BGV General Partner Eric Buatois sat down with John Deane for a discussion on the future of retail, e-Commerce and logistics. The following blog post is the second of a two-part series that captures a paraphrased transcript of the dialogue.
ERIC BUATOIS: Safety is of paramount importance to the consumer in light of this pandemic. As a result, buyers crave assurances and transparency around company production environments, and they’re asking for greater guarantees on the safe delivery of products prior to reaching their ultimate destinations on the retail shelf (or home delivery). Inside the stores, many are demanding touchless payments, and other protocols. Could you share with us your view on how safety concerns factor into these logistics?
JOHN DEANE: I am not so sure that these concerns are going to be permanent. Consumers often get accustomed to what is truly necessary (and available). Safety concerns, for their part, are likely to be legislated by policymakers, and then integrated into manufacturing and logistics by fiat. Certain practices, like vigorous hand washing when picking up an Amazon package at our door, may well maintain importance to some, but in my mind, this will not reshape retail. One can see for one’s self the progression of COVID-19 mask usage. Safety concerns are dropping off even in light of the obvious risks.
That being said, safety concerns in food supply chains will continue to rise in prominence. Consumer expectations reign supreme these days, and violations of this “trust” will be met with brand ostracism. It is why, in my opinion, most food supply chain players – in production, packaging, transportation, serving or delivery — should be required to take the “ServSafe” food safety course. At Wendy’s, it was required for supervisors and above, which would be inadequate, in my mind, to sustain the above “trust” guarantee across all restaurant and supply chain functions. However, in this context, I consider “ServSafe” certification as a concrete example of the sort of requirement that we can reasonably expect to see adopted.
Wendy’s prides itself in being able to trace each hamburger directly to the number tagged on the ear of the animal that it comes from. Literally. The truth is, the same can be done for any food product, and is already being done for bacteria-prone products like lettuces (e.g. E.coli and Salmonella). These practices, too, may well be operationalized requirements across the industry soon.
ERIC BUATOIS: Do you believe consumers in the US are prepared to pay higher prices to enjoy the safety and security of SUPPLY?
JOHN DEANE: Yes and no, depending on the viewpoint. Yes, if it is seen as a measure to ensure physical or health safety. No, if it is seen as a frivolous attempt to disguise profitability with fear. Oftentimes, consumer price-sensitivity is an expression of dissatisfaction with issues related to product design, market alignment or pure quality challenges. In some cases, however, trends or fads enable price hikes. Just a few short years ago, could anyone imagine consumers being OK with paying $1,000 for a cell phone? Or $20 for an N95 mask? Understanding the economic buyer’s attitude toward value and then the alignment achieved through product design will, in great measure, dictate the options a company has in the pricing of its products or services.
There will always be room for low-price products, and also for extravagantly-priced products. Produce what has to be produced correctly, in line with the target consumer’s expectation, and price it reasonably in that context. The consumer values that alignment. And that is the recipe for success.
ERIC BUATOIS: Given the massive overnight shift towards home delivery, what do you think this space will look like post COVID-19? Do you believe consumers are prepared to pay more for home delivery? What fraction of consumer purchases do you think will end up being in-store vs. home delivery?
JOHN DEANE: Reduced price home-delivery, or even “free” in some cases, is now a standard that will be very tough to walk away from. If visible value-add is going to be delivered then the consumer will pay more (think of goods delivered between December 19th and 24th — express shipping is clearly worth it to many last-minute Christmas shoppers). But, overall, free shipping will simply become an element of standard costs, just like those that are included in COGS. The challenge for some companies will be foregoing the extra profit driven from the “Shipping and Handling” line item. This will certainly put pressure on some businesses, where this was a big piece of the profitability model.
ERIC BUATOIS: What technologies are required to support the transitions we’ve just discussed? And how will these technologies be deployed? Do you see variations in different parts of the world?
JOHN DEANE: Critical to the majority of decisions facing the new world of retail is the concept of practical, advanced analytics. We must create a platform on which to operate with the breadth, depth and speed required in the new world of consumer-led retail. I’m talking about tools that help optimize and scale decisions and “next best actions” across the entire value chain; something impossible to accomplish with manual armies of designers and marketers.
There is almost instant communication of trends and responses to consumer behavior across the globe. There may be nuances, or areas of concentration in certain markets, but the tools described above are universally applicable.
As to the “toolboxes” required, I would name them as a) modern data architecture, b) cloud services, c) advanced analytics, d) business process automation and e) cyber security and data confidentiality management. Each of these buckets deserve more attention, as they are deep, strategic topics in the support of future retail operations.
ERIC BUATOIS: Thank you for this detailed description of the new technology stack needed. How will this technology stack impact the industry structure ?
JOHN DEANE: The toolboxes will not, in my mind, reside within the walls of a single retailer, unless we consider that the world will be populated by a collection of Amazon-like players. More likely, retailers will continue to concentrate on products and experiences, and purchase the support structures required to play successfully in this new sandbox. So, there is a surge in the number of players that provide services in each of the toolboxes mentioned above. Not only the big names such as Google, Oracle, IBM and Amazon, but also the smaller niche players that have an immense contribution to make to retail companies’ success.
This brings me to my last point in the use of technologies in retail: bringing these capabilities to bear will take an immense amount of expertise in itself. Being the conductor of such a disparate and massive set of musicians, will demand new skills and techniques relative to architecture, planning, alliance development and vendor contracting. To operate in concert, this orchestra will have to possess skills beyond what they have historically had. It’s going to be a challenge; some will attempt it and die trying, others establish the right team of players, appropriate cross-company objectives and incentives and succeed in a sustainable way.
Finally, the mental operating system that I am convinced will undergird success across the industry: the humility to listen, the ability to learn, and the foresight to adapt. Without these, technology is just a set of wrenches. In the hands of the enlightened, however, they will produce amazing results.
