Wal-Mart StoresInc.WMT +0.11%plans to ask suppliers to deliver more goods to warehouses exactly on time or face fines, another step in the retailer’s efforts to keep inventory low and shelves stocked as it battles with Amazon.comInc.
At an annual conference for suppliers this week, Wal-Mart executives plan to announce that large suppliers need to deliver full orders within a specified one- or two-day window 85% of the time or face a fine of 3% of the cost of delayed goods, said Steve Bratspies chief merchandising officer for Wal-Mart U.S., in an interview Monday. Previously, suppliers had to hit a 75% threshold to avoid fines. For smaller suppliers the on-time threshold will move to 50%, up from 33%. The change will take effect in April.
“This is not a ‘Hey, let’s see how unreasonable we can be,’” said Mr. Bratspies. “We need the product that the customer wants when they want it.” Wal-Mart would rather have the products on-time than fine suppliers, said a spokesman.
As Wal-Mart, KrogerCo. and other retailers demand tighter delivery windows, suppliers including Kraft HeinzCo. and Procter & GambleCo. have invested heavily to meet those requirements and make their supply chains more flexible for online buyers. Last February, Wal-Mart executives told suppliers more accurate delivery times would be a focus going forward and first introduced fines for inaccurate deliveries last year.
A more precise delivery window helps Wal-Mart keep shelves stocked and the flow of products more predictable, while reducing inventory, say executives. That goal has become increasingly important to the world’s largest retailer as it pushes to make stores more profitable so it can marshal funds to boost online efforts. In addition, accurate inventory data is more important to retailers as they offer shoppers more ways to buy online and pick up in store.
“They’re trying to get as much inventory as possible off the books,” said Adrian Gonzalez, a supply-chain analyst and president of research firm Adelante SCM. “They want to order more frequently and in smaller quantities, and kind of accelerate that whole process.”
That strategy also increases the risk of products being out of stock, and consumer disappointment, Mr. Gonzalez said. “Wal-Mart is trying to balance that…while still making sure the product is on the shelf.”
Empty shelves or otherwise unsaleable products add up to some $75 billion in lost sales a year, according to the Food Marketing Institute, a trade organization.
Nearly 4,000 suppliers are expected to attend the meeting in Bentonville, Ark., where Wal-Mart will outline plans to for the first time widely share with suppliers data on which precise products are on shelves at any given time and why products are out of stock, as well as what products Wal-Mart plans to stock in each store. The additional data, which will become available throughout the year, will help with on-time delivery and “help our suppliers become more efficient and help solve problems,” Mr. Bratspies said.
The tightened delivery window comes as freight costs are soaring for manufacturers and retailers. Many companies are scrambling to book transportation, particularly for time-sensitive deliveries, because demand has outstripped the supply of available trucks. Prices on the spot market, where shippers arrange last-minute transportation, are up more than 20% compared with this time last year. Fuel prices are also rising, adding to costs.
“Trying to find a truck in today’s environment is next to impossible,” said Cathy Roberson, an analyst with Logistics Trends & Insights LLC. “Fuel surcharges are going up and the suppliers are going to have to pay all of this.”
Strategies for Today's Distribution Center Labor Challenges
By: SupplyChainBrain, sponsored by Fortna 01.29.2018
Finding and managing distribution center labor has become more complex with the rise of e-commerce. But the argument for investing in automation technology is compelling.
Distributors are feeling the heat from all sides — competition for a diminishing pool of labor and rising labor costs are compounded by higher transportation costs, driven by labor constraints, and margin pressure from increased customer expectations for fast and free shipping. Although there’s no simple solution that works for everyone, achievable strategies are within reach. This Special Report analyzes the state of the DC labor market and how technology can help solve today’s growing labor challenges.
Although the rise of next- and same-day delivery — the so-called “Amazon Effect” — feels like it’s turning the world of distribution upside down, that’s only one of a complex mix of factors putting additional pressure on distribution operations. Changes in the availability, cost and quality of labor are driving many operators to review their distribution operations with an eye toward technology for solutions to address the challenges and enable competitive advantage.
Today’s DC operators must develop strategies to strengthen operational capabilities, reduce costs and provide flexibility to adapt in a rapidly changing environment. Technology offers solutions, but first, it’s necessary to understand the DC labor challenges driving the imperative to adopt new strategies.
