Summary

Since the pandemic, grocers have started to reimagine physical stores to suit consumer preferences, seeking to adapt technology to respond to new demands.

According to McKinsey, the shift in customer preferences has meant grocers need to reshape the traditional role of physical stores. The pandemic saw many consumers pressured into increasing their use of online stores due to the limitation and closure of highstreets and in-person stores.

The personalised experience provided by online facilities warped consumer expectations of their shopping experience, and has left retailers running to catch up and meet demand.

Since the advent of the convenience store in 1920s America, it has been understood that consumer convenience is a competitive advantage, something people will pay to have (think Amazon). But with emerging technologies, how can grocery stores maintain a competitive advantage with their physical stores with consideration of broader factors such as skill shortages, logistical challenges, rising costs, and the pitfalls of complete self-service.

In this POV, Responsiv will summarise and interpret research conducted by McKinsey & Company into the need for grocery stores to embrace new technologies.

Key Findings

In this section, Responsiv will be exploring and interpreting what we believe are key findings from McKinsey and Company report ‘Tech-enabled Grocery Stores.’

1. Grocery stores are under pressure due to macroeconomic conditions
2. In-store technologies can be used to improve customer experience and reduce costs
3. Maintaining in-store technologies

Grocery stores are under pressure due to macroeconomic conditions

The ‘in-store only’ era for grocery retailers has ended, with external challenges compelling them to adapt.

‘Macroeconomics’ refers to the large-scale, broad economic factors that affect the performance and nature or the economy as a whole, including unemployment, GDP, and inflation.

Labour costs and skill shortages

In the context of this study, McKinsey identify the rising labour costs and staff shortages as two factors affecting the industry sector, with thousands of roles left open for recruitment. This has pushed leaders to upgrade benefits and increase wages as a way to incentivise recruitment efforts. Despite this push for recruitment of new skills, the main focus for grocers is investing in staff retention and upskilling.

Stockouts

Another challenge contributing to these macroeconomic conditions within the sector is increased stockouts due to supply chain issues. Stockouts occur when inventory is unavailable when needed for sale. Most consumers will have faced this, having orders split over two deliveries whilst retailers wait for items to come back in stock.

McKinsey highlight that whilst omni-channel offerings have increased the complexity of supply chains, shifts in the economy have had a larger impact on operational resilience and costs. Adoption of omni-channel solutions should not be hindered with the thought that it rises risks of complexity and cost. If done with thoughtful integration throughout the organisation’s inventory and supply chain systems, omni-channel will not only fulfil the marketing and business objectives, but improve oversight of retail channels and availability.

Identified as another factor contributing to stockout issues is the lack of capacity available to logistics companies. McKinsey state that overall logistics capacity declined by 11% between September 2020 and June 2021, restricting already tight profit margins.

This lack of shipping capacity means retailers are limited in available stock, have increased lead times, and have to plan for spate conditions. In the case of grocers, who have to deliver in a timely manner due to the nature of their product, there isn’t the option to stockpile in the event of delayed availability, meaning they are more likely to suffer from this logistics and stockout crisis than others.

E-Commerce

Another challenge is the shift from physical stores to e-commerce.

The pandemic and other challenges have led shoppers to move away from traditional grocery stores in favour of online shopping. Consumer convenience is a priority for the market and provides a competitive advantage where it can be delivered. This is not a new theme, with origins tracing back to 1927 America, the ‘convenience store’ has been developed over the last century, growing from an ice block store to online e-commerce businesses.

What convenience to the consumer means has changed, but the principle has remained the same.

Retailers have sought and created new delivery models to cater to this convenience, and in recent years this has meant focusing on a predominantly online experience.

Those consumers still using traditional stores are now seeking a different type of experience; self-checkout for example has increased by nearly 20% since the pandemic, with 75% of McKinsey respondents stating they intend to keep using the machines.

This may suggest that the personalised experience sought after through omni-channel extends into the grocery store.

It looks like in-store customers are looking for a more personalised cross channel experience that allows them to have a more tailored experience. Despite this, there are reports of retailers bucking the trend and reversing their use of self-service checkouts in favour of the more humanising cashier checkouts. Not only does this seek to improve customer service, but also dampens the likelihood of theft. It will be interesting to see how far this reversal spreads through retailers.

From the shifts in customer preference and macroeconomic conditions, grocery retailers should look to create a tailored experience for customers using new technologies and solutions that will allow them to fit this into their strategy.

