Digitizing the Grocery Store

How brick-and-mortar grocery stores are up-ing their game to compete with online grocery options

Walking into a Ahold’s new concept grocery store – B Fresh – in Allston, I noticed little green lights in the corners of the produce pricing signage. Leaning in closer, I realized the price sign for the lemons display was actually an electronic device with an eInk screen (like a Kindle). Walking down the coffee and tea aisle, mini LED screens displayed the price for each product and a blinking light drew my attention to a sale on my favorite Yogi Honey Lavender Stress Relief tea. What a pleasant experience!

My chat with a bfresh team member: https://drive.google.com/open?id=0B2XTMCWKi–uSEFiYkRydWRjdlE


Example of an Electronic Price Label (EPL) at B Fresh in Allston, MA (11/17/16)

Apparently, LED and eInk signage has been in use in Europe’s more tech-forward retailers for years, but only recently are stores in the US investing in this technology. [i] What are the benefits of this technology adoption? And will this shift be enough to compete long term with the likes of Instacart and Amazon Fresh, which are luring millennial consumers away from traditional brick-and-mortar grocers?

Increasing Operational Efficiency

Considering the number of products sold by a typical grocery store and the sheer number of promotions that are constantly rotating through the product lines, it is easy to see how an electronic system for tracking product pricing changes is needed to maintain pricing accuracy at a check-out. According to Randall Stross, business professor at San Jose State University, “A typical grocery store puts 5,000 items on sale in a week and removes sale prices from another 5,000.”[ii] To keep prices up-to-date, grocery store employees must constantly print and post paper price labels and “SALE” flags on their shelves for the duration of a promotion and then change them when the items go back to full price. If the prices on the shelves don’t match the prices programed into the register, the store not only risks losing the customer’s trust but is also subject to consumer protection regulatory penalties.[iii]

Switching from paper price signage to EPLs may generate significant labor cost savings to grocery stores. According to EPL manufacturer Altierre, stores see a payback on the investment in EPLs in 12-18 months based on reduced labor costs and improved margins.[iv] Even if this payback estimate is optimistic, going digital creates additional value streams for grocery stores and creates a foundation for further innovation.[v]

Delivering on the Customer Promise

The B Fresh store concept is trying to appeal to the Instacart generation by curating products to appeal to young professionals, providing unattended delivery service (groceries are delivered in an ice-packed container that is retrieved the next day), and locating stores in densely populated neighborhoods.[vi] The digital element of their strategy includes the bfresh mobile and bfresh delivery mobile apps. Through the mobile app, customers can scan coupons at check-out and view the menu and order ahead from the store’s Little Kitchen prepared foods counter. In the future, the store may be able to guide customers through the store using “in store navigation” on their smartphones linked to geolocation technology in the EPLs manufactured by the Swedish company Pricer.[vii]

As grocery shopping becomes tech-enabled, the winners in the grocery business will likely be the retailers who endeavor to change customer habits the least. Offering customers a multi-channel shopping experience and adopting technology that enhances that experience – as B Good is doing – seems like a promising strategy to build customer trust and loyalty at a time when grocery shopping online is not the obvious choice for most consumers.

[i] Stross, Randall. “Digital Tags Help Ensure that the Price is Right.” New York Times, February 9, 2013 <http://www.nytimes.com/2013/02/10/technology/digital-tags-help-ensure-that-the-price-is-right.html> Accessed 11/2016.

[ii] Ibid.

[iii] A Massachusetts Consumer’s Guide to Shopping Rights. Massachusetts Office of Consumer Affairs and Business Regulation. <http://www.mass.gov/ocabr/consumer-rights-and-resources/consumer-protection/shopping/shopping-rights/shopping-rights.html>  Accessed 11/2016.

[iv] Soper, Spencer. “Amazon Showrooming Forces Stores to Go Digital on Price Displays.” Bloomberg Business Week, July 17, 2015 <https://www.bloomberg.com/news/articles/2015-07-17/amazon-showrooming-forces-stores-to-go-digital-on-price-displays> Accessed 11/2016.

