Automation's impending impact on grocery: Where to focus
Food retailers are working hard to balance their response to surging customer expectations with the need to offset margin pressure. Automation can help, and the best way to use it is to focus first on reducing costs to help maintain margins and then use some or all of those savings to fund efforts to meet emerging shopper needs.
Automation and reduced costs
Over the past several years automation has gotten cheaper and smarter. As a result, we see major retailers are starting to use it to reduce operating costs so the savings can be spent on activities that add more value for shoppers, and it’s time for grocers of all sizes to consider following this strategy.
Walmart is using automation (a combination of robotics and artificial intelligence) to free up labor hours from repetitive manual activities – and then “re-skilling” employees to better serve customers. In Walmart stores, robots are:
Scrubbing floors
Using scanners to generate data on shelf conditions
Sorting inventory and moving it to the aisles
Ahold Delhaize is rolling out automated scanners to identify in-store hazards so they can eliminate them fast, making the store safe for customers and employees. While the overall benefits of this may not be evident from the P&L, they are real and include:
Lower labor costs since less staff time needs to be dedicated to this task, and savings from lower insurance premiums.
Improved customer experience created by reallocating the labor hours to customer service.
Ahold Delhaize appears to find these benefits persuasive. It is now deploying multipurpose robots across 500 Giant/Martin's and Stop & Shop locations in what’s been called the largest rollout of robots in grocery history. (See below for avideo of Marty in action at a Stop & Shop in Sparta, NJ)
How big is the benefit?
The cumulative benefit of these investments is significant. McKinsey estimates that with broad-based automation, the typical retail store can operate with 50% fewer hours, and that automation can ultimately generate 300 to 500 basis points of incremental margin.
The kinds of automation Walmart and Ahold are using in-store today will help to better align retailer investments and spending with emerging customer demands and expectations. The automobile industry found itself in the same situation several decades ago and transformed itself using lean work processes and automation to deliver more effectively against customer expectations on quality, price, and style.
This has led some analysts to conclude that retail's transformation must be organized around similar principles.
Dramatically improved labor and inventory productivity driven by automation
Digital interfaces with consumers to deliver more personalized solutions
One big issue for grocery in this transformation is that there is less room for error since the retail grocery industry is a lower-margin business than automobile manufacturing.
Longer term, automation in grocery
Today, the retailers who are adopting automation are focusing first on improving labor productivity and have already found applications with a strong ROI. These applications target store-level costs, but it won’t be long before automation is applied across the business, e.g. to increase top line sales by using applications to improve promotional effectiveness (see Daisy Intelligence), or to tailor assortments to each store’s unique local demand.
Longer term, we anticipate that automation will play a key role in collecting information about a broad range of store conditions and then in taking action to wring more value out of the business. This will range from more localized management of temperature and humidity to introducing new items into planograms so they are available when the promotion breaks. Ultimately, this is about accumulating the benefits of a lot of small wins.
Where to focus
Given the speed with which large retailers like Ahold and Walmart are moving to implement automation, other retailers will want to start (sooner than later) identifying and testing where they can apply “off-the-shelf” retail automation that generates a strong ROI – and frees up labor to take better care of customers.
The cost saving generated by automation may not be immediately evident, but as Andrés Oppenheimer explains in his new book Future of Jobs in the Age of Automation, the savings will drive (and in fact are already driving) rapid adoption.
As the speed of adoption picks up, both people and organizations will have less time to reinvent themselves, so the planning needs to start now. The transition won’t be easy, and there will be bumps along the way, but selective shoppers and more aggressive competition make it necessary. If not now, when?
