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The Impact of Omni Channel on Grocery

Retail grocery has been one of the slower adopters of Omni Channel. In their defense, the challenges Omni Channel presents for the Grocery, Food & Beverage industry are more complex compared to other industries. For example:

  • Products have short shelf lives and needs to travel from source to consumption quickly – the typical Omni Channel product supply chain KPI’s such as optimal inventory location, and fulfillment cost optimization may not apply.
  • It is expensive to transport perishables due to special temperature and handling requirements. More importantly, the transportation infrastructure for last mile delivery does not exist within the common carrier network. A major hurdle to enable ship from store capability.
  • Grocers operate under razor thin margins leaving no appetite for higher capital expenses on their income statement for value added services. The same reason creates resistant to organizational innovation.
  • Previous failures in the industry such as Webvan, and the absence of any real large-scale profitable working model begs the question why change now.

Despite these challenges the reasons for grocery chains to innovate and become Omni Channel capable are no different than the reasons why Staples, Best Buy, and Wal-Mart are changing from retail centric to more Omni Channel organizations. There are strong “convenience” and “time value” benefits to customers that the industry cannot ignore. The entry of big players such as Amazon and Wal-Mart into online grocery is an indicator of future trends and its time to take notice or risk losing market share to more innovative competition.

There are a two Omni Channel fulfillment paths that by design are relevant to grocery. Lets look at the contrasts between them and pick one to start.

  1.    Buy Online Pickup in Store (BOPIS)
  2.    a) Buy Online delivery to Home – own last mile delivery
  3.    b) Buy Online delivery to Home – 3rd party owns last mile delivery

Markets and geography will generally dictate which ones are favored by the customers – both have strong use cases.  My suggestion is to start with providing Buy Online Pickup in Store capabilities. BOPIS in grocery is a balanced risk-reward equation in terms of business processes and incremental benefits to the customers. For example:

Customer Perspective,

  • BOPIS saves times typically spent going aisle to aisle picking product and waiting to checking out and pay.
  • Customers can pick up groceries at their convenience and does not have to be at home when the delivery arrives.
Business Perspective,

  • Product is sourced from the pick-up store and customers pick-up orders from store locations. This eliminates risks created by BIPOS
  • Capital expenditure can be phased out by piloting the program at a few locations. This also helps in controlling operational risk.

The grocery chains taking on BOPIS should keep in mind following:

  • Design a process that is simple, convenient and beneficial for customers.
  • Understand and categorize customer experience into online and in-store models. For example:
      • Online Experience – Speed of web checkout is extremely important. Grocery basket size is typically large averaging 15-20 items. If a customer spends the same amount of time filling their e-cart as they do in the store that would defeat the purpose. Invest in eCommerce solutions that enable customers to easily find the product, suggest substitute items, and allows them to create a personalized shopping list that saves time during re-orders.
      • In Store Experience – Set clear expectations on ETA for pickup, send out communications when orders are ready and notify customers of exceptions as soon as possible. Consider creating a separate counter for pick-up or curb-side delivery. Which ever plan is chosen should allow customers to leave with their orders in the shortest amount of time.
  • Prepare the supply chain for changes in shopping habits. Be ready for changes in demand patterns as the BOPIS creates sales lift and brings in changes in shopping. For example:
      • Procrastinating shoppers will make use of this feature by ordering more often with smaller basket sizes. Working shoppers will tend to shop more during the week (compared to weekend) in order to make pick-ups on the way from work.
  • Plan several what-if scenarios for demand changes and be prepared to respond from an inventory, distribution and logistics standpoint for store replenishment.

Store execution is the key to successful BOPIS initiatives. To achieve this there are three critical elements that need to go right every time:

  1. Picking the right order content – Picking the right product could be challenging as not every item in a store has a bar-code on it, so human judgment is a factor. The substitution rules can be complex, after all, not all apples are red. Provide pickers a content rich pick-list where they can see pictures and descriptions of the product to be picked. Minimize human judgment by designing a system that can suggest alternatives in case an item is out of stock.
  2. Be ready on time –  Along with being online, be on-time consistently. Doing it right 9 out of 10 times isn’t enough. A delayed delivery completely defeats the purpose.
  3. Be efficient – Even though store operations are similar to a distribution center (DC), the store environment is no DC. Expecting DC efficiencies is unrealistic.

Today, 24 hours is just not enough time to do what needs to be done in one day. Customers will not think twice if there is a proposition that allows them to spend the time it takes to go grocery shopping somewhere else. Competitive pressure and the growing comfort level with shopping online and increasing familiarity with Omni Channel fulfillment capabilities makes it a perfect time for the Grocery, Food, and Beverage industry to consider Omni Channel. The real question is how effectively can the industry execute, and what is the amount of perceived value of this service to the customers.

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