Growing Customer Demands, Shrinking Workforce
While customer expectations intensify, the pool of qualified, reliable and affordable labor for DC operations is tight and getting tighter. This is happening for a number of reasons:
The economy has achieved nearly full employment, increasing competition for workers across all sectors;
Wages for warehousing jobs, including picker/packer and lift driver, have not kept pace with the rising cost of living;
Millennials are better educated and they tend to have a poor perception, or lack awareness of logistics careers;
Baby Boomers, historically a major source of DC labor, are retiring;
Immigrant labor is no longer expanding due to changing political dynamics;
Drug testing is disqualifying a larger number of applicants, particularly as the national opioid epidemic continues; and
Finally, DCs are frequently located in areas of lower population density and hubs where competition for labor is high and driving higher wages.
These forces are constraining labor availability across all levels of staffing, from line employees to supervisors and managers.
At the same, time the rapid growth of e-commerce and customer expectations for faster delivery is driving the need for more DCs, which require more workers.
Scarcity of labor brings with it increased costs in the overall supply chain. And transportation costs are rising at the same time distributors are bearing the burden of higher consumer expectations.
Plus, there are non-logistics demands for more labor, putting additional pressure on DC operations. For example, Tesla is opening a large factory in Reno, offering light manufacturing jobs that pay considerably more than DC jobs in the area. As that facility moves toward full production, the local workforce may be insufficient to support existing distribution and manufacturing operations — driving even greater competition for workers.
Finally, DC operators — along with other businesses — see labor costs rising due to minimum wage laws and rising healthcare costs.
Holiday Cheer Can Cause DC Blues
The real crunch time for many logistics operations occurs during the run-up to the holidays, and has extended to the post-holiday period due to the rise of returns. Manufacturers, carriers and DC operators add lots of labor to meet demand and move more products with greater speed.
During the 2017-2018 holiday season, DC operators saw peak season hourly pay rates rise 10 percent in response to the urgent need for labor to meet the seasonal surge. Other extra-cost labor retention tactics include providing benefits such as free lunches, bonuses, stock incentives, etc. For one DC located in an affluent suburb’s industrial park, the need to simply retain existing workers was met by offering a lunchroom catered by a local restaurant chef, daycare and additional costly amenities, such as a gym and upgraded break room facilities.
Adding lots of labor to meet peak demands can potentially result in an oversaturation of staff at key points, creating congestion that lowers overall productivity. And a labor force prone to high turnover can cause even greater unintended cost increases when they fail to show up for work, or if they don’t work productively. By contrast, technology that both reduces the need for additional labor while making existing workers more productive, becomes the obvious alternative.
Either way, the cost of all this is coming off the bottom line, even as distributors are being squeezed by customers’ expectations for free shipping, faster shipping, free returns and value-added-services. These capabilities are no longer “added value”; they are table stakes.
Technology Boosts Productivity by Reducing Reliance on Labor
Looking ahead, the labor pool is expected to be further constrained, while costs continue to rise. With labor in short supply, the question DC operators face: Do they take whatever steps are necessary to continue to add staff, or is that no longer a viable strategy? In a growing number of scenarios it is no longer economically feasible to use labor for certain activities, or a sufficient labor pool simply does not exist.
Of course, one answer won’t fit all circumstances. Nevertheless, technology options that can either increase the productivity of existing labor or, replace it, are now an essential part of the solution.
It does take time to design and implement technological solutions, but there are strategies that can help bridge the gap:
Thoroughly review opportunities to increase the productivity of existing operations. Does the DC follow best practices, are processes being properly executed, and has every reasonable effort been made to incentivize a productive workforce?
Re-set customer expectations to match your actual capabilities, remembering that it’s better to over-deliver than under-deliver on promises. If it is not possible to meet same-day delivery demands, don’t offer it — especially during peak.
Shift labor to where it is needed, or shift orders to where there is capacity to fulfill. Consider fulfilling same-day orders from stores rather than DCs.
Consider hiring part-time labor (college students, stay-at-home parents, etc.); though the trade-off might include higher training and recruitment costs than with full-time employees.
