Loss Prevention Research Council Weekly Series - Episode 98 - State of USA Grocery Industry and Critical Tech for Growth
With Dr. Read Hayes, Tony D'Onofrio, and Tom Meehan
Visit the LPRC Labs at our Open House on April 27th and 28th! Block’s customer information gets breached! In this week’s episode, our co-hosts discuss the combinations of different vaccines and their efficacy, a look at the latest data on the state of the US grocery industry, encryption changes in computer data protection, voice messages are used as phishing messages, and a look at the dramatic increase in technology use accelerated by the pandemic.
Listen in to stay updated on hot topics in the industry and more!
Grocery Transformation – How Grocers’ Tech Transformation are Leading to Greater Profitability
https://www.ihlservices.com/product/grocery-transformation/
From the IHL Group, the latest study is out on the state of the grocery sector in the United States.
By year end 2020, the Food/Grocery retail segment had had a monster year. How the industry got there was a bit out of the ordinary; the first two months of 2020 saw significant sales gains of 4.9% over 2019. Then COVID happened, panic set in, and surge buying drove a 3-4 week period where sales were up 80% to 500%+ in some product categories. By by the time the dust settled, the segment as a whole had seen 11.5% growth over 2019.
2021 opened strong, remained consistent and finished 5.7% for the year, without most of the drama of the previous year. While product availability challenges remain, there were no runs on toilet paper, disinfecting wipes or frozen pizza. Staffing remained an issue, but not nearly as bad as for restaurants and other hospitality providers.
What is clear is customer behavior has changed, and while there’s no need to sound an alarm about the demise of stores (88% of Food/Grocery sales still have a store fulfillment component), there is reason to sit up and take notice that 27% of sales that are now digitally-mediated (pre-pandemic it was 3-4%). Going forward, we expect digital orders will continue to climb, but only as long as retailers address margin loss on these journeys. (Retailers cannot sustain 3-8% margin loss they experienced on digital orders compared to walk-in customers).
Going forward, retailers are expecting a significant +7.2% increase in sales for 2022. This figure reflects an ongoing “opening up” of society as the lethality of COVID variants wanes, as well as soaring food prices (inflation was +7.0% in 2021, highest in 40 years, with no sign of slowing down). The increases in expected sales for the digital customer journeys represent a “stickiness” to those journeys as consumers have become more accustomed to shopping in non-traditional manners. This, coupled with a labor shortage in the restaurant segments (which prevents the remaining restaurants from being able to match the demand as people get out of their homes), is a trend that continues to favor grocers.
Digital orders are clearly helping drive sales growth post-COVID, but FDCM retailers are also planning a store-count growth increase considerably higher than other retail segments for 2022. But their 4.0% increase in stores for 2022 is 35% lower than 2021, mainly because their new focus is on remodeling their existing stores. The increase in digital journeys is the leading driver of store remodels, and FDCM retailers expect to see an increase of 5.1% in store remodels higher than 2021, 65% over other segments. More than most, these retailers realize that stores matter, and for 2021 the respondents in our study said that despite the digital journey growth, nearly 88% of all sales were fulfilled through the local store. This means that stores, formats and/or operations must change to efficiently support both digital orders and walk-in orders in the future. This may include moving ecommerce out of the store (“ghost stores”) or setting up micro fulfillment operations in the same store footprint.
More technology spend is at saving labor. Since the start of the pandemic, an estimated 4 million workers who previously worked in retail and hospitality stores have moved to working in warehouses and for delivery services. This has created a tremendous labor shortage that is not going away. This means that grocery retailers are heavily investing in labor savings technologies. In fact, the fastest growing grocers are increasing their investment in Electronic Shelf Labels by 843% over the next two years. And for self-checkout technologies that increase is 178% over the next two years.
Computer vision is another technology that is being deployed to several areas within retailers. The most common application is in inventory accuracy which we will discuss later, but the technology is also being deployed to speed line queues, physical security and loss prevention, workforce identification and more.
Bottom line, Leaders continue to invest, Average retailers are showing a desire to catch up, and the Below-Average retailers, especially when it comes to their stores, are falling further behind.
BOPIS / Click and Collect saw massive increases with a 325% increase in share of retail revenues for FDCM retailers from 2020 to 2021. The share of Local Store Delivery increased 25%, and Ship from Store’s share increased 41%.
Key technologies that are seeing great growth among FCDM retailers are enterprise-class mobile devices, mobile label printers and pickup lockers. During the early stages of the pandemic, 32% of retailers admitted to deploying devices that were not as secure as they normally would be. An additional issue was inconsistent Wi-Fi from consumer-grade devices not being able to maintain connections within the harsh environment. Retailers have been racing to replace the pertinent systems with enterprise-class alternatives.
Another area of investment to help speed the adoption of contactless pickup is the increased use of pickup lockers.
To facilitate all of these changes, retailers are quickly adopting use of edge architecture in their technology design. Edge provides many cost-savings benefits in relation to server consolidation and helps extend the life of existing hardware devices. Most common application for edge computing by FCDM retailers is to process, manage and coordinate numerous data from IoT devices now used in store operations. Cameras, temperature & security sensors as well as access control devices are managed at the edge before data is uploaded to the cloud. Edge also facilitates a simplified code stack for POS and mobile devices used by FCDM retailers.
Overall, the study showed a 1,350% growth in the next two years among FDCM retailers for edge architecture which can reduce operating costs and simplify maintenance. Related to this change in hardware architecture is the interoperability and data sharing among apps in store with microservices architecture in application design which is growing at a rate of 275% in the next 24 months. Winning retailers are already using microservices at a rate 200% higher than average retailers, allowing for more flexibility in their operations.
Finally, to handle all that data is the increased LAN and WAN bandwidth options. Software Defined WAN (SD-WAN) is growing at a 717% rate over the next two years and the use of 5g is expected to grow to 42% of respondents in the next two years (from 0% use in 2020).
RFID and Computer Vision are both seeing dramatic increases in the next two years. RFID installs are expected to increase 375% and computer vision 600% over the same period. These technologies in and of themselves are not complete solutions for the FDCM environment, but they can go a long way to improving inventory counts at the store levels so that the systems say what the customer actually experiences.
The race to accurate inventory will determine who prospers and who does not in the next decade because it is those retailers that have accurate data that will be the ones in position to best take advantage of artificial intelligence and machine learning technologies. These technologies are only as good as they data they are working with, so whoever has the best data wins.
Grocery Transformation Slides
https://www.ihlservices.com/product/slides-grocery-transformation-how-grocers-tech-transformations-are-leading-to-greater-profitability-copy/
Also from IHL this week, the latest on retail sales growth in the United States through February 2022.
Overall, February YTD retail sales are up 15.6%. By sector, convenience and gas leads with growth of nearly 35%. Restaurants are also up a robust nearly 29%.
Really continued strong performance by the sectors most impacted by the pandemic. Department store sales are up just over 16% and specialty soft goods which includes apparel is up an amazing near 26%.
