Alain Dumas, General Manager of Le Panier Bleu, joined us for a virtual interview where he shared his vision for the future of grocers after the pandemic. Dumas has more the 32 years of experience in the retail sector, including many years as Senior Director of Digital Strategy at Sobeys and as Vice President of Marketing and Digital Strategy at Aubainerie. During the interview, he highlighted the extraordinary work of employees who have continued to deliver products and services to the public despite risks to their health, and discussed the significant changes that have shaken up the grocery and food industries.
Since the start of the health crisis, what major problems have grocers been facing?
Actually, the problems have been varied. In 2003, during the SARS outbreak, we worked with the Ministère de l’Agriculture, des Pêcheries et de l’Alimentation du Québec (MAPAQ) to carry out a pandemic simulation exercise. Most of the challenges I see at the moment are those we identified during the simulation:
- Labour issues
- Difficulties related to indoor hygiene
- The explosion of ecommerce
- Supply problems
Under normal circumstances, stores could have operated normally and probably managed to fill the growing number of online orders. What happened was, we had a string of bad luck. Everything happened at once. As a result of the pandemic, sales surged online, but also increased by 30 percent in stores. Plus, employees began to get sick. Online orders could well have reached 6–7 percent of sales, but in-store purchases would still have accounted for 93 percent.
What decisions have grocers made to overcome these challenges?
I think grocers have responded quite well, all things considered. However, it’s much easier to adapt in-store procedures than to make changes to your ecommerce system or supply chain. For instance, in a few days, you can implement social distancing measures for customers and employees, install plexiglass, stick directional arrows on the floor to alleviate aisle traffic, limit the number of in-store customers, etc.
On the other hand, it’s more difficult to adapt when orders surge and reach the numbers you thought you’d only see in five years. The result is a lot of problems with the ecommerce system, delivery system, IT and logistics infrastructures, etc.
Supply also comes with certain risks. For example, when everyone started buying toilet paper, stores had to find a solution to avoid stock-outs. To guarantee that they could meet demand, some grocers had to turn to bigger suppliers and offer fewer choices in-store.
What other quick steps can grocers take?
There are many things they can do. IGA has launched a new ecommerce site with a smaller range of products available to purchase online. It has several benefits:
- Reduces traffic on their main site
- Offers more targeted products that are guaranteed to be in stock
- Makes it possible to standardize online orders so they’re easier and much faster to prepare
Grocers can also modify their delivery schedules to give the employees who prepare and deliver the orders more flexibility. Often, delivery windows span only 1–2 hours, but now, people are bound to their homes and available anytime. For example, orders could be delivered all day on Mondays, Tuesdays, and Wednesdays.
Furthermore, grocers can set up an advanced automated dispatch system to efficiently manage their deliveries and optimize routes to avoid needless round trips.
What strategies can be implemented to help grocers manage these complex issues?
They could adopt a somewhat hybrid approach. For instance, a grocer could take advantage of an empty space or a store located in a large urban area and turn it into a local distribution centre. It could be used to stock their store inventories and assemble orders. About 50–60 percent of orders in Quebec come from the Montreal area. So, it may be more efficient to serve regions with high population densities from one centralized location.
Certain steps can also be taken to facilitate systems management:
- Reducing the number of products available online
- Adequately managing store inventory to guarantee the availability of certain products
Offering an extensive range of products isn’t a bad thing. However, in times like the COVID-19 pandemic, customers no longer expect the same level of service. Online grocery stores could have gone from 25,000 to 5,000 products and no one would’ve batted an eye. With catalogues of 20,000 to 30,000 products, online stores can also be very difficult to navigate. In addition, 75 percent of each online order is identical from one week to another.
Grocers shouldn’t offer too few items, either, as the consumer may feel restricted in their choices. One way to simplify the shopping experience could be to feature a selection of best-selling products, and then supplement it with the remaining items.
Do you think online grocery shopping will persist? In other words, do you think people who tested it out during the COVID-19 crisis will continue using the service or go back to shopping in stores?
It’ll take a little longer for some people to ease out of isolation, but I think the reopening of stores will create a kind of consumer euphoria that will draw people back. That’s the impression I get.
It should also be noted that online grocery shopping is very cyclical and follows the seasons. Summer usually isn’t a good season for it, because people aren’t shopping the same way. What’s really helping ecommerce right now is that people can’t walk into a store whenever they please. They have no choice but to go online. The day they’re no longer forced to shop from home, I think online sales will drop, especially during the summer.
An indirect effect of COVID-19 is that customers have been taught how to do their groceries online. The process can seem complicated at first, but gradually, it becomes easier. Products purchased on a regular basis are saved in a separate database, which allows customers to complete an order very quickly. Some consumers will therefore continue to shop online because they’ve gotten used to it and can immediately find what they need. At the moment, shoppers may also be more tolerant of potential errors because they know that these are exceptional circumstances. As consumer behaviours change, we’re going to see growth. Will it be significant? Only time will tell.
Grocers have taken action in response to the pandemic, but now it’s time to prepare for the future. As a grocer, what are my goals for the coming months, or even years? How should I transform my business to ensure it bounces back more quickly in the event of another crisis?
