Albertson’s is the latest retailer to team up with Microsoft in an attempt to transform in-store and digital experiences and reduce “friction” in online grocery shopping. Albertson’s joins Wal-Mart and Kroger, fellow American supermarkets who are looking to Microsoft for cloud-based, AI leveraging, high-tech solutions to the problem of Amazon’s incursions into the hyper-competitive FMCG/CPG marketplace.
All of the major players in the battle for your milk money, diaper dollars, and banana bucks are trying to corner the market on convenience. They’ve identified ways to leverage technology to remove headaches from your trips to the supermarket, and they plan to profit by offering you the smoothest way to check the boxes on your shopping list. Let’s explore how each retailer seems to view the concept of “frictionless experiences”, and identify the approaches most likely to succeed.
Albertson’s
Frictionless for Albertson’s seems to be focused on improving the in-store experience. The press release announcing their deal with Microsoft only mentions eliminating “friction customers experience at the grocery store”, and references finding items easily and reducing wait times. They’ve announced the introduction of a “one touch app” for payment at gas stations, and presumably they’ll soon announce a similar method of payment for their supermarkets. While streamlining the in-store experience is certainly a worthy objective, we fear that it might be a half-measure which fails to close the “convenience gap.”
Wal-Mart
Wal-Mart announced a 5-year cloud services partnership with Microsoft in July of last year. The deal made sense, as the two companies accepted the age-old wisdom of “the enemy of my enemy is my friend.” Their partnership so far has led to the creation of Sam’s Club Now stores, an attempt to rival Amazon’s much-discussed, cashier-less Amazon Go model. Sam’s Club Now will offer the consumer quicker checkout through scanner technology, shopping lists auto-filled by AI, augmented reality, and one-hour pick-up for orders placed through an app. Sam’s Club Now seems like a promising attempt to blend the advantages of Amazon Go’s cashierless model with some elements of the traditional in-store experience.
Wal-Mart has also committed a great many resources into home delivery and it is expanding from 100 to 300 metro areas in the US this year. They’ve also introduced the “Grocery Hero” program into 2100 stores, which allows customers to order online and pick up at the store without having to leave their cars. Wal-Mart has been quick to respond to the challenges posed by Amazon’ entry into their market, and they’ve committed to creating frictionless experiences within 5 years.
Kroger
Kroger’s CEO Rodney McMullen recently revealed that the company had been acting under the assumption that Amazon would either create or acquire a supermarket chain since 2014. This conviction drove Kroger to take pre-emptive steps such as the 2014 merger with competitor Harris Teeter, which allowed for increased investment in technology and eCommerce. Kroger also poured resources into its Simple Truth brand, a line of organic products they promote as being free of artificial preservatives and “ingredients you can’t pronounce.” According to McMullen, Simple Truth is “over a $2 billion brand today, growing in double digits.”
Kroger has also teamed with Microsoft and Ocado to improve customer experiences, both in-store and online. They’ll use Microsoft Azure to streamline in-store experiences as well as manage inventory and reduce labor costs in an effort to compete with Amazon Go. Meanwhile, they are planning to open at least twenty warehouses powered by Ocado’s innovative, robotics and AI-based technology. This move will allow them to compete with Amazon in click and collect and same-day delivery, positioning them as an effective, omnichannel competitor as increasing numbers of consumers are seduced by the convenience of voice shopping and online replenishment.
Costco
Costco is rarely viewed as an innovative company, but their old-fashioned focus on keeping customers and employers happy continues to pay dividends. The company was recently rated #1 in online customer satisfaction, de-throning Amazon which had held the top spot from 2010-2018. Reasons cited for Costco’s popularity include the low-cost and high quality of the company’s Kirkland brand, the ease of finding items and placing orders through their website, and the ability to talk to a human operator when calling Costco’s contact center. Meanwhile, the company has recently partnered with Instacart to offer same-day delivery for items purchased online. While Costco hasn’t embraced technology to the extent its competitors have, it has maintained loyalty by staying true to its core values: low prices for high-quality products, and outstanding customer service.
The Future
At Adimo, we expect a paradigm shift to revolutionize the grocery industry over the next few years. While widespread adoption has been slower than anticipated, this sector of the industry seems primed for growth. As technologies like Ocado’s automated warehouse lower the cost of picking, packing, and shipping online orders, wait-times and fees for same-day delivery will continue to drop. Customers will eventually migrate away from the traditional supermarket experience, and increasingly order online or take advantage of click and collect services. The convenience and time-saving will eventually grow too enticing to resist. Brick and mortar stores will continue to exist, but with so many chains looking to create their own version of Amazon Go, we’d expect the number of time consumers spend in the supermarket to dramatically decrease.
What does this mean for retailers and brands? The landscape might not be as bleak for Amazon’s retail competitors as many had assumed. As Microsoft teams with huge grocery chains to invest heavily in technology, it seems less likely that Amazon’s advantages in online commerce will overwhelm the competition. If retailers like Kroger and Wal-Mart can get customers comfortable with using their apps and websites now, they can prevent them from migrating to Amazon’s sales channels.
Private label products will also be a key battlefield in the grocery wars. Consumers who fall in love with Trader Joe’s spinach artichoke dip, Aldi’s fudge mint cookies, or Kirkland’s wide selection of cheeses are more likely to stay loyal to their grocer when they move online. This is bad news for brands, as every major retailer is investing heavily in developing and promoting their own alternatives to everything you make. They will be able to use emergent online sales channels to grow at your expense and will have the power to yank the rug out from under you at a moment’s notice. If your brand is looking to survive and thrive, investing in your own online sales channels is more important than ever.