There’s no shortage of talk about technology that’s going to redefine, dominate, or transform retail this year. Much of this language boils down to marketing speech, and often, true industry disruption fails to materialize. There is no shortage of tech hyperbole in retail.
But then there’s the occasional exception — a technology that genuinely does redefine and transform a way of doing business. For this to be the case, a technology innovation must be combined with a changing business strategy. Then, for it to be “disruptive,” the tech needs to result in the evolution of a new business model.
In the highly competitive grocery industry, data pioneers are doing just that. A movement is growing among food retailers that is not only disrupting how they go to market but is rewriting shopper expectations altogether.
While it’s easy to get caught up in the latest marketing hype, sometimes it’s more beneficial to look inward and identify old habits that need to be broken. Focusing exclusively on the latest and greatest innovations can be a costly endeavor that ignores underlying problems.
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Grocery’s Outdated M.O.
Speaking of marketing, consider how grocers commonly go to market today – CPG brands provide bill backs and off-invoice allowances to individual grocers who then pass those savings along to customers via coupons and other promotions.
This approach proved successful in the mid-20th century and by 1960, grocery chains and supermarkets accounted for 70% of retail food sales. Unfortunately, those same retailers are struggling today.
Faced with rising competition from big-box stores and warehouse retailers, many are getting undercut by these alternative format stores. As such, traditional grocers are losing market share. By 2022, grocery stores accounted for about 25% of total food spending.
Although promotional dollars and considerations are a key source of revenue for today’s supermarkets, the industry has become too reliant upon this old way of doing business. Keeping this status quo will only widen the gap between grocers and alternate-format stores. Shopper loyalty is ultimately driven by overall savings, so customers will continue to shop wherever they can find the most value. Right now, that’s not at traditional supermarkets.
Rethinking Grocery Marketing
When grocery stores advertise a handful of CPG-funded products, only shoppers that prefer that brand are likely to respond. This approach works for brands, but it’s easy to see the problem that this has created for grocers and their customers.
It’s nearly impossible for one store to provide enough impactful savings on a customer’s entire shopping list using this limited approach. As a result, customers end up shopping at multiple locations or settling for a brand that isn’t their first choice. This clearly is not a good recipe for fostering long-term customer loyalty, so what’s the solution?
It’s hard to change this way of doing business when CPG marketing funds have become so embedded into the heart of the grocery business model. Historically, there has not been a cost-efficient or viable option. But that’s changing.
For the first time, a group of pioneering grocers are leveraging the convergence of big data, AI and machine learning to break free from the old way of doing business.
Supermarkets are disrupting the market via hyper-personalization, the practice of individualizing promotional offers and pricing for each individual shopper. Instead of promoting only a limited number of products to all the potential shoppers in a retailer’s market, retailers are now providing unique, strategic coupons on the items that appeal most to each shopper, drawn from the store’s entire catalog of tens of thousands of products.
This is personalized disruption, and here’s how it works:
1. Leverage customer data.
Grocery retailers already have enormous amounts of customer data. This information, either by utilizing existing loyalty programs or establishing new ones, can be used to create sophisticated shopper profiles. These individual profiles can track granular customer preferences, from brand choices down to individual price sensitivities.
2. Automate shopper marketing.
Once these unique shopper profiles have been created, grocers can utilize the latest technology advancements to completely automate the customer marketing process. Rather than assembling, printing and distributing mass promotion weekly ad items and in-store coupons, AI can seamlessly, and at a fraction of the cost, identify relevant promotions and flow these offers into unique customer outreach that is delivered to shoppers.
3. Utilize personalized disruption at scale.
This approach to hyper-personalization used to be too far-fetched for the grocery industry, especially at scale. There was no way to ensure this process would work across the variety of touch points that exist today for the largest retailers. This is no longer true.
With the right tools, including AI, generated promotions and offers are made easily available through API calls and point-of-sale integrations, ensuring access to individual offers no matter how the customer prefers to shop.
Scale is no longer a hindrance. By breaking away from sole reliance on CPG-funded discounts, many grocers today are realizing a powerful new way of doing business, even though they are funding the discounts provided to customers.
Understand the Fundamental Change
For the first time in the history of grocery retail, technology now enables grocers to be truly customer-first in how they go to market. Before the rapid development and refinement of AI for customer engagement, product-driven strategies were the only available avenue. Personalization was limited to a finite number of mass promotions, which really isn’t personalization at all. Today, when technology is leveraged the right way, retailers can blow away these past limitations.
Over the last decade, online shopping, mobile apps, self-scanning and other technologies have all impacted the customer experience at the grocery store, but the underlying business model has remained. Now, personalized disruption is changing that, ushering in a truly transformative new era for grocers and supermarkets.
Shekar Raman is CEO and Co-founder of Birdzi, a grocery retail AI solutions company that was inspired by an idea his 11-year-old daughter had about locating products in the supermarket. He is passionate about building data-driven technologies leveraging AI and machine learning to help retailers and brands elevate the customer experience.
