Established supermarkets around the world work from a pretty similar, well-honed playbook. The current business model of supermarket retailers is all about scale and leverage applied to their supply chains, and offer of range and price to consumers. While there are many variations in the detail, in principal they are pretty much the same, a ‘Push’ business model.
By contrast, the rapidly evolving ‘E-Tailers’ exemplified by Amazon and Alibaba are pull models, relying on customer engagement to activate the sales process.
When you look closely at the business models of Amazon and Alibaba, the gorillas in the E-tailing space, there are significant differences. Amazon still at some point in the chain physically handles the products they are selling, and they do often take ownership at some point, while Alibaba at no time touches or owns the products, all they provide is a platform for the exchange to take place, and they make a commission on the transaction.
The established retailers are driven by the core assumption of the 20th Century that price of the product, range, and location of the store will be the dominant factors in determining customer loyalty, which are both supply chain factors. By contrast, the models of the e-tailers are truly customer centric. The value chain is driven by the demands of the customer, which can be influenced, if not completely managed once enough data on the individual is available.
The difference from a strategic perspective is the technology required to drive them both.
It seems to make sense that the existing supermarkets will be setting out to match the customer centricity advantages of their digital competitors, while retaining the advantages bestowed by their control of the supply chain.
How do they do that?
Not easy, but increasingly becoming not just possible, but a reality. By combining their supply chain knowledge with the customer information being collected on store cards, the geolocation capabilities of mobile devices, and social ‘Big data’, supermarkets could find themselves in a position to ‘flip’ some of their revenue from Push to Pull.
Imagine the situation where Mrs Bloggs is driving on her way to pick up the kids at after school care having finished work at her part time job. She sometimes stops at the supermarket to do a top up shop for the household commodities, and to buy some fresh produce to cook for dinner. The supermarket data base knows this routine, and what Mrs Bloggs usually buys from the information collected via the store card she uses.
The algorithms in the store database sends a message to Mrs Bloggs informing her of the price discount they have on a product she may not usually buy, but which they have a surplus at her local store, and the dinner prep bundle for a meal for which she sometimes buys the ingredients. In one case, there will be no discount, why discount something that is a normal sale, keep that discount dollar for a situation where it will generate incremental sales, or can be charged back to a supplier. The alternative offer is discounted based on the stock turn and availability of the product that needs to be sold quickly. The algorithm also sends a complementary message to Bill and Betty Bloggs, waiting to be picked up, as it knows Mrs Bloggs is driving, so kid pester power is engaged.
Push to Pull.
The strategic development of our grocery markets has been cyclical.
I can still remember as a very young boy going with Mum to a number of stores to buy the groceries. In each one there was a counter and someone who took the order and assembled it from stock to which the customers had no access. Then came the steady development of the supermarket, which increasingly leveraged the scale of the stores and their control of the supply chains to push product at consumers, and making a margin from the suppliers via retail shelf ‘rental’ and pocketed promotion fees.
The emergence of Amazon et al over the last decade has put some power back in the hands of the consumers, and they are using it, with many households now combining a visit to the supermarket with various forms of on line purchase and delivery. We are going back to the one on one model, but replacing the trip to the store, pantry management, and all the other things my mother used to do, with technology.
Those combinations will continue to evolve, driven by consumers.
Pull winning out over push.