[v] Williams, Geoff. “Meet the Supermarket of the Future.” US News and World Report, January 1, 2016 <http://money.usnews.com/money/personal-finance/articles/2016-01-01/meet-the-supermarket-of-the-future> Accessed 11/2016.

[vi] Harris, David L. “An Old Staples Gets New Life as a Hip Grocery.” Boston Business Journal, September 7, 2017 <http://www.bizjournals.com/boston/news/2015/09/07/an-old-staples-gets-new-life-as-a-hip-grocery.html> Accessed 11/2016.

[vii] Pricer Group, 2015. Case Study: Carrefour, Revolutionizing the Shopping Experience. <http://www.pricer.com/PressRoom/Case-Studies/Electronic-Shelf-Labels-for-Food-Retail/Carrefour-2/> Accessed 11/2016.


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Student comments on Digitizing the Grocery Store

  1. This post is really interesting, and in addition to some of your points, I could not stop thinking about the huge opportunity for efficiency gains grocery stores have, in addition to labor cost savings. Not only should this give grocery stores the ability to react much faster to market circumstances in terms of pricing, which should allow them to capture more value, but it should also allow them to test consumer behavior in a much easier way, considering all the technology you described is implemented. I would just be curious to get their insight on how they expect to attract more customers to the point of sale when the online shopping model for groceries is becoming increasingly more popular.

  2. Great post, Joanna! As something that we all frequently interact with, the grocery experience holds particular interest for the average consumer. I believe there is tremendous opportunity to create a differentiated grocery experience by leveraging technology the right way. Apoorva Mehta, a founder and the CEO of Instacart, mentioned during the Tech Conference a couple of months back that the online shopping model has attracted less than 5% of the market. This may indicate that shoppers are reluctant to shift online for any number of reasons (e.g., they prefer to hand-pick produce themselves). This customer reluctance can’t be viewed with complacence by traditional grocers but instead must be viewed as a critical opportunity to transform the customer experience, further deepening relationships with customers. Creating a better customer experience includes integrating technology into the in-store and out-of-store experiences, and it sounds like B Fresh has launched some interesting initiatives to do this.

    Another thing that grocers are doing is leveraging the data that they collect on customers through loyalty programs to offer customized deals (e.g., collect triple the points on peanut butter, a product that “similar” customers have purchased). One grocer that has done an excellent job at this is Loblaws, Canada’s largest retailer (http://www.itbusiness.ca/news/loblaws-digital-pc-plus-loyalty-program-expected-to-add-hundreds-of-millions-in-revenue/50396). Of course, these strategies can be copied by online players like Instacart in the future, but if traditional grocers like B Fresh augment their existing services with effective digital technologies, they may be able to capitalize on customer reluctance to switch online for a little while longer!

  3. Fascinating post, Joanna. When I moved here I was surprised by how popular online grocery shopping was, because in Japan people (the older generation especially) avoid shopping online for fresh produce because they like to handpick it themselves, as Hugh mentioned above. I think there also is a sense of distrust towards the people picking up the grocery, thinking the stores would send the less fresh goods to the delivery customer. I think the business model B fresh has is optimal for cities like Boston, with young students and professionals as their main customers, but I am wondering how feasible it is to spread the business elsewhere with an older population. Perhaps a delivery company could start a service to live stream the pickup service so if needed, customers could have a say in which produce to pick. Overall, very interesting!

  4. Thanks for the interesting post! At first, I felt quite interested that the B Fresh changed to the new electronic displays, but when I read that every week they need to change price for more than 5000 items, I realized that how this small improvement would have a huge impact on the operation of supermarkets! For the second part about the APPs, besides the “in store navigation” service, actually there are some supermarkets experimenting the pushing advertisement function to increase the interaction with customers when they are shopping. In addition, I believe that if they can also demonstrate that how to use the products (ex: recipe or cooking video), then maybe customers will be even more interested in buying the promoted products.

