Dealing with Turmoil in the Retail Grocery Sector

Stephen DeAngelis

March 05, 2018

Turmoil is defined as “a state of great disturbance, confusion, or uncertainty.” I think it’s fair to say there is turmoil in the retail sector. Brick-and-mortar stores are closing at record rates. New business models (like omnichannel operations) are emerging. Competition is coming from unexpected directions and pressures for change are coming from all corners. Those pressures include customers, competitors, and technologies. The retail grocery sector has not been immune to this turmoil. Cognitive computing can help companies deal with turmoil and assist them in transforming themselves into resilient digital enterprises.

Dealing with the “Amazon Effect”

We can learn a lot from the Amazon/Whole Foods deal about how turmoil is created and the importance of becoming a digital enterprise. Stephen DiFranco (@SDFIoT), Vice President & General Manager of IoT at Broadcom, believes Whole Foods will become Amazon’s experimental playground for developing more sophisticated big-data marketing strategies.[1] He explains:

“The $13.7 billion acquisition is being hailed as Amazon’s big play to enter brick-and-mortar retail. It will also have a playground for disrupting retail. Whole Foods offers Amazon the opportunity to experiment with retail analytics, customer traffic management and in-store preference-matching. It’ll be a testing ground for the unexplored science of ‘presence marketing,’ the layering online and offline buying analytics while tracking customers’ movements while they shop.”

Amazon is not in a “play nice with your competitors” frame of mind. Dan O’Shea reports, “Amazon was granted a U.S. patent [in May 2017] for an application described as ‘Physical Store Online Shopping Control,’ which would allow the emerging brick-and-mortar retailer to block customer searches of competitors’ products while using Amazon’s in-store Wi-Fi.”[2] Some people believe the Amazon/Whole Foods deal is an extension of Amazon’s experiment with automated grocery shopping called Amazon Go, which recently opened to the public. Keith Loria explains, “Amazon Go, an innovative concept [that] lets customers walk in, grab food from the shelves and simply walk out again, without ever having to wait in a checkout line. According to a spokesperson at Amazon, the checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion and deep learning.”[3] DiFranco believes the Whole Foods deal isn’t about expanding the Amazon Go experiment. “Amazon’s purchase of Whole Foods,” he writes, “isn’t about automating checkout — it’s about bringing Amazon’s online analytics to the offline world. It’s about gaining insight into customers from their in-store buying habits and blending online and offline in real-time. Amazon purchased Whole Foods to disrupt what we know as retail.”

Amazon’s competitors are not just sitting idly by as these events unfold. Jay Greene (@greene) and Laura Stevens (@LauraStevensWSJ) report, “The battle between the King Kong and Godzilla of retail has moved into the cloud. Wal-Mart Stores Inc. is telling some technology companies that if they want its business, they can’t run applications for the retailer on Amazon.com Inc.’s leading cloud-computing service, Amazon Web Services.”[4] Bernard Goor (@bernardgoor), Vice President Sales and Marketing for Retail, Consumer Goods and Food Service at One Network, insists more needs to be done. “It is time for traditional grocers and their eco-system to take drastic measures to combat Amazon,” he writes. “It is time to throw out the incremental thinking. It is time to realize that their current business model cannot survive with mere fine tuning. The grocery chains and their eco-systems will need to act swiftly, radically and decisively if they are to survive. They need to marshal execution in lock-step with their suppliers and other partners to radically improve agility and slash costs at the same time. This means the way they operate today needs to be re-invented around one keyword: Digitalization. They need to digitalize their entire business, from their store operations to their supply chain.”[5]

Cognitive Computing and Digital Transformation

As noted above, pressure on retailers to transform is coming from all sides — from customers, from competitors, and from emerging technologies. Vala Afshar (@ValaAfshar), Chief Digital Evangelist at Salesforce, writes, “We are at the beginning of the connected customer revolution. The rise of the connected customer is driven by revolutions in technology — cloud, mobile, social, data science and the Internet of Things.”[6] To those technologies, I would add cognitive computing. In trying to describe how technology applies to transformative, digital enterprises, I have often used an organic analogy. The organs and limbs of the digital enterprise are its business processes and operations. The central nervous system of digital enterprise is the Internet of Things through which runs its lifeblood (i.e., data). The brain of the digital enterprise is the combined capabilities of cloud and cognitive computing. The brain orchestrates what the enterprise does and how it performs. Companies failing to transform into digital enterprises are either on life support or already gone. “Organizations need to move towards being data driven now, or risk going out of business,” writes Stuart Sumner (@StuartSumner).[6] He is echoing the words of Jason Nathan, group Managing Director for data at Dunnhumby, who told participants at a 2017 conference, “Organizations who haven’t put into place a sequence of events and talent to become data driven are effectively sinking or sunk.”

DiFranco asserts Amazon is trying to disrupt retail as we know it. Goor asserts the best response is to digitize. I assert the best way to do that is to leverage cognitive computing capabilities. Goor insists grocers “need to abandon their enterprise-centric thinking and allow information to flow seamlessly across their entire network of suppliers, distributors and carriers to enable them to make real time optimized decisions.” He continues:

“Why? Because sharing a single version of the truth across their network will enable them and their trading partners to synchronize demand and supply in real time — which in turn will deliver more velocity, less variability, greater efficiency, lower costs, and higher on shelf availability. … Grocers cannot beat Amazon anymore by competing as an island! More than ever, they need to disrupt the disrupter. As soccer legend Pele said, ‘No individual can win a game by himself (or herself).’ No grocery company can win by itself — not anymore. Grocery companies will need to disrupt the game and regain their leadership position by digitalizing their supply chain and leveraging a Consumer-Driven Network, which will deliver higher on shelf availability and service levels, with lower landed costs and lower inventories throughout the network.”

A Cognitive computing platform, like the Enterra Enterprise Cognitive System™ (Aila™) — a system that can Sense, Think, Act, and Learn® — can foster collaboration among stakeholders by integrating and analyzing data and sharing actionable insights with appropriate stakeholders. Cognitive computing can be a game changer in a game that Goor insists desperately needs to be changed.

Footnotes
[1] Stephen DiFranco, “With Whole Foods Purchase, Amazon Just Bought a Playground for Big Data,” Entrepreneur, 21 June 2017.
[2] Dan O’Shea, “Amazon patent aims to block in-store searches of competitors,” Retail Dive, 18 June 2017.
[3] Keith Loria, “How Amazon Go will transform the grocery experience,” Retail Dive, 9 January 2017.
[4] Jay Greene and Laura Stevens, “Wal-Mart to Vendors: Get Off Amazon’s Cloud,” The Wall Street Journal, 21 June 2017.
[5] Bernard Goor, “Amazon is Disrupting the Grocery Business. Time for Grocers to Disrupt Amazon Back,” The Network Effect, 16 June 2017.
[6] Vala Afshar, “2016 – The Year of Connected Customer,” Huffington Post The Blog, 18 December 2015.
[7] Stuart Sumner, “‘Firms who aren’t moving towards being data driven are either sunk or sinking,’ says Dunnhumby,” Computing, 21 June 2017.