Cleanup in Aisle 3: How Retailers Will Avoid Slipups in the Digital Age

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There was a time when retail was a fairly straightforward business. Buy inventory with an eye to customer demand, put out a “Yes, We’re Open!” sign, provide friendly customer service and repeat. Technology has changed that, and the advent of information-on-demand and Internet-enabled mobile devices is pushing retailers to adapt their practices in order to attract and keep customers with increasing expectations of transparency and personalization.

Today’s consumers have a world’s worth of information at their fingertips, anytime, anywhere. As of February 2012, half of mobile phone users have smartphones, and they’re accustomed to answering any question they have with a quick Google search or a barcode scan.

The information age has created some new challenges for retailers. To begin with, it’s now incredibly simple for a customer with a mobile phone to walk into an electronics store and scan the TV or camera she’s thinking about purchasing to do an instant price comparison against other brick-and-mortar or online retailers. This kind of behavior change is disruptive to retailers, and is forcing them to rethink their policies and business practices.

Millennial shoppers used to information on demand, and more globally aware than their parents and grandparents, expect greater variety and better quality, and they care about where their goods came from and how they affect the world. They want to know — or at least feel entitled to know — who stitched together their sneakers, whether the farmer who grew their coffee was fairly paid and the size of their potato chips’ carbon footprint.

For retailers in the grocery sector, demands for transparency are triggering bigger conversations. Take Proposition 37 in California — a bill that would have forced food suppliers to label genetically modified foods. Food suppliers stood on both sides of the issue. Agricultural powerhouse Monsanto was one of the largest funders against it, arguing that the bill would force unnecessary labeling of perfectly safe, common foods — a kind of Scarlet Letter. Meanwhile, yogurt manufacturer Stonyfield Organic donated in support of the bill, calling for transparency and less ambiguity in labeling. The bill was ultimately defeated by a fairly small margin (53.1 to 46.9 percent), and the issue has not been put to bed. The trend (or perhaps it’s a pendulum swing?) toward transparency is inexorable.

Another challenge posed by today’s torrent of information is the increase in “noise” compared to the “signal.” Facts that are easy to digest and easy to find don’t always tell the whole story. “Food miles” are a vexing example. When thinking about the carbon footprint of food, our natural instinct is to assume that the fewer miles the food travels, the better. Sometimes this is true — but when you’re comparing, say, tomatoes grown in Mexico to tomatoes grown in a greenhouse in New Jersey, food miles alone don’t tell the whole story. The reality is the energy spent heating a greenhouse may outweigh the fuel spent transporting the field-grown tomatoes from Mexico. In fact, transportation typically makes up less than 15 percent of the carbon footprint of produce.

For all the challenges retailers face as they adjust to the new reality of a digital age, there are also some enormous opportunities for those willing to adapt. Today’s consumers may be more skeptical, but they’re also accessible in new ways and are looking for personalization. Retailers now have the opportunity to move beyond mailing weekly circulars full of coupons — they can share local, real-time promotions on Facebook. A grocery store that’s just received a shipment of unusually sweet, juicy pineapple now has the means to tell that store’s shoppers about it instantly. Feedback is “ripe” to be transformed too. Who today would bother walking back to a store with a tasteless watermelon or soggy bag of salad to complain? But scan it with a mobile phone to give feedback to the store and grower (and get an instant coupon) — that is not only simpler, but actually generates more useful information for the store and supplier.

Some retailers in the grocery industry are already moving in this direction. The Kroger family of stores, which includes Kroger, Fred Meyer and Ralphs, has taken a progressive approach to consumer engagement and transparency. It was the first retailer to let shoppers trace produce back to the farm via the Internet and mobile apps — telling shoppers where their fruits and vegetables came from. In addition to building customer loyalty, this increased connectivity allows Kroger, in the rare event of a food recall in a category, to let shoppers know more precisely which products were affected. Retailers are also experimenting with scanning tunnels that can read more complex barcodes — including capturing information about freshness of perishable items.

As we move forward, retailers will figure out how to embrace consumer engagement. Instead of maintaining one corporate social media page, we can expect to see a much more nuanced approach, with local stores creating individual profiles where they can interact with local shoppers (they just have to figure out how to staff them). Instead of running a print ad for strawberries a few weeks in advance of Valentine’s Day, they’ll be able to push a timely nudge to their shoppers when the berries are abundant and at peak sweetness. The knowledgeable and friendly family greengrocer of the 1950s will be re-imagined with a smart algorithm that can make sensible recommendations based on what’s good today — and what the shopper’s personal dietary preferences are. It’s a more responsive approach, and could profoundly change the supply and demand dynamics in place today that favor availability above all.

Longer term, over the next decade or so, stores that sell faster-moving goods will face the same turning point that electronics, book and clothing sellers reached in the last decade — with fast, richly personalized online shopping now available, what’s the role of a physical store? Could the experience be replicated or improved online? I remember when the idea of shoe shopping online sounded like the opening line of a joke, but Zappos changed all that with brilliant logistics and piercing consumer insight. The same can and will happen for the grocery sector. In 10 years, I think we can expect to see grocery stores that focus less on staples like cereal and paper towels, and more on seasonal, sensory, impulse purchases. Today, produce makes up about nine percent of retail grocery purchases and shelf space. In the future, as more people turn to the Internet for the bulk of their groceries, produce could make up more like a third.

Whatever the next decades bring, it’s not much of a prediction to say that technology will reshape retail. Stores that can experiment with transparency, increase personalization, eliminate waste and build trust will win the hearts and shopping baskets of the millennial generation.

Elliott Grant is the founder and Chief Technology Officer 
for YottaMark. He founded YottaMark with the vision that giving products a unique identity is the foundation for real-time supply chain insights and recall management, as well as a powerful platform for brand owners to create new consumer connections. Previously, Elliott was VP of Operations for a $250M food-packaging manufacturer and was an engagement manager at McKinsey & Company. He holds a PhD in Engineering from Cambridge University.


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