Long-Term Technology Strategies for Improved Competitive Advantage
Even while implementing quick fixes, it’s important to start developing long-term strategies that maintain the health of your enterprise and, most important, position it to be highly flexible as unforeseen developments occur. This is essential for enabling competitive advantage. Typically, automation solutions take 18 to 24 months for results to be realized.
“There’s a perfect storm occurring in the DC, where labor availability is diminishing and labor costs are increasing. And it’s only going to get worse,” says John A. White, III, president and CEO of Fortna, a professional services firm that designs and implements distribution solutions. “The good news is that new technologies are reaching maturity and often have a strong business case for justification — goods-to-person (GTP) solutions, autonomous vehicles, robotics, and others can help, and are flexible in ways they weren’t in the past. And as technologies become mainstream, we are starting to see commoditization and lower prices. Companies that implement automation now to augment the workforce, or reduce dependence on labor by automating processes, will have a significant competitive advantage over those who wait,” says White.
Selecting the Right Technology Requires Balance
Find the level of automation that works best for the business, and even for each DC. The first questions when considering technology solutions for the DC are likely to be, what about the time, the management resources, and the business case for such a significant change? Is it justifiable? Is it flexible?
The introduction of new software and automation is usually not simple, and it requires research and careful planning. Fortunately, many of today’s technologies offer greater flexibility than ever. Operations design can be structured to enable incremental implementation and investment so that CapEx can be spread out over time, allowing businesses to add technologies and capacity that meet needs as they arise.
For the near future, most automation implementations will be focused on reducing reliance on labor, rather than eliminating it. Material handling equipment, systems and autonomous robots have been developed that no longer require an either/or choice regarding labor. Rather, there are many good options featuring lighter and more flexible automation, such as robots that can function alongside workers, helping them become more productive.
In many instances, the first and best opportunity for implementation of automation is picking and packing. These are the most labor-intensive aspects of DC operations. One of the key factors that drive up labor costs is the travel required by each worker to traverse a large facility. Travel adds cost, not value. There are several technology solutions that optimize and eliminate travel, or increase storage density to reduce travel while increasing throughput and reducing order cycle times.
For packing, there are proven technologies that greatly speed labeling, packing, insertion and value-added functions. Any technology that increases productivity does more than reduce costs. It also enables a DC to meet customer demands for faster order cycle times. While achieving a 50 percent reduction in labor, one successful implementation also met a steep increase in direct-to-consumer demand by allowing later cut-off times for completing orders in the DC.
Because it’s not possible to predict how customer requirements will evolve, these flexible solutions will support a more nimble enterprise, one that can adapt and maintain competitive advantage over time.
Determining what is appropriate depends on many factors, including:
Service expectations, order profiles, volume, and product characteristics;
Existing DC capabilities, which can vary from manual operations to low-level automation or highly automated;
Acceptable levels of risk including ROI, impacts on cash flow, impact of change, flexibility required and sensitivity to labor shortages.
Whatever the situation, it makes sense to work with a qualified distribution consultant who can help create a technology road map, develop a business case for investment and navigate through manufacturers’ offerings. The “horror stories” around failed DC automation usually result from implementation of systems and equipment that were too rigid for changing business conditions, or systems that weren’t properly integrated. Success is dependent on both art and science that considers all the variables and leverages the flexibility points that have the most impact on overall performance. An experienced, reputable consultant will have the industry knowledge to optimize a solution for the unique needs of the business and analyze the tipping points to ensure that the solution provides flexibility for the future.
It’s always been about achieving a balance between cost and service, but today’s operators must also consider the risk that labor may not be available, or too costly to sustain margins. More than ever distribution operations must be built for flexibility as the industry continues to evolve and the future comes into focus. New technologies are available today that reduce risk, increase flexibility and are cost-justified. With the right strategy and knowledge, labor challenges can be turned into opportunities for competitive advantage.
Here are some examples of real-world distribution center labor challenges:
A wholesale distributor with a DC that relied heavily on manual labor built a new facility. Rather than going with full automation, the new facility made minimal use of automation, incorporating basic technologies like AGVs, a shipping sorter, and engineered pick modules to produce the same output as the old facility with 33 percent of the previous workforce.
A large omnichannel brand apparel owner hired and trained 200 temporary workers to handle peak, starting on Labor Day weekend. The problem: 25 percent of the new hires didn’t show up, forcing managers to scramble to meet demands with insufficient labor.
