Grocery in 2021: A Look Ahead
In the past six months, grocery has experienced transformational disruption to its supply chain. Seemingly almost overnight, online grocery shopping, contactless curbside pickup and home delivery moved from a “nice to have” to mainstream.
The pandemic significantly accelerated online grocery technology adoption from consumers. Grocers that had the flexibility to were able to offer ecommerce options were able to capitalize, while others lost business because they couldn’t keep up. Having the right technology was not only a competitive advantage, it was enabled stability in a turbulent year.
In 2019, ecommerce was only about 3.5% of all grocery sales. But a recent Incisiv survey of 60,000 North American consumers revealed meteoric adoption of online grocery purchasing. Their report predicted that within five years, ecommerce will account for 21.5% of total grocery sales worth about $250 billion.
Grocery growers, suppliers, and retailers – like all other industries – have had to adapt to these behavior shifts, and they are still adapting today. Now that more than eight months have passed, some strong patterns are emerging that indicate aspects of the long-term outlook for grocery may have been permanently altered.
In a recent podcast episode, we asked Jacky Marolleau, grocery specialist at Manhattan Associates, and Steve Banker, vice president of supply chain research at ARC Advisory Group, for insights on what 2021 priorities will be keys to success in the industry.
Pressure on store inventory
Buyers have the same high expectations for online grocery shopping as they do for other areas of retail. They expect to be able to order what they want, pick it up when they want and receive everything on their list. However, grocery retailers without the right technology can struggle to deliver. That’s because many grocery brands are newer to an omnichannel approach, and the nature of stores makes it difficult to guarantee positive customer experiences.
Other retailers leverage distribution centers (DCs) for much of ecommerce fulfillment. In a controlled environment and using warehouse management systems (WMS), RF technology and real-time inventory visibility, inventory accuracy is 99.9% or higher. Conversely, grocery retailers picking from the front of stores can only achieve 90%-92% accuracy. Existing technology and limited manpower, coupled with constant inventory changes made by in-store shoppers, make it impossible to match the accuracy of DCs.
Banker predicted how grocery retailers will pivot, saying, “I think dark stores and more smaller warehouses in urban centers are really the way to go on this.”
Dark stores look and feel like physical grocery stores – fully stocked with products – but are closed to customers. Micro-fulfillment centers are mini-warehouses located in urban areas that typically hold about 15,000 to 18,000 of a grocer’s most popular SKUs. Both combine the proximity to customers of a brick-and-mortar store with the accuracy and automation of a DC.
Can Europe lead the way?
Before the pandemic, the adoption of online grocery shopping was significantly higher in Europe than in the U.S. So previous trend patterns may provide clues as to where the industry here is heading.
Marolleau made several observations. First, as a whole, Europeans want to spend less time in stores. Second, consumers want to move to smaller store formats. Across the continent, mega-markets are losing market share. Related to this is the fact that more and more shoppers want to buy and to consume local products as much as possible.
Marolleau said the result is a hybrid grocery experience for many shoppers. “People are now buying online products which don't need any checking, like milk, toilet paper, water, ketchup, and the like. But they still continue to go into supermarkets for products which require a closer look like meat, fish and produce.”
Given the spike in ecommerce grocery shopping in the U.S., and a growing focus on supporting local businesses, the patterns in Europe bear watching here. If online purchasing continues to grow, store footprints could remain the same size, but space may be allocated differently. Some companies are already experimenting with blocking off half the store, making a smaller front for in-store shopping and converting the back to more of a warehouse that handles ecommerce orders with greater accuracy and efficiency.
Putting agility on the shopping list
These were just a few of the observations made by Banker and Marolleau. Other concepts in development include using autonomous robots for contactless home delivery and integrating a company’s WMS with its transportation management system (TMS) for more unified operations and greater supply chain efficiency and visibility.
As grocery retailers look to invest in 2021 and beyond, the underpinning capability they need to have is agility. If 2020 has taught us anything, we know that unplanned situations will arise, and customer behaviors will change, resulting in both challenges and opportunities. The ability to pivot and adapt when necessary is becoming more and more critical. Technologies that help facilitate flexibility are the ones worth the investment.
Manhattan Associates is ready to partner with you in 2021 and beyond. When you’re ready, let’s talk about how we can solve your toughest problems and help drive your success.