Farmers 3 – Retailers 1
by Vincent Lanz. As ecommerce penetration rises, retail margins fall. The only way to break the reducing margin chokehold is to have greater efficiency within the store.
by Vincent Lanz. That is not a football score but does represent the sort of lead that farmers currently hold over retailers when it comes to using technology to improve performance. AgriTech is seriously impressive. The farming eco-system has engaged at all levels, from the supply chain and feed; to managing the farm, crop and yield generation; then onward down the supply chain.
I live near a fruit specialist that is currently cloning longer lasting plums, so the fruit can better manage export lead times from South Africa to foreign markets. All avenues are being pursued to optimise revenue.
In contrast, talking to retailers has left me wondering how they stay in the game. Sure, the supply chain to the retailer’s receiving door is well managed and capable – as evidenced by the post looting recovery in KZN. And yes, there are a veritable smorgasbord of retail tech options which are customer facing – from automated checkouts and proximity marketing to interactive shopwindows, shelf sensors and robots to online shopping options. But these tech offerings don’t improve retail income – many of the solutions are simply a display of technology and they almost always cost the retailer.
Alvarez & Marsal, a management consultancy, in partnership with Retail Economics, found that over the past decade, retailers’ pre-tax profit margins across several European countries have decreased from 6.4% to 4.5%. It pointed to online shopping as a major cost contributor. Its analysis found that as ecommerce penetration rises, margins fall. And there is the ongoing rush to open new shops and dark stores which further drive competition for limited consumer buying power.
Where is the efficiency driver?
So, the pressure is growing. And margins are shrinking as retailers are in a race to the bottom. As things stand, having an omnichannel offering may increase sales, but it grinds down margins. One of the glaring technology omissions is any assistance to the shop floor. In my local grocery store there are always a gang of merchandisers that first wonder up and down aisles with paper and pencil, looking for gaps to fill. Once they find a gap, they write down each missing product barcode on the paper and then fetch the right matching item. Having found the stock, they refill the shelves and then return the excess stock. That means four trips:
- Find the gap.
- Go back for stock.
- Bring stock.
- Take back excess stock.
Farmers have technology to measure soil moisture, but retailers use paper and pencil to find stock gaps. The only way to break the reducing margin chokehold is to have greater efficiency within the store – from receiving to the storeroom and then to the shelf. That’s the part that retailers control. And that relates not just to the floor operational performance, but very definitely to the stock flow management too. Rugby utilises video analysis, player performance reviews, and strong set move plays – all to generate better scores. Retailers need to engage technology far more to improve performance – and farmers have shown what can be achieved.
Vincent Lanz is the managing director and solution architect for NEO-Retail Solutions. NEO is focused on providing digital solutions for business applications. Shelflink is a Retail Technology solution that digitalises the retail floor, providing visibility of staff operations and live stock management. The solutions digitalize what has previously been largely done on paper, significantly improving store performance.
– Receive the Retailing Africa newsletter every Wednesday • Subscribe here.