Why Retail is Becoming a Big Tech Business and What Data has to do with it

In the south of Italy, the tradition of small proximity retail stores is surviving despite the power of both large retail chains and eCommerce. Taking pride of place amongst these stores is the traditional delicatessen, the ‘salumeria‘. Entering a typical salumeria is an experience in itself that only those who have had the privilege to witness first hand will truly understand. Firstly, the senses are treated to the smell and visual wonder of a wide range of cured meats and cheeses, the small selection of groceries and the speciality locally sourced products. This hit on the senses is only secondary to the ‘royal style’ welcome and service one receives from the attentive ‘salumiere‘. He will cater to your every whim, after a few visits he will know you by name, he will commit to memory your favourite choices and anticipate your culinary desires for that evening, after which he will log your purchases in his sales book and, with a nonchalant wave of the hand, suggest you settle up at the end of the month. This is the ultimate personalised experience retail has to offer, but can this ever be replaced by retail chains or online shopping, and how much of a part will technology play in consumer shopping trends and experience?

Large retail chains have long taken over in many parts of the world, often forcing small businesses, like the Italian salumeria, to retire. There’s no doubting that large shopping centres, supermarkets and hypermarket chains provide endless choice with competitive pricing and worthwhile offers, a place where one could spend hours and satisfy all our retail needs, including those we didn’t know we had. However, the predatory food chain is getting smaller and those at the top are hungry for more, as a result large retail outlets have been suffering pressure from the new kid on the block, eCommerce and, in particular, Amazon. In 2017, Amazon announced its startling acquisition of the American supermarket chain Whole Foods. And, ever since the ‘everything more than just a retailer’ from Seattle has decided to play hard ball in the grocery arena, giant chains like Walmart, Kroger and Albertsons Companies (leaders in the USA and abroad) have had a tough time over the last six quarters. The image below shows Walmart’s price % change vs. the S&P 500 index, not the picture investors were hoping for from the Arkansas born retail giant.

Amazon’s acquisition of Whole Foods sent shockwaves well beyond the giants of retail. In January 2018, Microsoft announces a key strategic partnership with Kroger, America’s largest grocery retailer, “to redefine the customer experience and introduce digital solutions for the retail industry”.

“Kroger is building a seamless ecosystem driven by data and technology to provide our customers with personalized food inspiration. We are identifying partners through Restock Kroger who will help us reinvent the customer experience and create new profit streams that will also accelerate our core business growth. We are excited to collaborate with Microsoft to redefine grocery retail,” said Rodney McMullen, Kroger’s chairman and CEO.

“Our partnership brings together Kroger’s world-class expertise in the grocery industry with the power of Azure and Azure AI,” said Satya Nadella, CEO of Microsoft.

Later that year in July, Microsoft, Amazon’s largest cloud services rival, and Walmart, Amazon’s biggest retail competitor team up for a five year tech partnership, clearly aimed at taking on Amazon. “The five-year agreement will see Walmart use Azure and Microsoft 365 across the company, alongside new projects focused on machine learning, artificial intelligence, and data platforms.”

Following suit, the remaining grocery giant in our trio, Albertsons Companies, announced just last week its partnership with Microsoft.  Albertsons Cos., the second largest food and drug retailer in the USA after Walmart, is joining forces with Microsoft to work on a “frictionless future” of grocery shopping by leveraging Microsoft Azure and 365.

“In addition to creating frictionless experiences for customers and employees, Albertsons Cos. has moved its digital workloads – including its eCommerce sites, loyalty applications and more – to Azure. Albertsons Cos. Plans to build its data science and analytics platform on Azure, with a vision to gain additional insight into its data and allow store managers to use predictive scenarios to anticipate and act on revenue-driving opportunities.”

Amazon’s ambition for ultimate supremacy is raised to a new level with its most aggressive move in the brick and mortar space – its earnest plan to open 3,000 cashier-less Amazon Go stores by 2021. So, while Amazon works on integrating Whole Foods with the rest of the ecosystem and opening thousands of cashless retail locations, Microsoft is hot on its tail leveraging its cloud services in a game of catch up – and the ultimate goal of this fight between the two giants? winning consumer data.

Other big retailers have to step up their game in order to close the gap with the pack leaders. Their only chance of advancing faster is to form strategic alliances with like-minded companies, such as Microsoft, who have the motivation and desire to be one step ahead of Amazon in the cloud and AI services (storing and processing data). The world of retail has become much more than selling products on a shelf.

Will consumers ever truly experience a superior, seamless shopping journey? Only time will tell, but, with a nostalgic heart, I doubt we will get anywhere near re-creating the personalised experience of the Italian salumeria.

In conclusion

While the giants continue taking up the gauntlet, manufacturers cannot afford to sit idly by and await the victor – the stakes are far too high, it’s do or die. There are some clear lessons to be learnt here: doing business in the forthcoming decades will be centered around data and understanding how it can play a part to enrich consumer experiences. Taking on this mighty task alone is a game reserved for the few that have bold and crazy leaders, or those at the top of the food chain – those remaining should work on getting their partnership strategy together.

Sources:

https://www.theverge.com/2017/6/16/15816174/amazon-whole-foods-acquisition-supermarket-stores
https://fool.com
https://www.theverge.com/2018/7/17/17580744/microsoft-walmart-azure-partnership-amazon-rival
https://news.microsoft.com/2019/01/07/kroger-and-microsoft-partner-to-redefine-customer-experience-introduce-digital-solutions-for-retail-industry/
https://www.theverge.com/2018/9/19/17880530/amazon-go-cashier-less-stores-new-locations-2021
https://news.microsoft.com/2019/02/22/albertsons-companies-to-transform-experiences-for-shoppers-with-microsoft-cloud-and-ai/