I think grocers are well positioned right now to develop models based on different order volumes and figure out the tipping point, where in-store assembly becomes impossible. Do a post-mortem and determine the number of online orders that can be efficiently processed in-store, identify the best way to process these orders (in the evening, at night, etc.), and make a plan addressing all possible variables.
Some regions, namely outside Montreal, have been less affected by the increase in online orders. These areas are likely able to meet demand and deliver on time because they receive a manageable number of orders. By determining the locations that are unable to manage the increase in volume, grocers can immediately implement the measures discussed above: set up a warehouse or reduce the number of SKUs. Having a contingency plan will allow grocers to ensure that they can manage demand effectively in the event of another pandemic.
Once COVID-19 subsides, I think it would also be interesting to survey customers to find out their impressions. There’s an enormous amount of data available that can help grocers position themselves for the future and prepare for the unexpected, whether it’s another pandemic or a sudden spike in orders due to a snowstorm.
If I were a grocer, that would be first on my list.
What type of technology is needed to implement these programs and tailor them by region?
I would probably recommend developing five models and finding a platform that can support all five. For example, you could have a centralized warehouse for a region like Montreal and fulfill orders in-store for smaller regions like Abitibi-Témiscamingue. I even saw a grocer in Europe who kept fresh produce in the store and non-perishables stocked in an automated mini-warehouse in back.
The logistics would be different, but normally the same ecommerce platform can be used everywhere. For example, the store with the mini-warehouse needs to divide orders into two categories: fresh produce and non-perishables. The logistics are different, but the same product database is always linked to the assembly point.
The user interface must remain the same. If the store changes its business model, upgrades to a higher speed, or switches logistical tools, these updates must remain transparent to the user. They shouldn’t notice any difference, and the interface can be the same for all solutions. However, the system behind this interface needs to be very versatile and modular to integrate all these different logistics platforms.
Is now the right time to invest in transforming your business, or is it better to wait a little longer?
I’d say that COVID-19 has woken up a lot of people. What’s unfortunate and unique to the industry is that small businesses have reacted better than larger ones because they’re more agile and can act faster. Take Hector Larivée, a food wholesaler in Montreal. It launched an online grocery service at the onset of COVID-19 with a single warehouse for deliveries in Montreal. After creating a very simple application, the company started selling online and immediately found itself competing with grocery stores.
Problems arise for large grocers when they try to connect their internal systems, like their SAP, to their ecommerce system. Their online sales platform becomes quite clunky compared to those of smaller, more agile businesses.
I strongly believe that these systems need to be modular. Each system has its own strength. You need to bridge the modules, but not connect the bridges themselves. Rather than being directly linked to a product database, like SAP, the information should be stored in a separate location and retrieved by the ecommerce platform as needed. That way, any changes to the database won’t affect the ecommerce platform. Plus, if modifications need to be made to the ecommerce SAP, there’s no need to butt heads with the IT team, who may not want you touching their software.
I believe this is a recurring problem for large companies. Everything’s been put in place to optimize systems with maximum integration, which is ideal in a predictable environment. However, as soon as these big businesses want to change something, they fall behind. They say, “We can’t do that, it’s too expensive,” and in the meantime, smaller companies beat them to the punch.
You need to continuously update your platform to meet market demands. It used to be that when retailers switched to a new IT system, they knew they were set for the next 20 years. That’s not how it works anymore.
Grocers aren’t the only ones affected. I’ve seen the same thing in other retail businesses, like apparel. IT teams instinctively want everything to be synchronized with the master system. But with a master system, you have to worry about the weakest link. Generally, master systems are the least agile. They slow everything down.
Evidently, it’s important to have systems that are much more flexible and independent of one another. They need to work together, but also autonomously. Theoretically, this is where grocers should be focusing their efforts.
Beyond IT logistics and infrastructure, are there any tools, apps, or processes that can help grocers save time and simplify the exchange of information?
As far as costs are concerned, there’s nothing more efficient than having an automated warehouse in charge of assembly. Assembling orders in-store adds logistical costs. Even if you try to standardize and automate the process, instead of making 5 percent, for instance, you’ll make 3 percent. What’s more, studies have shown that people buy more discounted items online than in stores because it’s easier. Customers are also less likely to buy additional items when shopping online. Dropping from 5 to 3 percent may seem negligible when only 1 percent of sales are online, but as ecommerce sales grow, profit margins decrease.
An easy solution is to charge different prices online versus in stores. If you use a different banner online, you won’t affect your store’s brand image. That means you can adjust your online prices and the public won’t be able to compare them to those in-store or in flyers. It’s also important to have dynamic commercialization processes as consumers fill their baskets to ensure that the order is profitable by the time they reach checkout.
I think the online grocery business model needs an extensive overhaul. It should be a parallel service with its own commercialization process. It shouldn’t mimic commercialization in stores.
If there are issues with the brand and you can’t launch an ecommerce site under a different banner, there’s always the possibility of adding packaging and delivery fees to reflect the prices in stores and flyers.