A specialty retailer foreseeing that labor availability would continue to decline, impacting DC operations, is designing its newest DC for full automation.
The Business Case for Automation
Demographic trends indicate further decrease in the available labor pool.
Rising health care costs and competition for workers continue to increase labor costs.
Automation can increase productivity without increasing head count.
Technology drives greater accuracy and reduces human errors.
More efficient operations enable shorter order cycle times and later cut-off times.
Technology makes training new associates easier — reducing training cost and time to value.
The cost of technology is trending down.
Newer technologies are available that enable flexibility for an uncertain future.
The Kroger/Alibaba talks are all the buzz right now, but what does it mean to you? If you work in food distribution or retailing, it means you need to be actively reworking (or at minimum refreshing) your organization’s vision for the future of food retailing.
The urgency of this need is underscored by two other recent developments: Chinese attendees to the recent 2017 CES Show concluded that US technology leadership was no longer a source of inspiration, and automated AmazonGo stores are now opening to the public.
This double whammy signals how fundamental technology will be to the future of food retailing and distribution, and how big players like Alibaba and Amazon are busy advancing highly technical versions of the “store.” Some will work, others will not – but in either case, they will not wait for you to catch up. Don’t delay any longer.
Where to turn? Alibaba’s approach offers some valuable insights to those who are developing their game plan. Here’s why, and how those insights can help.
Why look to Alibaba?
Alibaba is more than just a technology company. It’s a trading company with technology at its core, and it plays an increasingly important role in the modernization of the Chinese retail sector – now the world’s largest retail market with sales reaching $4.9 trillion in 2016. There, ecommerce sales are more than double the US and represent 22% of total retail versus 14% in the US, and mobile payment accounts for $9 trillion compared to $112 billion in the US.
The company operates three major ecommerce platforms:
Toahao – a C2C marketplace similar to eBay that launched in 2003.
T-Mall – the largest B2C platform in Asia. A storefront on T-Mall is the most effective way to penetrate the Chinese market and essential for any supplier with serious intentions.
Alibaba.com – a B2B platform that sells mainly to foreigners.
Over the last several years Alibaba has broadened its scope to include several next-gen physical retail ventures including Hema Supermarkets and automated convenience stores. These new ventures showcase what Alibaba calls “New Retail,” which blends digital into the physical store.
Alibaba’s “… goal is not to build a lot of offline stores, but to lay down an infrastructure for doing commerce using our tried-and-tested new retail experience and technology,” Alibaba chief executive Hou Yi said in an interview with Forbes in 2017. “When the model is more established, it can be shared with other traditional retailers to help them transform in the digital age.”
Rapid transformation
We’ve been watching Alibaba for years, and below is a list of Brick Meets Click posts that give you a sense of how that company has pushed technology boundaries and built key connections between digital and physical retail.
Nov 14, 2013 – Alibaba creates the “Singles Day” holiday to mass market ecommerce. (See sidebar for the growth in Singles Day sales.)
Sept 10, 2015 – Alibaba invests in offline brick and mortar to complement the growth of its online business.
March 24, 2016 – Alibaba invests in a startup to encourage delivery of online grocery orders.
July 21, 2016 – Alibaba leverages artificial reality as a way to reduce retail labor and inventory costs.
May 8, 2017 – Alibaba partners with Aldi to give that hard discounter a presence in the Chinese market without a brick and mortar storefront.
July 24, 2017 – Alibaba opens its 13th Hema supermarket to showcase in-store technology-enhanced food shopping.
Jan 18, 2018 – Alibaba offers digital tools and support to small retail stores to help them make the transition to the digital/physical marketplace.
What you can learn from Alibaba’s approach
Three pivotal insights from Alibaba’s approach will be extremely valuable to US food retailers and distributors who are developing their respective visions of the future.
It takes a blend
Alibaba recognized early on that the retail marketplace would be both physical and digital – not a competition between the two – and it has deliberately planned to thrive in this integrated retail environment.
Collaboration is key
Collaboration with physical retailers is a key driver in Alibaba’s growth strategy, and the company has made consistent investments in building connections between physical and digital – from enabling physical retailers to open digital storefronts on T-mall to (just recently) supplying convenience retailers with digital tools and support to help them make the transition to the blended marketplace.
