Traditional retail, after decades of following essentially the same business model, is on the cusp of radical change. Digital technology is making it easier to go beyond selling more things, and offering instead access to a broader range of products and services. Retailers will be transformed into information businesses, where the collection, analysis, and use of data underpin competitive advantage. The change will have implications for delivery, scale, and operations - and retailers need to get ahead of the trend.
Here are five predictions that show what the future of retail might look like.
Selling products is out. Serving needs is in. Many sectors have already shifted from selling merchandise to serving needs: People used to buy CDs; now they subscribe to music streaming services. Food retailers could start by customising online shopping lists and suggestions to meet needs such as a dairy-free diet. They could reduce a standard weekly order when someone goes on a trip. The delivery box model, which delivers complete recipe ingredients, is one is another example of groceries as a service. In future, Big grocers should be able to monitor your cupboards, and then suggest items to complete a new recipe. In this world, the customer makes broad decisions about diet and budget, and the supermarket deals with what, when and how much.
Retailers will know more about consumers than Facebook due to the wider range of services they offer. Serving needs effectively implies knowing consumers better. Retailers already have a lot of information, as point-of-sales data track people’s everyday economic lives. In one important way retailers’ data are more significant: Facebook knows what you say; retailers know what you do - as well as where, and at what time. Retailers will gather even more information through new services: home delivery will let them know when a customer is in. We think customers will be comfortable sharing personal information, so long as they get something useful in return. Many will be grateful for a digital prod such as, ‘You have no dinner in the fridge. Shall we deliver some ingredients at 8.30?’
Fewer, smarter people will work at a shrinking head office. The new business model will depend on crunching vast quantities of data to understand consumers, suggest solutions, and drive rapid product development. One large retailer in London recently formed a new analytics and digital division, which operates and feels like a startup.
Simultaneously, Digital analytics will replace many tasks - product selection, pricing, and forecasting - with algorithms. Invoice processing will be fully digitised. The result will be a corporate headquarters that functions as a digital core. It will be more powerful - but it will take on a virtual character and employ fewer people.
Home delivery will be ubiquitous. The importance of physical stores will diminish too, thanks to home delivery. Soon, an unmanned, hybrid van will send you a WhatsApp message to say you can collect your purchases from a delivery box. Or, a robot might simply put your products in a locker in your drive. Many retailers will deploy the same shipment service, so delivery might become a utility like gas and electricity, and be regulated to minimise traffic. The reduction in congestion and pollution would be worth the price of blunting competition.
There will be half as many large grocers in 10 years’ time. International mergers are back - witness the recent deal between Delhaize and Ahold. One reason is the efficiency of international sourcing, which is how Aldi keeps prices low. Another factor is the potential of technology at scale: Amazon develops expensive algorithms just once, and then uses them everywhere. To compete, food retail will turn from a national into an international business through mergers and acquisitions. The grocers that survive will be international behemoths - or nimble local players. Retailers who don’t think hard about their place in the new world might end up in neither category - and instead be swallowed up in someone else’s strategy.
Nick Harrison is co-leader of Oliver Wyman’s retail practice in Europe