BACK TO THE FUTURE

Occasionally in these blogs I focus on what might happen in the future by way of issues that are currently trending in the social media and press. Many of the big issues have already been aired in previous blogs such as the potential demise of physical stores and the impact of drones.

I was interested in a recent article that I read which put forward the view that we could see the end of supermarkets over the next ten to fifteen years or so*. This intrigued me as a retail commentator because it would suggest that one of the longest-standing and most successful business models in retailing might be under threat.

Let us explore this further.

The article suggests that technology once again is at the forefront in this potential threat to the established supermarkets. It would not appear to be built on wild speculation as various concepts are currently being tested.

The gist of this new concept is based on new online shopping technology that could see prices to the grocery shopper fall ultimately to around one-third of what they currently pay.

Major grocery suppliers such as Unilever, Mars and Reckitt have agreed to sell some of their big brand items directly to consumers via a high street digital channel which is scheduled to be launched sometime in 2018.

This will envisage hundreds of brands such as Walls ice-cream, Durex, Dettol and Dolmio sauces being made available at bargain prices.

This website will allow the branders to decide their own prices using blockchain technology to connect shoppers directly to the products.

The potential “win” for suppliers is that if this business model takes off it will mean that they no longer have to engage and negotiate with supermarkets over price. This has always been a contentious issue and as we have discussed in the text, can lead to confrontational and combustible relationships.

Effectively this model eliminates the supermarkets. We have seen this happen in many sectors over the years, most notably in the travel and airline business and also in the insurance sector.

The model is built around an online shopping portal channel. This is supported by an outsourced network of third party operators that deal with management of the inventory in various distribution centres and delivery drivers who will provide the last mile of the supply chain strategy,

Customers will be charged the wholesale price plus additional extras to cover storage and delivery. If we factor in the absence of supermarkets in this business model, we can see how the shopper is likely to benefit from considerable savings. Typically the latter raise the price by as much as fifty per cent to cover such costs and their profit margin.

This model even allows the potential for manufacturers to charge wholesale prices than they would with supermarkets. Remember supermarkets, because of their power, leverage a large degree of pressure on them to comply with their needs and requirements. This usually revolves around squeezing them as tightly as possible to get the best possible price.

The use of blockchain technology allows for a continuously updated digital database of who and where shoppers are and what they are buying. Unlike traditional shops they do not need to be managed by a central administrator; the database automatically updates and manages itself.

Like the typical online retail channels shoppers sign up for such services.

So what are we to make of this new retail business model? Is it likely to be a game-changer?

Let us consider some of the pros and cons.

Firstly it would appear to eliminate what has become for many shoppers out there, a very boring and tedious task. In Britain this amounts to the traditional weekly visit to the supermarket: consisting of spending around an hour in the store, getting bashed by trolleys and noisy kids, loading up the car and getting in and out of the store – usually with the inevitable parking difficulties.

Secondly many of us are now acclimatised to shopping online. Some of us rely on online shopping with supermarkets via their respective online retail channels. This proposed model would appear to be a further extension of ordering groceries online.

Convenience is clearly a critical issue for many grocery shoppers: we live in a pressured environment and could be labelled “time-poor” as a consequence.

The lure of lower prices, particularly to the extent that is being speculated in the press is also attractive to many shoppers.

In terms of value we can see convenience and lower price coming together to offer a potentially attractive shopping proposition for customers.

The adoption of apps such as the one being developed by US technology firm INS create just such a convenient environment. If it can deliver prices at around one-third the current ones then what’s not to like about the model?

The model employed by supermarkets arguably has not changed over the decades: large volumes of product sold in large physical spaces. This is costly in the context of the move towards online shopping.

What are the potential difficulties associated with getting this model accepted in the market-place?

Firstly supermarkets are large and powerful players in grocery retailing. They are likely to respond with fury and employ aggressive counter-strategies to ward off this threat. Their margins, although relatively low in general terms still allow for price reductions. They can offer the largest grocery suppliers further attractive deals in order to discourage them from becoming involved in such an arrangement.

Secondly many shoppers still prefer to engage with the physicality of visiting stores, inspecting items on the shelves and interacting with them. This is unlikely to disappear anytime soon. The trends with respect to online grocery shopping suggest that this will take some time to win over everyone to this mode of grocery shopping.

Companies moving into this space where they eliminate the need for supermarkets will need “deep pockets” in order to fight off the anticipated and sustained response from the supermarkets. They will have to dangle” a number of carrots” in front of suppliers in order to encourage them to participate in this initiative.

Arguably only companies such as Google, Facebook or Amazon would have the financial capability to fight the supermarkets over a prolonged period of time.

Shoppers are changing. It is possibly that this model may gain some traction looking ahead to the next decade to fifteen years. I personally doubt that we will see the disappearance of supermarkets anytime soon.  None the less it is likely that we will see a number of initiatives in the area of grocery shopping which will increasingly be built around the challenge of reducing the dependence on supermarkets.

(* Morley, Kate (2017) “New online shopping technology could see the death of supermarkets”. Daily Telegraph, 1/11/2017).

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