For the past several weeks, the talk around the retail industry has been all about Amazon’s acquisition of Whole Foods. As RSR has often noted, Amazon has a knack for dominating headlines; Jeff Bezos’ December 2013 interview with Charlie Rose of CBS’ 60 Minutes will live forever as a perfect example of how to play the media. But the Amazon/Whole Foods news was much more than just a media-grab. It is a real wake up call for fast moving consumer goods (FMCG) retailers everywhere, and essentially ending any lingering doubts about whether “omnichannel ” is real. Suddenly, there’s a grocer – and a popular up-market one at that – that has the whole range of customer-facing digital weapons at its disposal.

The reason this is such a big game changer is because instead of traditional retailers slowly-but-surely making some digital capabilities available to consumers in the store, now we have a pure digital player that is able to infuse an entire physical shopping experience with rich and mature digital capabilities. Resistance to the idea of a harmonized digital/physical experience has been blown away in one M&A transaction!

Grocers are now fully aware that they need to change to meet changing consumer expectations. Those expectations increasingly revolve around new ways to accommodate life’s most basic need: the need to eat. Consumers – particularly the new generation of wage earners – demand that retailers not only sell them products at a good price, but deliver an experience. To become indispensable to consumers, FMCG retailers need to de-commoditize the value proposition. But that is extremely difficult to accomplish for grocers in particular, since so much of the assortment usually includes products that a consumer can get anywhere.

How To Be Indispensable

To become indispensable to consumers, retailers need to de-commoditize their value proposition and focus on the experience. But there is good news for fast-moving-consumer-goods (FMCG) retailers; consumers’ are leading the way by demonstrating strong interest in home-delivered groceries and meals, meal kits, and food trucks. They clearly want to spend less time shopping for food and more time enjoying it. And their interest in farmer’s markets, locally produced foods, and specialty markets speaks to their desire for fresh, healthy, responsibly produced, organic, and delicious food.

This sets up a golden opportunity for grocers – to become a destination not just for food, but for a good meal. That in turn has has given rise to the concept of “grocerants ” – grocery stores that sell prepared meals, either for taking home or for enjoying onsite. The concept isn’t altogether new (for example, many grocers have had onsite delis for some time, while others have offered mini-coffee shops complete with tables and free WiFi to encourage shoppers to stay awhile), but it is definitely gaining traction. Several prominent U.S. grocers now feature “grocerents “, including Whole Foods, H-E-B, Wegman’s, and Hy-Vee. In April 2017, USA Today reported on the trend, noting that grocerants generated 2.4 billion visits and $10 billion in sales in 2016 by promoting restaurant-quality freshly prepared foods.

Most importantly, a successful in-store “grocerant ” creates a significant barrier to compete for those low-cost providers (like Amazon) that would otherwise be able to steal business with low price and fast delivery – the common denominators of today’s highly competitive retail landscape.

But what are the technical capabilities that a retailer must have in order to offer an in-store “grocerent ” experience? More good news for retailers: such technologies are commercially available today – “Fresh Item Management ” solutions.

The Ingredients Of An Effective Fresh Item Management Solution

Fresh Item Management systems bear some surface resemblance to production planning systems used by manufacturers, but with the added complexity of dealing with perishable items and prepared foods. Here are some of the technical requirements for an effective and scalable Fresh Item management capability:

1. Get the Master Data right. The product master data must have a provision to handle information about not only finished products, but also ingredients, including allergen information and “rules of use ” (i.e. does an ingredient go into another ingredient? etc., similar to the notion of “components “, “sub-assemblies “, “assemblies “, and “finished products”).
2. A perpetual Inventory management system that can track not only available-to-sell items but also ingredients, is important. Track & trace (or “farm to fork “) information, for example lot numbers, is essential.
3. A recipe management capability is essential. Similar to old fashioned cook books, recipes should include ingredients, substitution options, packaging and labor requirements, and production rules. Because meals will be produced at scale, production lead times for each recipe should be included. And because each production location (whether it’s a kitchen at a store or at a centralized facility) will have different throughput capabilities, recipes must be managed per location, to codify each location’s production capabilities & limitations. For each recipe in each location, the solution must be able to calculate the total cost-of-goods to ensure proper pricing of each item.
4. The solution must be able to produce demand-driven forecasts by location, both for production and replenishment. As with consumer packaged goods in general, the forecast must consider each location’s perpetual inventory to help ensure the right order quantities.
5. A Production Planning engine is needed to develop schedules for each location. The Production planning engine should be capable of time-phased production calculations, to better match production to demand cycles. Furthermore, the planning system should be able to integrate production planning for central and local production schedules. The planning engine should be able to run per-location simulations, so that on-site managers can appropriately make corrections based on real-time conditions.
6. Infuse the entire process with analytics, to track demand vs. production (including overs, unders, and shrink/waste), enable track & trace in the event of recalls, and to monitor cost-to-serve vs. profits.
7. The Fresh Item Management solution should integrate with the retailers’ B2B ordering system.
8. A tie-in to a consumer-facing order management capability (preferably available to the consumer via a mobile app) is a must. Such a capability should be integrated with other customer-facing capabilities, such as online ordering for in-store pickup, preferred item list management, loyalty, and even self-checkout and mobile payment capabilities.
9. Retailers should develop the ability to schedule the right labor according to production/ service requirements.

Join Us For The Webinar!

To hear more about the opportunity that fresh item management creates for FMCG retailers, be sure to join us this Thursday, when my RSR partner Nikki Baird and I will participate in a webinar, sponsored by Symphony EYC, on the subject “A Fresh Take On Food Retailing “. The webinar will occur on Sept. 28, 2017 12:00 PM – 1:00 PM CDT.

You can register for the webinar by visiting this page: https://register.gotowebinar.com/register/181493470870734595