Can Amazon be Beaten: How UK Grocery Retailer Ocado Is Holding Its Own

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Imagine a retail grocery business run by a deep technology estate. No stores, only online deliveries from automated warehouses. Robots in those warehouses pick most items and send them via high-speed conveyor belt to human attendants for packing.

A human-like robotic hand is capable of handling over 50,000 products of all shapes, including delicate items like produce. This process is all monitored by technology that can alert the human attendants to packing errors. Other “collaborative robots” learn from and assist the human warehouse manager. An artificially intelligent warehouse system collects data and optimizes operations. A computer program even maps the best delivery routes for drivers.

This isn’t the grocery store of the future but a description of the present-day operations at Ocado. Ok, the robotic hand is still in development, but the rest is 100% operational.

I’ve recently returned from a UK market tour where colleagues were buzzing about this unique, online-only grocery retailer. They are the world’s largest and their team of technologists and techies has been working to change the way we shop for groceries for the past 16 years.

Amazon Fresh entered the UK market last summer, and many predicted Ocado’s demise. Yet, the retailer has survived, some might even say thrived. Their 2016 sales beat forecasts, rising 14.8% to £1.3B. This momentum has continued in 2017 with both sales and weekly orders increasing despite a sluggish British retail environment.

I have heard of other similar David vs. Goliath success stories. Earlier this year, I wrote about the fact that Amazon is surviving but not thriving in several other markets including China, India, and Mexico.

This most recent example got me thinking again about how and why homegrown retailers are able to give Amazon a run for their money.

In India, Amazon has struggled to win trial and loyalty in face of rival Flipkart’s entrenched awareness and strong seller relationships.

In Mexico, Amazon has fought to build trust in a market where the cultural defaults are cash payments and brick and mortar shopping. Meanwhile, local competitor Mercado Libre has leveraged a nuanced understanding of local culture to hold their own.

In the UK, Ocado’s impressive tech infrastructure is helping them keep Amazon at bay. The Independent calls the company “superlatively innovative” and they likely embody what the grocery category will look like in the age of the 4th Industrial Revolution.

Yet, Ocado has retained a strong compass for human values too. The company is testing delivery via more sustainable electric vehicles. They are partnering with underground urban farms with lower carbon footprints vs. traditional farming. And, they run a ‘Code for Life’ initiative designed to prepare the next generation of workers for the automated workplace.

I don’t want to overstate Ocado’s success. They still have a long road ahead; one that requires them to sustain their growth and license their tech infrastructure to an international grocery partner soon.

Nevertheless, I am heartened to see an innovative player succeed in the face of a powerful incumbent competitor.

Photo Credits: Business Insider, http://read.bi/2qJuvwE

The Rebirth of Consumer Curation

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Well over a decade ago, savvy retailers started to offer edited assortments to shoppers dealing with a growing number of options. Remember Target’s collaboration with Issac Mizrahi or the growth of retail chain Anthropologie? Analysts dubbed this phenomenon ‘curated consumption,’ and it became a standard retail offering.

To “curate” means to "pull together, sift through, and select for presentation." There is a functional aspect to curation, as it requires the working through a volume of choices. It also requires the creative act of making selections that others see as unique or inspired.

In today's tech-enabled culture, I’ve noticed this editing process happening with a new scope and speed. A growing variety of things are being curated with increasingly sophisticated tools  – a dynamic I’ll call Curation 2.0.

The Dawn of Curation 2.0

Whether we are considering where to work, live, or vacation; how to eat, dress, or style a home; or what to listen to, watch, or read – the options available at our fingertips continue to grow. In this cultural landscape, the more technology offers us, the more we need new tools to curate the vast landscape of what is available.

This struck me while perusing a group of the most upvoted product ideas on the Product Hunt Website. (The site itself being, ironically, a curated selection of startup ideas.)

Entrepreneurs clearly recognize a cultural need for help dealing with option overload. Across the new product ideas, the offer of an edited selection of options was a recurrent theme.

I found products to curate everything under the sun: job postings from around the world, minimalist design objects, local spots for travelers, coffee shops for working, art, or weekend plans.

