The big four are facing up to a harsh reality: they will never close the price gap to Aldi and Lidl. The discounters and pure online players have hyper-lean operating models that enable them to pass cost savings on to customers. But supermarkets have an area discounters and online can’t rival: in-store experience.
To create appealing, exciting, and effortless shopping, supermarkets will need to splash out on new technology and invest in skilled in-store jobs. This will be expensive, but automation technology has the potential to significantly cut the cost of store operations to compensate for the spend on customer experience. Used the right way, technology will improve the experience for customers.
US supermarket Wegmans is a world leader in this kind of grocery experience. With products that are reasonably cheap but of decent quality, they rely on exceptional customer service in their fresh department. At no extra cost they blend smoothies, prepare a stir-fry from ingredients picked by the customer, and have an expanse of pick-your-own lunches. All in a setting like a peaceful Italian village.
Washing-up liquid and toilet paper are not such enticing in-store attractions. This is where major cost savings can be made. There’s no real need for these products to take up valuable shelf space or replenishment time. They could be requested via an app or button, to be picked from the storeroom by a robot and sent to the checkout ahead of the customer - or directly home.
Some retailers have already switched to automated decision-making for forecasting, labour-scheduling, ordering, and planograms. New technology such as electronic shelf labels can cut labour costs further.
These technologies will also reduce the costs of delivering improved customer experience. Holding a cooking class or tasting sessions can be supported by behind-the-scenes tools and algorithms that help plan just the right amount of ingredients at the right time, and ensure the products featured are on nearby shelves to buy straight after.
For a typical supermarket, even with the new services and enhanced experience, total labour costs could be reduced by 30%-40%. A combined focus on cost and a differentiated customer experience will allow supermarkets to win customers in ways low cost rivals can’t.
Duncan Brewer is partner at Oliver Wyman