Mobile rules
Mobile, much like its role in modern life, plays a huge role in Alibaba’s vision of the future of retail – it’s the way customers access both digital andphysical stores, learn more about products, and check out and pay for them.
Winning in today’s market
It’s essential to figure out where you fit in the market, and the insights from Alibaba’s model can help, but it’s also critical that the game plan reduce your vulnerabilities.
Here are the most important vulnerabilities and suggestions for how to reduce them.
Implementing technology without strategy >>>
Companies need to move faster to put their own digital/physical strategies in place, and they need to adopt technologies that allow them to prosper in an integrated marketplace – not just survive.
Waiting to react >>>
US grocery retailers, distributors, and suppliers need to do more than just be “open” to partnering with technology companies; they need to actively search out opportunities to collaborate with them in areas like voice ordering, online fulfillment, and cost-saving programs.
Underleveraging/underestimating mobile >>>
Voice and IOT are hot topics on the home front, but mobile will be the key to the blended digital/physical experience for the foreseeable future. Mobile wallets and payment systems are a clear priority, but much more needs to be done to fully integrate mobile throughout the path to purchase.
Focus on the consumer
No matter where your organization is in the process of defining its future vision – just starting or on your way – don’t fall into the trap of thinking that it will be enough just to respond to the moves of competitors.
The real challenge for defining the vision and digital destination of food retail lies in having an unrelenting focus on the fact that
Consumers are looking for more from their shopping experiences – including those for food and groceries.
How your organization chooses to rise to those occasions and fill those customer needs is where it gets exciting.
Tuesday, January 30, 2018
The personalized nutrition trend is rapidly emerging
Jan. 23, 2018 - by Keith Nunes
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A rapidly evolving trend food and beverage executives must carefully keep in sight is personalized nutrition. Through DNA testing, more sophisticated sensor technologies, smartphones and wearable devices, consumers increasingly may track various aspects of their personal health and wellness. These advances have the potential to shift consumer purchasing patterns and create unforeseen challenges and new opportunities for food and beverage manufacturers.
Habit, the San Francisco-based start-up, is perhaps the most well-known personalized nutrition business. The company drew attention in 2016 when the Campbell Soup Co. invested $30 million in the enterprise.
The Habit business model requires users to submit blood samples for review. Based on the results, Habit personnel develop a personalized nutrition plan for users. As part of the program, customers may subscribe to a service in which Habit prepares and delivers personalized meals customized to the subscribers’ individual nutritional needs.
At this year’s CES, formerly known as the Consumer Electronics Show, several enterprises with a focus on personalized nutrition exhibited. While in a nascent phase, the emergence of these businesses highlights the potential of personalized nutrition.
Advances in personal technology have the potential to shift consumer purchasing patterns.
FoodMarble, for example, is building a personal digestive tracker it calls Aire. The device is designed to help consumers who deal with frequent digestive discomfort identify foods most compatible with their digestive system.
Aire requires users to take a breath test that measures the amount of gas in their system. Then, via an app, FoodMarble tests how a user’s gut responds to such carbohydrates as fructose and lactose. Based on the results, a personalized diet is developed for the user that suits their digestive system, according to the company.
Two other companies exhibiting at CES showcased sensor technologies for the detection of allergens in finished products. Both Allergy Amulet and Nima offer consumers systems that allow them to test products for the presence of allergens. Nima sells direct to consumers testing devices that detect peanuts and gluten.
Allergy Amulet users may insert a single-use test strip into multiple areas of a finished product or restaurant meal. The strip is then prepped and, once it is ready, may be inserted into a reader. A connected app on the consumer’s smartphone then receives the results and alerts users to the presence of allergens.
A start-up out of the United Kingdom is intent on encouraging consumers to adopt healthier behaviors. DnaNudge is a service that prompts consumers to make shopping choices based on their genetic makeup. Users submit DNA via a mouth swab. The results are evaluated and, through what the company calls its “DNA-product mapping system,” consumers may select personalized choices customized to their genetic makeup. Users may scan a retail product’s barcode into the DnaNudge app, and the system will approve the choice or recommend an alternative. Users may customize the system if they are trying to avoid certain ingredients, for example.