Many of these start-ups are business models yet to be proven, but they complement a litany of more established applications with curation elements like Netflix, Flipboard, and Apple Music. (And of course Pinterest, perhaps the grandfather of curation apps.)

Curation on the Retail Landscape

Curation 2.0 means you can find a great local dive or unique objet d’art, but it is also playing out on larger scale. Where there are masses of consumers, there are companies to help them navigate through a dizzying number of retail categories by choosing only from an edited assortment.

One only need begin with StitchFix for clothes, then move on to BlueApron for groceries, 99 chairs for furnishings, and Canopy for most everything else.

The fashion category is one particularly interesting example of how an industry can be revolutionized by Curation 2.0.

As the pace and scope of fashion has eclipsed the abilities of the average shopper, many have turned to editors for help.

Subscription services like Trunk Club (and the already-mentioned Stitch Fix) and curation websites like AHA and LiketoKnow.it have become an integral part of the way many consumers shop for and buy clothing.

Some of these applications use tech-powered curation. For example, Stitch Fix employs over 50 data scientists to create selections tailored to individual customer tastes. Others, like AHA, rely on human tastemakers to identify inspired options.

Whether guided by an algorithm or a living, breathing person, curated fashion doesn't seem to be a passing fad. One industry expert predicts that subscription services will become a full-fledged fashion retail channel in the coming years.

What’s Next?

As shoppers enjoy curated shopping experiences in a few pioneering categories, their decision-making muscles will atrophy. It is not a stretch to imagine they will desire – even expect – curated help across all their shopping experiences.

Retailers and brands sold at retail should ask themselves how they can leverage technology to become trusted editors. To start, consider a quick-fire brainstorm:

Q1: What do we sell that my consumers would like to consume in an edited assortment?

Q2: What type of curation do my consumers want? (Consider: Customized Combinations? Inspired suggestions from a tastemaker? Community-generated recommendations?)

Q3: Should my curated selections be generated by an algorithm? A human? Both?

What’s Even Further Afield?

Looking down the road, I predict a need for ‘meta-curators.’

As consumers come to rely on curated collections across many categories, the number of requisite websites and apps will once again explode. As a consumer, I would love to use many of the tools I’ve called out above – but who has the time?

The inevitable next step will be to pare down to a smaller number of broad curation tools that work across traditional categories.

Will the next wave of Silicon Valley darlings be applications that crack the meta-curation code?

Until then, good luck and happy editing!

Tax-Paying Robots May Be the Future of Work: Why Should We Care?

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It’s not news that robots will replace large numbers of human workers over the next few years. For context, a 2016 WEF study found that 5 million jobs in 15 countries could go by 2020.

But, Bill Gates recently made headlines by calling for a tax on companies’ use of these new automated workers. His thought-provoking argument:

The shift to automation will leave many out of work and without meaningful re-employment prospects. For example, U.S. retail jobs are identified as one of the most at-risk for robot replacement. This pending disruption is evident in the customer-service robots popping up around the country. For example, Lowe’s LoweBot, Macy’s On-Call assistant, Pepper’s debut in California malls, and of course Amazon's cashier-free grocery store.

The reduction of paid labor will shrink the income and social security tax bases and limit governments' abilities to help those affected – at a time when they need a social safety net the most.

Gates maintains that we should take steps to plan for this automated future by instituting a tax on robot workers. Companies could fund the tax with some of the windfall from their labor reduction. Governments could use the proceeds to support displaced workers and retrain them for positions where human skills are still needed. Gates' examples include healthcare and education, but I also see opportunities for retailers to launch retraining efforts.

The robot tax is not a completely novel suggestion. Last month, European parliament considered and rejected a similar proposal, a decision hailed by the robotics industry.

It's no surprise that some economists and policy makers opposed the idea. The challenges are complex, but the main points are these: 1) slowing tech growth to keep humans in jobs delays the inevitable and will have unintended consequences, 2) automation created jobs throughout history and may do so again, and 3) automation is not happening fast enough, limited by an abundance of cheap human labor.

Net/net, critics argue that while the effect of widespread automation will be negative for some people, the economy will be better off as a result.

With compelling arguments on both sides, how to make sense of this issue?

In my view, Gates’ position is about highlighting the vast inequality created by tech innovation.