In-store technologies can be used to improve customer experience and reduce costs

With increased trends in online shopping throughout and after the pandemic, grocers need to implement future-proof technology in their physical stores to increase the appeal and commercial viability.

McKinsey identify four distinctive in-store changes that can reduce costs by as much as 15-30%; finding that many retailers and grocers are already implementing and experimenting with tech-enabled store operations and customer experiences.

1 – Self checkout convenience

Customers are not willing to wait in long lines for a cashier anymore, instead they are increasingly valuing the speed and convenience provided by self-checkouts. This reduces friction for consumers and free’s up crucial time for staff for other high value operational tasks.

McKinsey found that, when properly implemented, tech-enabled self-checkouts can improve productivity by 6-12% by reducing the labour hours required for operation.

Another method of self-checkout is ‘scan and go.’ Many grocers have already implemented this technology, allowing customers to check out on their mobile whilst they shop, avoiding queues and bottlenecks at the checkout by removing the need to unload and reload trolleys.

This also improves commercial viability, as it provides the capability to showcase real-time promotions and offers to the consumer as they walk around, not waiting until they are at the till. For example, highlighting a buy one get one free offer as they scan the relevant items.

2 – Visual data

As is a concern with the increase in customer self-service, finding ways to reduce the risk of error and theft is important to retailers.

Many self-checkout tills have video streams and screens connected so customers are aware they are being surveyed and hopefully deter them from shoplifting.

Implementing visual AI capabilities on top of this existing infrastructure of cameras can help detect and alert to human error better than the existing functionality provided by scales and human intervention. This will also create a wealth of visual performance data that can be utilised by retailers to evaluate and optimise their in-store processes.

3 – Recruitment efficiency

The global skills shortages and the attractiveness of remote working makes attracting workers a complex process. Employers are pushed to find other ways to recruit talent, such as smart, digitised hiring, automated processes, and a scaled effort to train and retrain employees.

Technology solutions can support grocers at every stage of the hiring process. One example from McKinsey suggests implementing predictive analytics to automate CV screenings to reduce manual workload by 55% and provides the time to focus on training and other business improvement opportunities.

Other technologies that are being implemented by grocers include digital training and AI-powered workforce planning and scheduling. These tools can take data and predict demand based on a wealth of available data known to influence consumer behaviour such as the weather and traffic.

4 – Repetitive and manual workloads

Inventory management takes over a lot of in-store workloads, with tasks such as identifying out of stock items, counting products, and replenishment.

Emerging robotic technologies have evolved to allow automation for some of these labour-intensive tasks by improving stock rates and supporting sales. Robot evolution has also improved the commercial viability of this investment, by creating robots with multi-purpose capabilities, for example, stock management and cleaning.

Introducing technology into physical stores has multiple benefits and can support many business goals, including addressing customer demand by effectively managing stock.

Organisations should take advantage of available technologies to future-proof their business and act on their strategies.

Maintaining in-store technologies

Technology and automated equipment can provide predictive maintenance for in-store machinery and infrastructures.

These tools can minimise the skilled labour required to do routine maintenance checks and pre-emptively alert when failure or issues may arise. In the context of grocery stores, this can increase food safety previously impacted by human error, for example, monitoring fridge and freezer temperatures.

By embedding Internet of Things (IoT) sensors throughout in-store equipment, organisations can remotely predict and detect maintenance events, and deploy remote support to reduce any downtime disruptions. Implementing IoT solutions in conjunction with a managed service provider, companies can reduce the need to recruit and upskill staff for these jobs.

Conclusion

Investment in technology has become a ‘must’ for grocers, among others; providing the opportunity to improve customer experiences and overall satisfaction.

Technologies are continuously being developed, tested, and improved to help across industries to reduce cost, increase efficiency, and deliver the desired business outcomes. For grocers and retailers, some examples can be seen above, in the form of software and physical automation, AI for security and data insight, as well as integrated IoT for pre-emptive maintenance monitoring.

Grocers and retailers need to make strategic investments to keep pace with customer demand. Tactically, retailers should look to build partnerships with technology companies as a way to fulfil these capabilities and in turn reduce cost and increase productivity.

Read more about McKinsey and Company’s perspective on Tech-enable Grocery Stores here: Tech-enabled grocery stores | McKinsey