UK supermarkets see off Amazon threat for now

17 January 2019

As ecommerce continues to batter the market share of traditional bricks-and-mortar retailers, one area that continues to hold fast against the challenge is the grocery subsector. According to a new survey, while they have gained ground, the likes of Amazon are still less sought out by shoppers than established names such as ASDA when it comes to their weekly shopping round.

Supermarkets saw a net opening of eight new stores in 2018. That might not sound like a particularly impressive figure, until placed in the context of a UK retail sector which saw a net closure of 1,123 stores – the equivalent of 14 per day – with only bookshops and ice cream parlours enjoying the same level of expansion. Then, it becomes clear that the grocery sector is one of just a few subsectors which has not been a significant victim of a major downturn on high-streets across Britain. 

While a potent blend of spiralling debts, climbing business rates, and crippling costs related to a weakened pound triggered by Brexit have seen multiple casualties in the British leisure and retail scene throughout the last year, this has largely been in order to facilitate spending on the bare necessities. While consumers are able to scale back on dining out, for example, to tighten their belts, food at home remains essential, meaning that supermarkets have been able to continue growing, with discount brands such as Lidl and Aldi thriving in particular.

Grocery operators are also fortunately positioned as the part of weekly shopping which remains strongly in the domain of bricks-and-mortar stores, which have already positioned themselves well to take on ecommerce. Tesco, for example, has been delivering produce according to orders via their website for years. While this leaves less room for disruptors to arrive and differentiate from their predecessors via such a service, however, that does not mean that the likes of Amazon have no route into the grocery arena.

Most customers in the grocery market are reluctant to shop with Amazon

Indeed, Amazon has already made significant inroads into the market in the United States. There, the company purchased high-end grocer Whole Foods, where the ecommerce giant immediately set about a restructuring programme that saw prices slashed by as much as 43%. In the UK, Amazon is yet to make such a move; however, a partnership with Morrisons – one of the industry’s ‘Big Four’ – to deliver groceries via Amazon Prime has led some to speculate that a deal may well be in the pipeline. 

Trust and expertise

It is undeniable that ecommerce has made strides forward in the grocery sphere, but such a development seems essential if it is to make the next leap and genuinely challenge the market. According to a poll of UK shoppers by behavioural science research firm Decision Technology, customers would still largely opt for existing big names over Amazon if it officially entered the grocery market in its own right. While the low prices Amazon could offer are well known by British consumers from other retail experiences, only 13% of customers in the grocery market would choose Amazon, placing it squarely behind ASDA, at 17%, Tesco at 16%, and Morrisons at 16%.

This further demonstrates the pros of a possible move for Morrisons. While Amazon is known for being cheaper than bricks-and-mortar stores in other retail subsectors, it cannot leverage its brand reputation for having good prices elsewhere into being a potential grocery market-leader because of its weaknesses on trust and expertise – factors Decision Technology asserts are essential to win market share in the grocery field. With that being said, Amazon and fellow ecommerce grocer Hello Fresh do both surpass Sainsbury’s in terms of consumer interest, with the final ‘Big Four’ member only registering 10%, showing the pull of pricing alone.

To that end, Decision Technology found that competitors would be well advised to stay wary of Amazon in the grocery market. If Amazon pursued a similar strategy to the one it took with Whole Foods and acquired Morrisons, it could pose a major threat. At the same time, the potential for ecommerce companies to leverage in-store innovations could also prove a major draw for digitally savvy customers, which traditional stores may struggle to keep pace with, without alienating older generations of shoppers.

Commenting on the findings, Henry Stott, Director of Decision Technology, said, “If Amazon were to turbocharge its entrance into the grocery market, we could see significant disruption. An increasingly digitised shopping experience in the future could play into Amazon’s hands and give it an acute advantage in grabbing market share. Yet Amazon won’t kill off competition in every sector. The ecommerce giant fares less well in offline markets, where customers often attach an emotional element to their experiences. We found that Amazon’s brand has its limits.”

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Four ways digitalisation is transforming car brands and dealers

16 April 2019

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”