Today, the gap between rich and poor is at record levels in most of the developed world, and the U.S. leads the pack. In this country, the richest 10% of workers earn 16.5 times that of the poorest 10%. This ratio has more than doubled (up from 7 times) since 1980.

The impending automation revolution will further deepen the divide between rich and poor. Fortune magazine stated this well:

"Some people will see their jobs become obsolete and will need to acquire new skills in order to obtain well-paying work. Robots and artificial intelligence will exacerbate economic inequality and place a burden on many workers to learn new skills."

It is on behalf of the "some people" that Bill Gates speaks. He argues, I believe correctly, that it is the duty of business and government to plan for the displacement of millions of American workers – even if the net economic effect will be positive.

By extension, I believe it is the duty of business leaders to understand and improve the wide economic inequalities that exist today and will deepen in the years ahead.

Retail leaders, in particular, can be a part of the solution by imagining the future of the automated workforce.

We should explore how human workers might work alongside robot “colleagues” to deliver enhanced customer experiences.

We can identify opportunities to retrain displaced workers for these new roles, perhaps building on programs like Amazon's Career Choice.

And, before we get completely wrapped up in automation, we should identify points of human interaction worth preserving and consider how these might create new opportunities for differentiation or revenue. This might be akin to the way some consumers pay a premium today for artisanal food. (One scholar intriguingly posits that someday the act of getting a manicure from a human might be a service for only the very rich!)

The arrival of the automated workforce is a business issue, since inequality creates social, economic and political tension that does not foster a healthy environment for commerce.

But it is a human issue as well. As tech concentrates wealth, knowledge and power in the hands of a few, it is critical to think about broadening it's positive impact in the lives of the many.

What can we learn from Spider-Man at the Dawn of the 4th Industrial Revolution?

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Members of the World Economic Forum meet in Davos, Switzerland in late January every year. I have always enjoyed the thought-provoking panels, specifically those that inspire us to consider implications for business leaders and marketers.

In 2016, I noted on the blog that much of the Davos agenda that year had focused on the 4th Industrial Revolution (4IR) and the complex ways it will transform lives and livelihoods.

At this year’s meeting, talk about the 4IR continued.  This year’s focus evolved to include broader discussions of the ethical implications of 4IR’s ubiquitous connectivity and fast-paced fusion of physical, digital, and biological worlds. This emphasis on ethical values was both compelling and reassuring. It is a subject that business leaders will do well to contemplate.

Unprecedented Power for Companies:

The need to think about ethics at all springs from the unique position of today's companies. Many lead private-sector R&D teams instead of partnering with academic institutions. Their rapid development of 4IR technology (think: cognitive computing, AI, blockchain) gives them unprecedented powers uncircumscribed by academic protocols and the rigors of peer review.

For-profit entities now have the ability to decide what news we see, track our movements, direct where we go, and even predict how we will think.

These abilities could be problematic because most companies exist to maximize profit and have little formal incentive to consider their impact on human life and society or the health of the planet.

Enter the B-Corp, or “benefit corporation”. This is a hybrid structure that requires a company to state a purpose beyond profit and creates accountability to comply.

The idea, of course, is to go beyond pithy corporate mission statements (like Google’s ‘Do the Right Thing’ mantra) to engineer ethics into the DNA of a business.

Imagine a company contemplating the algorithm for a self-driving vehicle. If an accident is unavoidable, does the car take the course with the fewest potential casualties even if this puts the driver at risk? This is an ethical quandary. Most would favor saving the greatest number of lives but few would buy a vehicle that puts a driver at risk.

There is no easy answer. Yet, we can imagine how a company with accountability for both ethics and the bottom line will be better positioned to work through the issues.

Some forward-thinking tech firms, like Singularity University, have already organized themselves as B-corps. In a world where technology invisibly shapes much of life, the move from profit-driven to benefit-driven corporations could be transformative.

Unprecedented Power for Consumers:

If companies need to reengineer themselves around ethical values, the great news is that citizens are already there.

The 4IR world offers consumers myriad ways to influence businesses and they are using their clout for good.

On issues ranging from sourcing and sustainable packaging to fair treatment of employees, consumers prefer – I'll venture to say demand – to do business with companies that make ethical choices.