It is early days in the personalized nutrition marketplace and unclear what business models may succeed. What is clear is there is commercial and consumer interest, and as the market builds momentum it is incumbent on executives to consider how they may be affected by or capitalize on the trend.
FEATURE
Why online grocery could be a $100B opportunity in the next four years
At the Food Marketing Institute’s Midwinter Executive Conference last year, the retail trade group along with Nielsen made waves by predicting online grocery shopping would be a $100 billion business by 2025. That number has frequently been cited by the industry and by the media, even as some claim the figure is bloated.
Well, the organizations just doubled down on their prediction.
At last weekend’s FMI Midwinter conference in Miami, FMI and Nielsen announced that online grocery adoption is accelerating thanks to changes in consumer behavior and a few key acquisitions — most notably Amazon’s acquisition of Whole Foods last June. They now predict that online shopping will reach that $100 billion figure by as early as 2022, and that 70% of shoppers will at least occasionally shop for groceries online by that time.
“Consumers have redefined and are going to continue to redefine food shopping,” Thom Blischok, chairman and CEO of The Dialogic Group, a retail and CPG consulting company, said during a presentation on Saturday. “There is no going back.”
Over the last year, retailers and manufacturers have grown their online shopping capabilities. But as further research conducted by FMI, Nielsen and other groups show, these companies are under-prepared for the e-commerce revolution. And that, numerous experts said, leaves an industry-wide hole for Amazon to drive through.
It’s not just a technology problem
In the months after Amazon’s Whole Foods acquisition, nervous retailers quickly expanded their e-commerce platforms. Many signed on or expanded relationships with third party providers like Instacart, Shipt and Unata (which was recently acquired by Instacart), while some decided to go it alone. Doing so helped them reach more online shoppers, but according to experts at last weekend’s Midwinter conference, food companies haven’t adequately addressed key shortcomings in their supply chain, data management or company personnel.
Likewise, manufacturers, though they tend to be further along in adoption of online best practices thanks to their direct-to-consumer efforts, are also lagging. According to Laurie Raines, vice president of retail commercial strategy with Nielsen, most retailers and manufacturers think preparing for omnichannel retailing means investing in technology, when the truth is, it’s also about hiring the right people and implementing the right processes.
“Technology is not the answer,” she said during the presentation with Blischok. “It really is the enabler that will help processes be more efficient, and help people implement the changes they need to.”
Many company leaders admit they aren’t prepared for the increase in online shopping. According to interviews and surveys that Nielsen and The Dialogic Group conducted, just 7% of retailers and 18% of manufacturers claim they have the culture or skills needed to succeed in omnichannel selling.
“That is the starkest reality or challenge we’re facing right now,” said Chris Morley, president of Nielsen U.S., during a keynote presentation Saturday night.
A key challenge, according to presenters, is securing the talent that can help companies build attractive, predictive online programs that also integrate with the store experience. Jason Lobel, CEO and co-founder of SwiftIQ, a retail analytics company, said data scientists, for one, typically don’t want to work in the retail and food sectors.
“Data science is not a core competency for retail,” he said during a presentation on automation and machine learning. “It’s hard for retailers and brands to hire that talent.”
Nielsen and Dialogic’s research also found that food companies suffer from overlapping organizational structures, poor forecasting, poor data management, and weak marketing and merchandising initiatives.
Moreover, companies aren’t developing clear strategies and benchmarking their progress. Just 22% of retailers reported they have a short– and long–term omnichannel strategy, while 35% of manufacturers reported the same. When it comes to developing extensive metrics to measure their return on investment with digital strategies, only 5% of retailers and 15% of suppliers say they’ve established these metrics.
Technology isn’t the sore spot many company leaders think it is, according to Blischok, Raines and others. But it has become an area where retailers and manufacturers, absent a clear strategy, tend to waste a lot of money. Blischok estimated food companies spent between $3 and $4 billion on technology last year, and that 60% of that money was wasted.
The new digital shopper
Grocers and food suppliers could also benefit from better understanding the shoppers that are moving online at such a rapid pace. According to Raines, many companies assume it’s only young, tech-savvy consumers who are engaging in e-commerce, when in fact digital shopping is pervasive.
“If you asked anybody what was driving online spending most people would say millennials,” she said. “The millennials are driving online spending. Or it’s the affluent. But really it’s clear that everyone is.”