Will the current crisis drive people to buy more local products?
Right now, with consumers confined to their homes, there’s a heightened awareness of the importance of buying local. It’s a trend that we’re seeing all over the world. I’m optimistic that people will be more informed.
Manufacturers also have a big role to play. They need to clearly indicate that their products are from Quebec, and so on. Right now, there’s a broad sympathy for local businesses. But once people return to their normal lives, their sympathy might fade. The best strategy is to give them constant reminders.
Do you think grocers covering many regions or countries should use a shared platform, or should they have different systems depending on specific needs?
In terms of general systems, such as SAP or ERP, standardization is definitely beneficial, as it allows you to have a uniform structure for invoicing, supplier agreements, etc. For ecommerce, I would also choose a uniform approach, with the same system in different countries.
For everything related to managing and fulfilling orders, using the same system is best. Logistics would be different, but a system that can handle 10 or 15 permutations will likely cover all logistical methods.
Are any other trends emerging?
There’s definitely going to be a pre- and post-COVID-19. It’s difficult to say exactly what will happen. I don’t want to say that cash is dead, but the pandemic and the popularity of contactless payments have dealt a blow to cash transactions. The other day, I was at a convenience store and the debit card reader didn’t work, so I had to pay cash. I was lucky to have some money on me—it must’ve been months since I’d last paid cash. The employee had to give a heads-up to all the customers coming in.
I think this trend will continue. It’s likely to stick because people have gotten used to it.
The “buy online, pick up in-store” option is also quickly gaining popularity.
In the food industry, I’ve seen a lot of players start to invest more in online grocery solutions. For example, there are companies that used to sell only meat online that have added other grocery items to their offering since the outbreak. The number of online grocery options has increased significantly, and they won’t disappear after the pandemic. Large grocers will have more and more competition from these smaller players.
This also creates an opportunity for manufacturers. Distributors and grocers have the upper hand when it comes to negotiating with suppliers. It could be worthwhile for suppliers to explore these parallel networks. They might be able to negotiate a better return. I get the sense we’re going to see an increasing number of parallel grocery distribution networks.
Also, we can’t forget that many restaurants have begun offering delivery during COVID-19. They’re a new competitor for grocery stores.
As I mentioned earlier, big grocers have become very cumbersome due to their optimized systems, and their suppliers are being forced to operate in the same way. Suppliers shouldn’t lose sight of the new business models that are emerging. They can dedicate some of their research and development resources to doing business with these small companies. The competitor that hits grocers the hardest won’t be another big grocer, but a new player who comes out of left field and does something completely new. For years, manufacturers like Procter & Gamble have been looking for ways to sell directly to consumers. It’s important to keep investing, because there’s enormous potential!
During this period, have any major grocery retailers taken steps to transform their business model? If so, have they gained a competitive edge over those who are more resistant to change?
I think everything will become clear after a COVID-19 post-mortem. At the moment, sales at Sobeys are growing, and I’m sure they’re putting all their resources into managing demand. Now is not the right time for an overhaul.
Some grocers are also trying to offer ready-to-cook meal kits to compete with companies like Goodfood and HelloFresh. However, these companies are too big. They would need to continue operating these divisions in parallel, like start-ups.
In the past 20 years, major distributors in Quebec have seen their market share decrease from 84 to 68 percent. Their instinct is always to optimize as they seek to generate the same volume and the same return on investment. But at the end of the day, new sales are being lost all the time.
Pharmacies in Quebec have started to sell food. Loblaws bought Pharmaprix. They thought, “Rather than being a competitor, let’s become a supplier.” Metro bought Jean Coutu, Première Moisson, and Adonis. When they see burgeoning niche businesses, they buy them.
There are more and more parallel networks. What we’re experiencing in Quebec is also happening elsewhere.
In Europe, is there also a trend toward ecommerce?
I can’t fully assess their model, but from an outsider’s point of view, it looks like they’re able to create a lot of growth by exporting their business model elsewhere. That’s more difficult to do here, in Canada and the United States. Carrefour is also in South America and other countries. They have considerable potential abroad. That undoubtedly affects their model a bit.
I know that in France and England, ecommerce is an endless war between big retail chains. These countries, particularly England, are very advanced when it comes to ecommerce.
Do you have anything to add that we haven’t touched on?
I think another major problem that will hinder online order fulfillment in-store is the labour shortage. Employees must be available to process in-store pickup orders. That’s where an automated or robotic distribution centre becomes a powerful tool. Stores will need to work hard to find all the resources they need, especially if they want things done right.
Going forward, human resources will remain a problem for all industries. Ecommerce will probably be affected as well. Businesses will need to invent sophisticated assembly line and logistics methodologies to prepare multiple orders at the same time and reduce the number of resources.
An employee has the advantage of being able to make quick decisions when problems arise, like choosing a substitute product. However, some systems are now able to effectively manage product substitutions. For example, if a customer buys a 1 L soft drink, but an inventory problem occurs, the system will replace it with a 2 L soft drink from the same brand. What grocery stores want to avoid are repeat deliveries, because that’s where they lose money.