Walmart CEO Doug McMillon wrote that, in the 4IR future, retailers will survive only if their business creates value for both shareholders and society. The most successful will build social and environmental sustainability into their systems because it is the right thing to do and because it is what consumers reward with their dollars.

It is exciting to see companies like Patagonia and eBay lead the charge. And, to know that firms like Facebook and Airbnb are grappling with ethics issues in real, visible ways.

 An Unprecedented Opportunity to Do More Good:

The dawn of the 4IR presents many more questions than answers: Will robots take our jobs? Will omnipresent tech somehow make us less human? Will AI-driven technology someday threaten our very existence? These questions are equal parts dystopian nightmare and sobering meditations on the fast-paced evolution of technology.

In light of the weighty issues, a recommitment to values – one of the things that make our endeavors most human – will be our best shot at navigating the 4IR world.

As I look toward the uncertain future, I’ll remember that Spider-Man's oft-repeated mantra isn't only for superheroes. The "great power" of the coming 4IR revolution does indeed bring "great responsibility".

Welcome 2017: Looking Forward & Back

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It’s been unusually cold in Dallas and a great time to be introspective. Below I share a pair of insights I have percolating about the year ahead. Cheers to seeing these and other themes unfold in 2017.

 #1: Retail Brands Will Think So Consumers Don’t Have To

 In 2016:  I wrote about how Tesco’s IFTTT channel automates grocery shopping, paving the way for the ‘predictive grocery basket’ of the future.

In The Year Ahead:

To identify emerging trends, follow the money. AI applications are at a tipping point this year, with AI-generated retail revenue expected to skyrocket from $643.7 million in 2016 to $36.8 billion by 2025 according to Tractica.

Innovative retailers are already embracing their new AI-driven world. 2016 saw The North Face’s ‘expert shopper’ Lowe’s Pinterest-scraping interior decorator, and a Starbucks app that offers customized promotions by knowing when and where someone drives.

This march to AI-powered retail will fundamentally shift the role of brands and retailers in consumers’ lives from responsive to predictive.

Today, a brand (retail or otherwise) is a helper that makes it possible to fulfill my needs and wants. The best brands use data to offer curated selections or to delight with new, personalized suggestions.

As increasingly sophisticated bots and apps are launched in the year ahead, the role of retailer/brand will morph into that of a butler, which can proactively anticipate what I need and deliver. The most innovative will find ways to identify and fulfill needs and wants I didn’t even know I had yet.

This will shift the retail paradigm in diverse categories–from grocery to fashion, electronics and anything in between. Just ask Tesco’s grocery shoppers, whose carts are filled with items they are going to want–tomorrow.

There will be benefits for consumers, who will be able to shop more efficiently while offloading repetitive decisions. The upside for retailers and brands will be the ability to add true value to consumers while also driving frequency and desired purchase behaviors.

So, let’s look forward to a not-so-distant future in which we will all sit back while the bots do our shopping.

#2: Communities Will Find New Ways to Flourish

 In 2016:  Last year’s travels revealed that, even in our tech-driven culture, person-to-person communities are thriving around the globe. This is reflected in South Africa’s spazas, Brazil’s favelas, Shenzhen’s maker culture, and the social nature of global shopping days.

In The Year Ahead:

I will look for the ways in which the fundamental human need to connect and collaborate sparks new platforms and innovations.

Some suggest it will be the ‘year of the group chat,’ as people leave the increasingly corporate and drama-wrought spheres of Facebook and Twitter for smaller circles of virtual connections.

Because workers are people too, we will see the continued growth of enterprise-based communities like Slack. (Incredibly, the average user already spends 10 hours per day in app). While 2016 saw the office party go virtual, I wonder what other communal rituals might find online expressions in the year ahead?

The e-commerce sphere will continue to birth new commerce-based communities, like Amazon’s small-seller platforms, Handmade and Launchpad, and ShopClues, an Indian tech unicorn succeeding with a model that connects small-time sellers to rural communities.

And, I expect to see passion communities move from desktop to mobile, following so many other facets of daily life. This is something developer Amino Apps is banking on and investors are betting on their success.