According to Nielsen research, 44% of Baby Boomers and 39% of Greatest Generation consumers surveyed over the past three months reported buying at least one CPG product online. That’s compared to 61% of millennials who did the same, and 55% of Generation X’ers. Nielsen also found relatively equal penetration across income groups.
A wider range of online consumers means a bigger target for retailer marketing efforts. But according to Graeme McVie, chief business development officer of Precima, securing customer loyalty in a ruthlessly competitive market is difficult. Although his firm found that shoppers typically give their primary grocery store high marks, just 19% of consumers surveyed reported shopping with one grocer every week. Just 7% said they spent 90% or more of their weekly food budget at their preferred supermarket.
“Loyalty has to be earned by satisfying the needs of customers better than others can,” he said during a presentation.
Experts noted that online shoppers have a plethora of options at their fingertips, and won’t tolerate an unattractive or inefficient e-commerce experience. They also want to feel like they’re getting a good deal, and that they can trust the quality of the products offered.
“Trust, value and experience are table stakes,” said Raines. “Customers will not come online if they have issues with any of those.”
Beyond those table stakes, Raines also noted the importance of integrating mobile technology. Although many retailers have added list builders, digital coupons and other functions to their mobile apps, relatively few have enabled online shopping. That’s a missed opportunity, according to recent research from the The Consumer Technology Association, which found that 60% of U.S. consumers use mobile technology to shop, while 67% use their phones to research additional information.
Experts throughout the conference also pointed to the importance of offering an e-commerce platform that’s fast, predictive, and that seamlessly works with company branding efforts. At the same time, they said that their mission in omnichannel is a familiar one to all of them: satisfying the customer.
“The digital transformation happening in our industry right now is a guest-driven transformation, not a technical challenge,” said Mark Skogen, president and CEO of Festival Foods, during a keynote presentation.
Efficiency, investment and collaboration
So how do companies keep from wasting resources and develop an omnichannel strategy that’s nimble enough to compete with Amazon? Blischok said grocery companies need to start by committing to investing in digital and in becoming more efficient. He said spending anywhere from 5% to 15% of their capital expenditures on digital is necessary, along with an operating model “that’s about 35% less than it is today,” he said.
The biggest challenge food players face, according to Blischok and others — the area where so much wasted money and product goes — is the supply chain. Stores that are used to stocking products only for those customers that walk in the door now have to forecast online demand as those brick-and-mortar locations now serve as e-commerce fulfillment centers, as well.
“It can really put a strain on the store if it’s not managed well,” said Doug Baker, vice president of industry relations, private brands and technology with FMI, in an interview with Food Dive.
Addressing this begins with investing in better data and forecasting. According to Blischok, numerous company leaders he interviewed complained they were gathering inaccurate data, while others admitted they had no effective process for managing their data. Forecasting, meanwhile, is something retailers have become adept at, but they often utilize multiple systems that don’t work together.
“Forecasting is often really good in silos, but it needs to be joined together,” said Morley.
Companies also need to address redundant roles within their organizations. Some of the company leaders interviewed by Blischok complained of having to go through multiple buyers or managers or buyers to address e-commerce issues when one point of contact would have been more effective.
“Both parties recognized significant duplication in the organizational structure,” Blischok said. “That has got to be fixed going forward.”
Throughout the conference, experts also pointed to the importance of collaboration between retailers and suppliers. The relationship between the two sides is often contentious, with each refusing to share information or to work together on promotions and other marketing initiatives. But given the uphill battle both sides face in offering omnichannel solutions, the two parties need to pool their strengths, said Blischok.
Retailers have shopper insights, while manufacturers have theirs. Combined, he said, they could reveal a richer tapestry of consumer demand. Likewise, grocers and manufacturers can collaborate on digital shelf programs and product assortments. Dialogic’s interviews revealed that both sides tend to share the same view as to how digital shelves should appear and function.
Collaboration isn’t a new message, but in Amazon the two sides may finally have a common opponent that could bring them together.
“Too often in our industry, the relationship between retailers and vendors can be adversarial, but we believe we both serve the same guest, and both benefit from providing better service for the customers,” said Skogen. “There really isn’t time in our fast-paced industry for fighting between vendors and suppliers.”
