Industry 4.0 technologies are rapidly changing the landscape of retail, transportation, and logistics. Technologies like big data analytics, artificial intelligence (AI), autonomous robots, internet of things (IoT), cloud computing, virtual/augmented reality and others are fueling these transformations. As a result, grocery shopping is at the threshold of incredible metamorphosis.
In 2017, when the online retail giant Amazon purchased one of the prominent grocery stores Whole Foods for $13.7 billion, everyone in the grocery industry realized that a new wave of e-grocery has emerged and is going to transform the entire grocery business. Even though e-grocery was not new as existing established players like Walmart and startups like Instacart were already venturing into the online grocery space, the Whole Foods purchase created a new level of awareness of things that are going to come.
Today the global grocery industry understands that online retail is the future. Businesses are trying to find their path into this newly discovered land. They are seriously examining solutions on how to engage customers online, optimize inventory and deliver accurately and quickly.
The success of an e-grocery business is fundamentally dependent on inventory management; these grocers walk the fine line between over-stocking and under-stocking.
Over-stocking uses up costly warehouse space and locks up capital which may otherwise be available for other moving lines. Products decay over time and in perishables the decay is very quick, often by the end of the day. Every wastage affects the bottom line and pushes up prices which turn makes the business unproductive.
On the other hand, understocking stunts the business. Nothing can be worse than turning the customer away by not being able to supply an item. In traditional e-commerce businesses, customers can pre-order products that are not in stock. But customers need grocery now! One cannot be listing cereals, dairy, fruits, vegetables, baby food, oil, detergents, personal care items as out of stock. The demand for them is instant. Traditionally Grocery businesses are high-volume, low-value in nature, and profit margins are low. Items are stocked at wholesale prices and sold in retail over a period. If a business must address a shortfall of stock by buying at retail prices to fulfill customer demand, it is ab initio unviable.
Optimizing inventory is crucial for the survival of grocery industry. No wonder, the e-grocery companies are beelining for using Industry 4.0 technologies for their inventory management processes.
Today e-grocery businesses generate a significant amount of data of what was sold that can be useful to predict future trends. However, this big data requires a heavy investment of time and labor to examine and make sense out of. As a result, data analytics and machine learning are now increasingly resorted to by the businesses to extract relevant insights and make strategic business decisions.
For instance, we at Chaldal, use graphics processing units (GPUs) on Google Cloud to train our machine learning models. The models help us predict the daily and hourly demands. The algorithms consider the variations in parameters like the day of the week, the day of the month, the weather, holidays, traffic conditions, and other significant local events. These variances are used along with other forecasting models that account for the growth and seasonality of the business.
In the same way, AI-based predictive models are being used to predict operational failures and improve warehouse management. As machine learning models get smarter with time, the systems get more efficient. There is no doubt that this trend of incorporating data analytics and machine learning is going to help the e-grocery industry immensely.
Besides maintaining inventory, physical movement of the inventory is another vexing problem for the industry as it requires a lot of human labor. Industry 4.0 technologies are coming to help the businesses, as robotic systems are taking over manual tasks. These robots are automating operations in response to customer orders, and are helping businesses build space-saving compact warehouses. Automated warehouses don’t need to waste areas as they can reach spaces that are not easy for humans to reach.
There are rails between aisles for the robots to move around and fetch products or to stock them. Robots are more versatile than industrial automated assembly lines, because, they can be easily re-programmed by the designers instead of updating the entire production line. Robotics and Automation, thus go directly towards reducing the size of real estate investments.
Besides warehousing, the other frontier of the challenge is getting the products delivered to customers. Groceries differ from regular e-commerce products such as books in two ways: the quick turn-around time that is expected by customers and the perishable nature of products. As an e-grocery business’s order volume grows, it needs to be able to scale its logistics system along with it, while maintaining a cold chain for the delivery of perishables such as milk, fish, and meat. This considerably increases the delivery cost that further affects the bottom line of the business.
At Chaldal, we started a ride-sharing service Chalao, which uses scooters and mopeds to cater to the peak demand for grocery and perform passenger rides during off-peak hours to offset the costs. As transport technology improves, we can expect these rides to be undertaken by self-driving automatons that will further reduce the cost and improve reliability.
As online grocery businesses are using the latest technology to solve supply chain, logistics and inventory management challenges, even small operators are able to scale their businesses through the use of predictive analytics and automation, thanks to the advances in Industry 4.0 technologies.
Grocery has always been the problem child of E-commerce — the high demand on operational excellence and the low-margin of the products are a hard sell for many businesses, that even the giants Walmart and Amazon haven’t fully invested in these systems yet. But that’s changing with Industry 4.0 technologies which help the system function with positive unit economics, and this is apparent from the number of e-grocery ventures that have emerged around the world.