Three Reasons Why Grocers Need to Embrace Technology
Three Reasons Why Grocers Need to Embrace Technology: Low Profit Margins, Convenience, and Sustainability Trend
Three Reasons Why Grocers Need to Embrace Technology
Low Profit Margins, Convenience, and Sustainability Trend
1. Low Profit Margins
The brick and mortar retail market is currently experiencing major upheaval, with giants such as Sears, Toys R Us, JC Penny and Kmart faltering at the hands of online retailers like Amazon. Forbes lists grocery retail as the 8th least profitable industry in the US operating at ~2.5% profit margins. The lack of innovative change in this industry, coupled with low profit margins has allowed online retailers to move into the brick and mortar arena demonstrated by Amazon's acquisition of Whole Foods in 2017.
2. Convenience
The grocery industry is currently undergoing its largest transformation since the introduction of the bar code in the 1970’s. This $700 billion industry recently caught the eye of technology giants resulting in a partnership between Kroger and Microsoft and Amazon acquiring Whole Foods. Checkout-free stores are now a reality with Amazon Go stores popping up across the country. By eliminating the checkout process Amazon has cut employment costs as well as shopper friction while boosting sales per square foot. Traditional grocers will have to find ways to compete with the streamlined, hassle-free shopper experience and higher margins checkout-free stores enjoy.
3. Sustainability
According to a recent study published by Mintel, "in an effort to limit waste, half (52 percent) of consumers prefer to buy foods with minimal/no packaging.” Food packaging accounts for approximately 75% of household waste, totaling 73 million tons with more than 8 million tons of plastic dumped into our oceans annually. Yet, grocers continue to focus on pre-packaged products, while a rapidly growing customer demand for sustainable shopping is largely neglected.
Sustainability as a Business Advantage
Precycle, a package-free grocery store in New York is pioneering a new business model in the grocery retail based on the idea that sustainability can be a business advantage. Precycle is part of a new movement of grocers listening to shoppers by offering alternatives to pre-packaged food. By offering products in bulk bins, Precycle virtually eliminates food packaging waste. The Wall Street Journal recently highlighted Precycle as a grocer innovating in the grocery industry. Eliminating food packaging by offering bulk products has a much greater effect than meets the eye.
- Profits: Bulk foods carry 30–40% profit margins for grocers, double their pre-packaged counterparts.
- Savings: Bulk foods offer ~20% customer savings.
- Food Waste: Food packaging makes up ~75% of all household waste. Bulk foods reduce packaging and food waste as customers can shop for the amount of product they need.
