COVER STORY
The Year Ahead Walgreens and CVS drone deliveries followed a Sept. 27 landmark decision by the Federal Aviation Administration that gave UPS Flight Forward approval to operate the nation’s first drone delivery network that doesn’t require operators to maintain line of sight with the drones. The certification means that UPS can operate drones where the combined weight of the vehicle and cargo doesn’t exceed 55 pounds, a threshold that creates interesting implications for grocery. “This is history in the making, and we aren’t done yet,” David Abney, CEO of Atlanta-based UPS, said when FAA approval was granted. Although initial use cases are focused on health care and time-sensitive deliveries in controlled environments with fixed routes, Abney said that UPS will be looking at new uses in the future as it builds out its drone infrastructure. Grocery is certainly one of those uses, even if the financials don’t make sense and there isn’t a clear path to profitability. Those factors won’t deter drone development any more than unfavorable economics discouraged food retailers from racing to implement costly store-based fulfillment of online grocery orders, because shoppers demanded the convenience. Witness the success of click-and-collect services that quickly became commonplace and are now being refined. Major chains such as Walmart, Kroger and Target rolled out the service at a breakneck pace over the past few years and will end 2019 with near-chain-wide availability. Other retailers also point to the success of click-and-collect as a primary driver of their digital growth, with a familiar theme emerging: Customers love it, and average transaction sizes increase. Now, the fact that shoppers are thrilled with a service that lets them avoid setting foot in a store doesn’t say much about food retailers’ efforts to achieve a competitive advantage by elevating the store experience. However, in a world gone digital, the concept of store experience has been turned on its head to include interaction with a smartphone screen and a friendly employee placing reusable bags in the back of an SUV, along with more familiar components such as a compelling fresh presentation and a helpful butcher.
Omnichannel Comes of Age
s click-and-collect has become a core capability essential for grocers to remain competitive, a huge opportunity exists in 2020 for retailers to increase usage of the service and secure customer loyalty. For example, a recent IDC Retail Insights survey, sponsored by Toronto-based loyalty solutions provider Precima, indicated that online shopping for groceries isn’t currently on the radar of one-third of consumers. At the other end of the spectrum are the 8% of shoppers who reported buying food primarily online. “The good news for retailers is that more than half of consumers say that when they shop online, they prefer the website of their primary grocery store. However, Amazon is close behind that figure, and on the mobile front, consumers prefer them equally to their primary store,” says Jon Duke, research VP at Framingham, Mass.-based IDC. To expand usage of click-and-collect, innovation is occurring in how shoppers engage with the service, creating a convenience utility for how people execute life’s basic chores. Voice-enabled ordering is a key area where innovation will 28
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Retailers understand that drone deliveries will face regulatory, societal and operational challenges in 2020, but early experiments are helping them prepare for a future in which customers demand ever-faster delivery.
continue to transform the path to purchase. For example, in November, Bentonville, Ark.-based Walmart added Apple’s Siri to the voice assistant services that shoppers can use to create lists and order groceries for pickup or delivery. The beauty of voice services, at Walmart or elsewhere, is that they get smarter over time, recognizing what customers mean when they say “add milk” or “add dog food,” because they tap into purchase history to understand the intent of those statements. And to literally take things a step further, don’t be surprised if 2020 sees Walmart expand a test of in-home delivery that it recently implemented in Pittsburgh, Kansas City, and Vero Beach, Fla.
Fulfilled by Robots
he real 2020 innovation battle is heating up between the centralized-fulfillment-of-online-orders approach favored by Cincinnati-based Kroger versus the more store-based micro-fulfillment-center strategy favored by the rest of the industry. Kroger’s partnership with U.K. online food retailer Ocado will continue to take shape in 2020, when the first of the company’s massive automated fulfillment centers, known as “sheds,” could become operational late in the year. Twenty of the facilities, which each measure up to 350,000 square feet, are planned; six locations have been identified and construction is well underway on two locations in Ohio and Florida. When the facilities become operational, which Kroger maintains will be in 2021, the company will achieve close to 100% order accuracy, which bodes well for customer satisfaction and repeat purchase, Chief Information and Digital Officer Yael Cosset said during the grocer’s November investor conference. Another key advantage is relieving pressure on stores by removing, or greatly reducing, the costly and inefficient process of order picking from stores. While centralized order picking offers benefits, increasingly affordable robotics and precision handling systems employed by other retailers will give Kroger a run for its money. Grocers such as Wakefern Food Corp. banner ShopRite and Albertsons are betting — at least partly