Robotics, artificial intelligence and digitalisation are megatrends in the grocery business too. Digitalisation is improving business opportunities and changing retailing structures. This has broad implications, not just for the sector but for society as a whole, since retail is Finland's biggest employer, says Taavi Heikkilä, Chairman and CEO of SOK.
– Digitalisation means better services for customers. It will enable new ways of matching supply with demand. Digitalisation will perhaps affect retail more than any other sector. The media and the banking sector are also at the forefront.
Although digitalisation initially brings online shopping to mind, it goes far beyond that. Heikkilä divides digital development into three main areas. In the middle is a multichannel service, combining the Internet with bricks and mortar. And the reverse. Various mobile services are connecting to online stores.
Another key area is a personalised, datadriven service, through which technology enables the more personal targeting of marketing, product selections and services. The third area is the efficiency of the entire value chain, which is improved by digitalisation. It is all about achieving the smoother movement of information and goods.
– All of these main areas are being developed continuously, agilely and in stages. The development efforts involved are not necessarily mega projects.
For customers, digitalisation has brought benefits such as cross-border, international e-commerce. For S Group, the Sipoo logistics centre, in which robotics are being widely used, is a digital project with an impact on the value chain. Machines do the heavy work. Heikkilä points out that, with its Sipoo investments, S Group was seeking efficiency, cost savings and security of supply.
– In addition, finding workforce for a traditional manual logistics facility was becoming difficult. It was easier to find workers for physically lighter work that required new skills. Half of S Group's goods now flow through Sipoo and next year all of them will.
The multichannel model is a hot topic
– In Finland and the wider world, all major retailers are moving towards a multichannel model and investing in both bricks-and-mortar and online stores. In the US, the world's largest retailer, Walmart, is buying online stores. Amazon, the biggest online retailer, has bought the large American bricks-and-mortar player, Foods Market. Both giants have the same strategy, viewing a bricks-and-mortar/online store combination as the best business model.
S Group is still taking its first steps in eCommerce, which accounts for only 0.4 percent of its grocery sales. Even with this figure, S Group is Finland's biggest online grocery retailer. On the other hand, growth is strong: 50 percent in the first half of 2017. The figures for international players are not stunning either, accounting for only a five percent share. Volumes are already bigger for non-food consumer goods: 5–10 percent. This is also the case for S Group.
– However, growth continues, says Heikkilä, who would rather not speculate on percentages.
On the other hand, Heikkilä also explains that online grocery shopping is not a big business. The British Tesco, which has been doing this for twenty years, has yet to make it fully profitable.
– Cold chain management is problematic and distribution costs are a challenging equation given the low margins involved. However, online commerce in non-food consumer goods is fairly profitable.
Better understanding of the customer than before
For Heikkilä, it is clear that business model experiments of various kinds are becoming more common. One approach involves bundling supply and demand. In the case of hotels, for example, the offering is gathered onto a single platform, from which the customer can choose. The actors do not run the business themselves, but serve as a platform and take a commission. Retailers have to choose between participating in the bigger platforms, or creating their own to which they attract other actors.
– Thanks to digitalisation, we understand our customers' needs better and can optimise selections and services, and provide personalised products. This provides a new approach to the development of product selections.
– We also enable customers to do business with us in the way they prefer. This is made easier by the full range of bricks-and-mortar goods being available online: product details, recommendations and background information, in order to make the retail choice as easy as possible. Products can be ordered and collected using a click & collect application – the goods are purchased online, but collected from the shop or delivered directly home.
Customer data creates great opportunities. Customers accumulate a huge amount of data when shopping and can choose whether to benefit from it. This enables the provision of more information to customers.
– In a grocery store, customer data defines the basic shopping basket. If the customer wants a healthier or more responsible choice, we can offer alternatives on the basis of different mobile applications. S Group also uses an electronic receipt. Digital data on bought goods is stored and the customer can check what has been purchased at any time. Digital product warranties are also in use.
– The ABC chain offers mobile refuelling. The customer pays from the car with a couple of clicks, fills up the tank, and jumps back in. Mobile refuelling has spread throughout Finland and has been well received.
Robotics can also be found in non-logistics areas such as invoice processing in financial management. In pricing, artificial intelligence helps in deciding how to optimise petrol prices, Heikkilä points out.
Energy savings of up to 30 percent
Responsibility has become a bigger issue in business, and is not a negative value in terms of cost-effectiveness.
– We have done a huge amount of work on energy issues, for example. Cooling devices can be adjusted more effectively to save energy. This reduces costs as well as being environmentally responsible. A total of 60 percent of the energy S Group uses is based on wind power.
– We also test and experiment with other forms of energy. A good example is the Tuira S-market – the world's most energysaving grocery store – built alongside VTT. There will be more experiments of this kind. S Group aims to reduce its overall energy consumption by 30 percent by 2030.
Jobs may be lost
How will technological solutions change the nature of work? The economists David Autor, Frank Levy and Richard J. Murnane believe that physical and non-routine work requiring a great deal of thinking will survive the technological revolution. Researchers believe that lowpaid workers will be protected because replacing them with technology is not cost-effective. Heikkilä recognises this phenomenon in the retail sector.
– That is probably the direction in which we are moving. The development of artificial intelligence has so far left work involving a great deal of thinking to people. However, the scope of AI is continuously widening.
– On the other hand, new types of work are emerging, such as mobile application development.
The Finnish Grocery Trade Association predicts that the amount of work will fall by around a percent, i.e., marginally. At S Group, the situation is the opposite: its number of staff grew by a hundred in early 2017.
– We believe that retail will continue to be the biggest employer.
The most energysaving supermarket is in Finland
Renewable solar energy even enables the occasional disconnection of the
shop’s cold chain from grid electricity. (Tuira S-market in Oulu)
The world's most energy-efficient supermarket consumes only 40 of the energy of a normal grocery store. It has been created in Oulu under the leadership of VTT.
Implemented in collaboration with S-Group, the new solution is saving the retailer around EUR 180,000 in energy costs. The technology is now ready for use on commercial premises in general.
– On a sunny day, half of all electricity consumed by the low-energy supermarket may originate from solar panels installed on the roof, says Project Manager and solar power plant designer Klaus Känsälä of VTT.
In addition, energy use can be managed by levelling out consumption spikes on the power grid. Renewable solar energy even enables the occasional disconnection of the shop's cold chain from grid electricity. For example, the mornings, when energy prices are low, are the best time to store kilowatts for later use.
– In this energy-saving pilot supermarket, annual electricity consumption totals 240 kWh per square metre, which is close to the consumption of a normal residence, whereas a standard grocery store consumes 600 kWh a year, says Seppo Jakola, Premises Manager of the regional retail firm, Osuuskauppa Arina.
– We are interested in the capability to control the shop's power consumption. We believe that we can lower both S-Group's power bills and carbon dioxide emissions by adjusting power consumption, says Mikko Halonen, Managing Director of S-Voima.
If all grocery stores in the S-Group chain consumed 240 kilowatt hours, their electricity consumption would halve, says Känsälä.
The project is part of the larger VIRPA programme. In addition to VTT, the University of Oulu and, from the private sector, Fingrid, S Group, Rejlers, Jalecon, Jetitek, Green Energy Finland, Fidelix and Emtele are involved.