With the introduction of Amazon Fresh in Germany, the competition in food retail was taken to another level. Germany is watching westward, where Amazon is currently planning the take-over of the US-American supermarket chain Whole Foods. In the center of Amazons activities are fresh produce products - up until now those were the domain of stationary retailers. With a convincing online range, online or multi-channel supermarkets could be making six to eight billion Euro by 2020, at the expense of stationary stores. 2,000 stores would be at stake. What is making the situation worse: Only every fifth German is under the impression that fresh produce in supermarkets has better quality in the long run. This was shown by a survey conducted by strategy consulting firm Oliver Wyman. With a multi-functional solution, stores with a full range of products, like discounters, could counter by improving the freshness of their products: This could increase sales for fresh produce by up to 10% and at the same time increase profitability significantly.
Image: obs/Oliver Wyman
Lettuce or strawberries at the click of a mouse? So far, Germans are sceptical towards this kind of development. This was shown by a survey conducted by Oliver Wyman among 1,000 consumers with focus on internet affine age groups between 18 and 49 years, in May of 2017. 44% of respondents explained that they did not trust the product quality when ordering fresh produce online. Further barriers are higher cost and long delivery times. If the online range is comparable with the stationary one, people are more interested in buying fruit and vegetables, dairy, deli meats or bread online. This is a way to establish E-Commerce for grocery stores. By 2020, the amount of online orders, which is currently below one percent, could rise up to four to six percent. This would endanger 15 percent of all locations with a full range; approximately 2,000 stores are at stake. "A threat that should not be taken lightly," as Rainer Münch, partner at Oliver Wyman and long-time industry expert said.
Only every fifth costumer thinks quality in supermarkets is higher
This risk is even higher, because the new competitors are consistently working on their freshness - mostly Amazon. By buying Whole Foods, the online giant acquired a champion in freshness, with expertise in the cold chain, purchasing fresh produce and competence for their store brands. This will be paired with the highly efficient, centralized and technology-based solution for trade (more information on this here). Münch says the full range stores are under immense pressure: "Freshness is the Achilles heel and spearhead of stationary retail at the same time. It's the ancestral bastion and it's a force of attraction. If the quality is bad though, it is also a determining factor for dissatisfaction and therefore, a possibility for new suppliers," he says. The survey proves this ambivalence. Four out of five citizens say they still want to do their shopping of the future in real stores, where they can touch an select the products. This includes the shopping process in itself as well as taking the products with you right away. Although only 20% think that the quality is going to be better at supermarkets in the long run.
Jens Torchalla, another partner at Oliver Wyman, explains: "Especially big retailers have a lot of work to do. It is not enough to demonstrate world-class freshness in some flagship stores or selected markets. The retailers need to show excellence in all of their stores, to make sure they do not become obsolete."
System-wide approach for more freshness
The necessary quantum leap in terms of freshness can be enables by a system-wide approach, which includes six components:
The necessary quantum leap in terms of freshness can be enables by a system-wide approach, which includes six components:
1. Ideal product quality up to the shelves. This is ensured by a rigorous management of suppliers, consistent temperature control, effective and risk-based quality control as well as a consistent understanding of specifications along the entire supply chain.
2. Right quantities at the right time. There needs to be an optimal balance between automation and market intervention when ordering, including short lead times and an integrated management of the flow of goods, to noticeably increase freshness nationwide.
3. Collaboration instead of confrontation with suppliers. By working on the cooperation with suppliers of fresh produce - starting at integrated calculating of estimates, the consideration of overall costs in the supply chain, all the way to the joint revision of the product range - the German retail sector could save 1.2 to 1.8 billion Euro every year.
4. The ideal assortment for every location. An individually designed range and the usage of a regional range could put full-range markets into a niche that can increase customer satisfaction and sales significantly.
5. The ideal presentation. This includes a department size according to sales in every store, an individual arrangement of shelf space for every product; fitting batch sizes at the delivery and locally fitting assortments of fresh produce.
6. Excellent implementations in the stores. Clearly defined best-practice-processes in the goods receiving department and taking care of shelves, fair goals for efficiency for every market, extensive training and a uniform idea of what freshness is among employees are necessary to ensure the right appearance. A multi-functional network throughout the whole value chain is crucial. The times of singular projects to increase freshness are over, what is needed is an integrated approach within the team. Convincing freshness is not only raising customer satisfaction, Torchalla knows: "Freshness holds an immense potential for sales." According to experiences of Oliver Wyman, retailers can raise their revenue by 10% in two to three years by optimizing their fresh produce range and through that raise their profitability significantly. "Without a quantum leap in the freshness-department, stationary retail is leaving it up to companies like Amazon Fresh to run the business," Münch warns.
Source: Oliver Wyman/obs