of having as close to real-time view of inventory in the store, as well as a complete view of the supply chain, will be increasingly important to serve the demands of customers.

We’ve seen in the 2nd quarter of 2020 Kroger’s ecommerce sales growing 120% in one quarter. We believe the integration of digital technology will be the most complex challenge. Technology innovation will provide supply chain category managers the ability to leverage data insights to assess inventory, pricing, and replenishment requirements to minimize costs and maximize revenue. There are impressive IOT technologies being implemented today that will be critical in monitoring fresh inventories as well as conventional shelf products. Grocery store configurations will be scaled down and warehouses close in proximity to these stores will be used to accommodate the business model adjustments to reflect consumer omni-channel purchases.

A long-term trend: B2B vs. B2C online shopping options

Based on current data from supermarket news we anticipate this to be a long-term trend.  The industry is projecting more than 40% growth in online grocery sales in 2020.  More than 50% of surveyed consumers will use online ordering, and we believe the convenience factor and availability (given the expediated home delivery infrastructure) will only drive demand higher over the next several years. A study by Coresight Research pointed out that 34.4% of online consumer grocery purchases were a result of the coronavirus, but over 40% of new purchases had nothing to do with coronavirus. They suggest that planned vs buy online orders continue to increase. Their research projects 62.5% of the survey respondents to purchase online over the next 12 months. We’re seeing consumers shifting their purchase behavior: the order size is growing, and it includes a broader selection of goods. Consumers are more comfortable now than ever to make entire household purchases online. The level of acceptance, combined with enhanced buying experience, only seems to be predict a longer-term trend.

How traditional grocery store chains can prepare themselves for the future

A key challenge for traditional grocery chains is the competitive landscape. There are many more non-supermarket rivals forcing traditional retailers to adopt creative ways to configure their store fronts and increasingly become more sophisticated with digital especially with the use of data, AI, and machine learning to drive efficiencies into their supply chains. The use of hybrid models of shopping requires grocers to create unique shopping experiences in the store as well.  Kroger is partnering with food hall and restaurant vendors to provide ready to eat items in the store and repositioning stores to be closer in proximity to streetcar lines. There are also plans to use technology this year to create stickiness in the online experience using live programming to feature cooking, cleaning, and entertaining tips. So, the instore and online experience will be equally attractive to the consumer.  TVPage enables shoppers to purchase products show cased in videos on retail websites, according to Forbes.

Traditional retailers will also need to compete in the replenishment services category.  Auto-replenishment orders are growing in demand for common household products. Amazon Dash and Wal-Mart’s Easy Reorder are leading the way.

Finally, to provide maximum convenience for commuters who are time constrained, grocery kiosks will be installed in train stations and office buildings. The use of virtual store fronts is the latest innovation in meeting the consumer any way, any time.

Automized technology

There will be intensive use of automation led by robotics in the next several years, and automation will be widely adopted in warehouse and fulfillment centers. With 70% of consumers projected to use online purchases over the next few years, the omnichannel shopping will accelerate to an industry saturation point, meaning automation must be implemented in order to meet the increasing demand whether it’s online, in-store, near-store delivery or pick-up options.

Amazon has been investing in robotic technology for more than 8 years to address the need for inventory picking efficiency.  Today, 1,000 robots pick 65,000 orders a week, according to Magento. PitchBook noted that venture capital firms invested more than 1.2B in grocery technology in 2019, more than double the total for 2017. The focus is developing highly efficient near-store fulfillment centers. Micro-fulfillment centers will offer consumer pick-up services, according to Takeoff Technologies. App-based ordering and AI-enabled robots will assemble orders in an only a few minutes with curbside pick-up. The use of these solutions will change the economics of e-grocery and make the investment in these technologies viable.

Preparing the workforce

Digital transformation will create new positions, and the nature of work will change at all levels. There will be a significant need to reskill the work force, and a key consideration for businesses will be how to deploy capital. Every investment must have a long-term consideration, as the future is unpredictable with the advancement of technology. Some of the labor supporting these new systems will require intensive training and upskilling to provide the maximum value of the investments. According to Harvard Business School, Walmart is focused on the customer experience in their supercenters and will add workers to support eye care, beauty salons and other services to enhance the in-store experience.

Distribution may have the greatest reallocation of labor as warehouses are retooled with automation. Given the reshaping of the work force, Walmart is providing skills that are transferrable to other areas within the company by developing career pathways. Companies should be thinking about succession development and leverage their employee population by providing on-going advanced training to create career paths as innovation continues to be implemented and as models adapt to changing market conditions.