Few industries have been as impacted by the COVID-19 disruptions as the grocery industry, and new technologies are featuring heavily as the sector strives to adapt.
The subsequent lockdowns forced Australian supermarkets to respond by initially reverting to online channels and home delivery, and then — as the restrictions eased — they had to cope with social distancing in-store which blew out queues and waiting times.
All this was in the middle of panic buying, as Australians famously hoarded supermarket items such as toilet paper.
The response from Australia’s largest grocery chains, Coles and Woolworths, has been swift — and also immediately costly — as they have fast tracked investments around warehousing, robotics, and at the point of sale.
Many of these investments were in the pipeline before COVID-19, but the disruptions have brought them forward as the grocers get ready for the “new normal” — whatever that may be — of the post-COVID world.
Rise of the online grocer
In this world, analysts UBS estimate that online grocery shopping will increase from 5% of all sales today to 8% by 2023.
The grocers’ focus is on two major areas: automation around warehousing and logistics to improve online fulfillment and speed up the supply chain, and customer facing initiatives in the store which will reduce wait times and crowding.
At the point of sale, for example, Woolworths is rolling out a new online shopping tool — called Q-Tracker — which gives customers an app delivering real-time data on shopping activity and checkout queues, updated every five minutes.
Now being rolled out in four stores in Melbourne, the app also allows customers to book a time for entry to some supermarkets, to avoid long wait times and also reduce congestion.
Woolworths is trialing Google Business Messages, configured to enable customers to search for products and see availabilities and aisle information. The platform is also a channel for information on trading hours and COVID-19 updates.
There is also an investment in self-checkout technology, which identifies loose items — such as distinct types of apples — from AI fitted scales and cameras on the top of checkout machines.
Not all the innovations are for customer convenience, however. A major initiative in recent years has been self-scanning checkouts, which have also introduced concerning levels of shoplifting and pilfering.
The response is to now fasttrack self surveillance cameras as shoppers scan their purchases. The idea is that if you can see yourself scan then people will be less likely to steal.
Delivery becomes a critical KPI
Online fulfillment is one area which has been under enormous pressure in recent months. While the grocers have risen to the occasion, it has largely been through hiring large numbers of humans to do the packing.
To make this profitable, and probably more efficient, the grocers will have to automate and introduce robots into the warehouses to replace the humans.
This will also increase the distance between the bigger players, who can afford to make the investment, and smaller independently owned supermarkets which can’t.
Some of these players have also been investing in technology, but this is a scale game which is likely to reinforce the Coles-Woolworths duopoly, with smaller players appealing to the energized “shop local” movement.
Of the two major players, Coles announced its warehousing solution some time back, but it will take three years before it is operational.
It’s an outsourcing agreement with U.K. company Ocado which will see Ocado move into Australia as the owner and operator of Coles distribution centers in the two biggest markets of Melbourne and Sydney.
Under this arrangement, Ocado will charge a fee for packing groceries and the bags will then be loaded onto Coles trucks for deliveries.
The Coles prediction is that this will boost online sales by AUD 1 billion, double home delivery capacity, reduce the cost of serving customers and deliver improved profit margins.
At Woolworths, the approach is to purchase new equipment from U.S. company Takeoff Technology which builds robotic micro-fulfillment centers (MFC’s) for supermarkets.
This will probably mean packing machines in smaller Woolworths facilities, and even in supermarkets themselves.
Woolworths is also investing around AUD 700 million on technology in new warehousing, with two new automated distribution centers in NSW, operated by logistics partner Qube, which will spend AUD 400 million to build them.
These will join a similar center in the state of Victoria, which has been operating for 12 months.
Automation will build tailored pallets for specific aisles in individual stores, improving on-shelf availability and progressing localized product ranges specific to a demographic.
ROI picture remains unclear
So far, the market analysts are unconvinced by the initiative and have suggested that it will take a long time for Woolworths to enjoy any significant return on investment. But the company insists this is the future, partly because it will see savings from 700 redundancies.
At Woolworths, online food sales increased 26% in the March quarter and says its fastest growing platform is Delivery Now, which offers grocery delivery to the door in under two hours. Online sales at Coles jumped 14% in the March quarter.
Some people believe that the UBS estimate that 8% of all sales will be online by 2023 is too pessimistic.
Certainly, the COVID-19 disruptions have pushed adoption along at speed, and with that the pace of change for Australian retail.
Photo credit: iStockphoto/Nuthawut Somsuk