Last July, in a previous article (What if everything that we know about the consumption of fruits and vegetables was misleading?) I dreamed about a “future” that may change the reality of the fresh fruits and vegetables business, based on the effects of “The Long Tail “, described by Chris Anderson on his famous article (later a book) about how the online sales were transforming the media and entertainment industries.
What it did not known in last July is that the future had already arrived or rather, is arriving and “speeding up “.
It is not only that the established supermarkets chains are implementing increasingly powerful online tools or that, even, AMAZON has decided to begin to sell fresh products (creating a disruptive alarm in the traditional members of the value chain). No, it is not only that.
It is clear that there is a race to dominate the last available channel (the online sales) to serve the consumer and there is going to be a fight for its control with different strategies: mono-channel, multichannel or omnichannel.
The Paradigm Shift (the transformation of the business) in the fresh fruits and vegetables trade is coming and I think that we are not aware of it. In fact, it all started by a coincidence, and it went unnoticed for the most part, so still needs to be fully documented.
Take the following story as an example …
Recently the Purchasing Manager of a Scandinavian supermarket chain (I omit his name since I have not formally requested his permission) was informing me of the operative changes and supply policies needed to adapt its business to the “online new reality”.
This Scandinavian chain is a multi-format retail operation. Ranging from large Hyper-stores to Super/General stores and small Convenience stores. With all these store formats, the Purchasing team of fresh fruits and vegetables manage more than 700 references.
Typically the Hyper store format handles around 370 Stock-keeping units (SKUs) in the assortment the of the fresh fruits and vegetables department.Being the largest store format of the chain, the Hyper store has neither sufficient space, nor the need to stock the 700 SKUs to maximize margins and sales (or so they thought).
The implementation of the strategy of online sales, in these Hyper stores, commonly known as Click and Collect, has awakened them to a new reality.
The users of Click&Collect online tool are ordering a good part of their grocery bags out of the SKUs that are not currently included in the selection of 370 SKUs that make the typical assortment of the Hyper stores.
The on-line tool, initially developed for all the store formats, granted access to the consumers to the whole available range of products (more than 700 references) and therefore, their choice was not restricted by the physical limitations of the store.
Consumers do not have to bend anymore to the “least bad possible” choice within the range available in the physical stores; rather now, they can order what they truly wish or whatever suit their needs better.
The assortment has been doubled with a simple on-line tool. Logistics, Picking, Cross-Docking and all other operations and resources are exactly the same ones.
And according to the Purchasing Manager, with a few extra changes, and with a modest increase of resources, the chain can increase the assortment of fresh fruits and vegetables by more than 4 times (3.000 references).
Some of the implications are amazing:
- Even if the range does not get extended, the chain can use the information provided by the on-line sales to locally optimize the assortment of each one of the stores enhancing the potential income and margins and also reducing the waste caused by lack of rotation.
- The products with insufficient rotation can still be sold tending all consumers (with the on-line tool) while avoiding a limited segmentation of the market that therefore limits the units sold.
- The specialty products, niche products and the new introduction products do not need such a high critical volume to be maintained and launched and to remain in the assortment in the long term.
- The chain can now be perceived simultaneously as “a general grocer” and as “a specialty or gourmet grocer“.
And if we still dare to dream … how about this?
If the supermarket chain grant the suppliers access to the online tool (like AMAZON did in consumer electronics), a supplier will be able to offer its products directly to the consumers (as long as it commits to the right distribution and logistics service) and the consumers, therefore, will be able to choose freely between suppliers / brands of the same product.
It is fully understandable that an established player (the supermarket chain) would not be very happy to lose the control of the supply base and strengthen the supplier brands, but for a newcomer (say AMAZON) it could be a key differentiation strategy from the competitors.
I am sure that if I keep thinking about the topic I will find many more disruptive implications. And I am also sure that if I was able to see it coming, there must be already people working on it at the supermarkets chains.
Although what really worries me is how to adapt our company to the challenges and changes that the disruption of the business model is yet to bring.