Retail Tech Update #4: Digital Convenience Is Booming, But Will It Last?
The current crisis makes even the most conservative offline shoppers adapt to digital services such as online grocery delivery, cashier-less stores, self-service kiosks, online food delivery, meal-kit subscription services, and many more. In China, the share of consumers over the age of 45 using e-commerce increased by 27 percent from January to February 2020. The big question is – once shoppers taste the convenience of modern ways of shopping, will they go back to “normal” after the crisis?
It most certainly depends on how well the providers will serve this change. Those offering stellar experiences might use the current situation to recruit and retain many new customers, while those staying behind might suffer big losses in the long-term.
Technologies that allow social distancing
Just recently, Amazon has expanded its checkout-free convenience chain AmazonGo into a full-bodied grocery concept with large assortment and footprint. Each customer needs an app to enter the store, shop, and “just walk out” while the payment happens automatically. 7-Eleven didn’t want to stay behind and recently introduced a similar concept as well.
Although not intended, this concept fits quite well into the current pandemic crisis, abolishing any unnecessary contact with the retail staff. This can only leverage the penetration of this technology as well as recruit many new customers. Of course, self-service checkouts can solve the situation equally well with many innovative solutions already emerging in China.
In the long term, these technologies allow retailers to obtain a lot of data on their customers using digital tracking, as opposed to anonymous offline shopping. This will enable them to target these customers with hyper-personalized promotions and messaging, plus registered credit cards will make conversions a lot easier. And as we already know, this can increase long-term loyalty and basket sizes quite dramatically.
Subscription services as an alternative to classic retail
Subscription meal-kit services such as HelloFresh and Ipsy are reporting a massive surge in demand, hiring delivery drivers all around the world. Prime—a subscription service by Amazon—allows free one–day delivery of a wide range of products, satisfying basically the whole requirement of the modern consumer. In this case, however, the massive surge in demand caught Amazon completely unprepared, with cities such as New York having delivery slots completely booked for weeks to come.
The crisis has only sped up the growth of subscription services that were already on the rise. Their benefits are undeniable—for consumers: fewer worries, more convenience, and many additional benefits. For providers: higher loyalty, lots of data, and an opportunity to target and convert customers with highly relevant offers. That’s where Amazon claims to yield an average of $800 extra from Prime members, cashing in greatly on the otherwise “expensive” perks such as free delivery and streaming services.
Shoppers expect more personalization in digital food retail
Personalization can mean the difference between those services that consumers will stick to and those who they leave off once the crisis is over. In the last year’s IDC and Precima (Nielsen) study, the majority of loyalty club members claim they want relevant product suggestions to the right channel at the right time and frequency. The study also estimates that doing so would result in a 6.4% sales lift on average.
Our own study, however, suggests that this potential is much higher. In a rigorous AB test that we had conducted among 5 large FMCG retailers in Europe and the US, our SO1 recommender engine delivered an average 9x higher redemption rate on offers personalized by AI, resulting in a 15.8% increase in sales. The long-term effect of such a strategy on customer loyalty, however, can be worth much more.
The winners will be those who act fast
Summed up, digital transformation is no longer an option but can prove to be essential to businesses’ survival. The crisis radically changes the market dynamics and favors convenience over traditional retail business models. These habits are not likely to disappear anytime soon and if retailers want to keep their market share or even attempt to grow it, they must react fast.
As Sandy Shen, Senior Director Analyst at Gartner, put it: “This is a wake-up call for organizations that have placed too much focus on daily operational needs at the expense of investing in digital business and long-term resilience. Businesses that can shift technology capacity and investments to digital platforms will mitigate the impact of the outbreak and keep their companies running smoothly now, and over the long term.“
Cartoonist Tom Fishburne illustrates this bout in his own way:
— Tom Fishburne (@tomfishburne) April 12, 2020