Last year, seeing firsthand Detroit’s transformation from post-war auto hub to thriving tech town inspired me to think about how the digital world creates opportunities to reinvent community.

As we turn the page to 2017, retailers and brands – both established and emerging – will do well to think about how they can reimagine and facilitate communities for consumers craving authentic connections.

Best wishes for a healthy and happy new year to all. I’m off to get Alexa started on my to-do list…

China: Grocery Markets Are Thriving Online and In Real Life

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The Chinese grocery retail market is one of contrasts.

Shoppers have flocked online in the past several years, and the $41B Chinese e-grocery market is the world’s largest by a wide margin. Retailers of all sizes have taken note and are making big bets in this arena.

Despite the explosive growth of e-commerce, brick & mortar grocery stores still play an integral role. While over half of Chinese households do buy groceries online, a full two-thirds still say that going to the grocery store is a fun, engaging experience.

I experienced this thriving retail culture during my recent visit to Shenzhen & Hong Kong, and have four insights to share about the dynamic Chinese market.

#1:  Traditional outlets dominate, but global retailers are making strides.

The Chinese grocery market is highly fragmented, with the top ten retailers accounting for less than 7% of the volume. Domestic players have leveraged their nuanced understanding of local consumers to outperform global competitors in recent years, but the multinationals are making strides to catch up.

Larger retailers are succeeding by finding ways to make the western supermarket format uniquely Chinese. They are introducing live food offerings similar to those available in traditional Chinese wet markets.

Store: RT Mart

Store: RT Mart

Store: RT Mart

Store: RT Mart

Many are developing new food and beverage innovations tailored to local palates and events, such as Chinese New Year.

Others are even re-thinking their footprints and building flagship stores in large shopping districts so they can be integrated into the daily retail experience. 

Store: VanguardPhoto Credit: IGD Retail

Store: Vanguard
Photo Credit: IGD Retail

#2:  Hypermarkets are struggling while small formats are flourishing.

Convenience formats are booming in large part due to their ability attract young, middle-class shoppers who are increasingly affluent and time-pressed. Big box retailers who have experienced slow growth in larger formats are testing smaller ones, like Easy Carrefour and Tesco Express.

Store: Tesco ExpressPhoto Credit: IGD Retail

Store: Tesco Express
Photo Credit: IGD Retail

 Global and regional players alike are succeeding by adding western concepts like ready-to-eat and carryout options to these smaller formats.

Store: Metro My MartPhoto Credit: IGD Retail

Store: Metro My Mart
Photo Credit: IGD Retail

And, in a nod to the multi-channel landscape, some small format stores like Metro’s My Mart are attracting shoppers by serving as collection points for online orders.

Store: Metro My MartPhoto Credit: IGD Retail

Store: Metro My Mart
Photo Credit: IGD Retail

#3:  Retailers are using “store within a store” concepts to expand offerings.

Categories like wine, cheese, bakeries and coffee are relatively new in China. Savvy retailers are building these out as destination areas within larger stores, in the process attracting a growing segment of middle-class shoppers.

Others, like CRV’s Ole, are creating specialized sections of imported products – another relative newcomer on the Chinese grocery landscape – often grouped by country or cuisine type.

#4:  A focus on food safety creates loyal shoppers.

China has been hit by a wave of safety scandals in recent years, and grocery retailers are finding success by reassuring customers about the provenance of their products.

Large players like Carrefour are leveraging their sourcing capabilities to expand private label offerings that carry a safe halo and are marketing that to their advantage.

Startups like Farm Direct are finding success via vertical ownership of farms and retail outlets, which allows confidence in the safety of their products through control of the entire growth/distribution/retail process. 

Store: Farm Direct

Store: Farm Direct

Tech-savvy competitors like previously mentioned MyMarket offer systems like Star Farm, a food traceability system featuring QR codes that allow consumers to track a product’s journey from source to shelf.

Store: Metro My MartPhoto Credit: IGD Retail

Store: Metro My Mart
Photo Credit: IGD Retail

The Takeaway

In my travels, a recurring theme is that a deep understanding of local consumers and their tastes engenders success.

As I’ve written before, brands can be global in their values but need to localize quickly to maintain relevance in a global world.