  5. Hi Joanna, thanks for posting this. I had heard of B Fresh and wanted to check it out in person, but I wasn’t aware of the digital pricing screens they had. Grocery has long been able to resist some of the impacts of modernizing shopping habits/demands, with the regular grocery trip being so essential to everyday consumer life. But, Grocery has long been a low margin/high volume business, and a hugely labor-intensive business, so as others have pointed out a digital pricing mechanism could be huge, particularly in a small footprint store where perhaps carried items rotate more frequently. Being able to more cleanly and quickly update and track pricing changes will be really beneficial for stores like B Fresh going forward.

  6. Thanks for sharing Joanna. I’ve always been fascinated with how grocers are thinking about competing or partnering with businesses like FreshDirect, Instacart, Postmates, etc. While I think there’s opportunity for B Fresh to increase it’s in store efficiency using this technology, the long term reality is that the traditional brick and mortar grocer is on the decline as consumers are becoming more and more comfortable shopping for food online. B Fresh seems to have created their own in house delivery system (shop.bfresh.com/en/p/delivery). This seems like a sound strategy but as a on demand delivery labor becomes increasingly competitive, this may also be unsustainable.

  7. Fascinating use of digital pricing we just learned about in marketing! This is a great way to simplify in-store pricing processes and decrease labor costs, as you mentioned. I’m curious if the EPL manufacturer’s estimate for payback period is representative of grocery stores’ experiences with the technology – given the high cost of installing this technology and training staff to use it, I would be surprised if the store started seeing returns on investment in one year.

    On a more positive note, I think this could be an interesting platform for coupons. If the in-store pricing system is linked to a customer’s mobile account and is aware of a customer’s purchase habits, coupons can be automatically pushed onto the customers’ mobile device to promote products that the customer hasn’t purchased in a while or try to entice the customer to switch brands. Whenever a discount is available, I’m sure the customer would be happy to hear about this without having to flip through coupon books!

  8. Interesting post! As Hugh mentioned, if this can create more customized coupons through the digital screens for different customers (using LBS information), customers will benefit as well in this process.

    I am also interested in how this digitalization of price information will help the supermarkets to manage inventories and reduce waste. This post reminds of the TOAST app Nick wrote about on the POS system. If supermarkets can collect the data real-time including the price information, actual quantities sold at the check-out, loyalty customer purchasing behavior, and etc, they might also be able to run a dynamic analysis of the supply and demand model with consideration of inventory turnover to adjust price frequently. And in this way, supermarkets can further reduce cost of labor time, make quicker and smarter decisions on inventory purchase, and in the end offer even fresher and better value products to consumers. It seems a “win-win” situation.

  9. Nice post, Joanna! We have seen a lot of digital changes in the grocery industry, but I never would have thought that the changing paper pricing signage to EPLs could generate significant cost savings as you mentioned. Thanks for writing about it! Like some of the others have mentioned, I do worry if some of the changes B Good has and is planning to implement will matter in the long-run. More and more grocery delivery services are being used these days as the idea of an “on-demand economy” strengthens, as consumers tend to value their convenience and ease. It will be interesting to see what levers B Good can pull to defend itself from rising online competition.

  10. Awesome post, Joanna! When you mentioned the cost savings that could come with the use of electronic price displays, this got me thinking: What if all of the digital pricing signs could be controlled from a B Fresh command center? This command center could autonomously monitor commodity prices worldwide, and update the pricing displays to the correct price given local supply and demand dynamics. This would likely reduce the bullwhip effect in the B Fresh supply chain, especially if the displays had some way of measuring how much of each fruit, for example, was removed from the display every minute (or second). Match this innovation with robots to stock the shelves, using self-checkouts exclusively, and an army of industrial Roombas, and perhaps the only employee you’d need to hire would be the security guard.

  11. Hi Joanna, cool post. With digital price labels, I couldn’t help but think how grocery stores could take advantage of “price customization” (i.e. price discrimination). For example, could prices increases late at night when competitors have closed for the day? While prices have increased, it could benefit consumers by having their local grocery store open for, let’s say, 1 hour which was made possible by incremental revenue.

  12. Thanks for the post, Joanna. Beyond what has been written above, another interesting dimension of our new local BFresh is the location, as you mention in your post. One nuance is that these new urban locations operate with significantly less square footage than traditional Ahold stores (Stop & Shop, GIANT, etc.). In addition to densely packed shelves, one implication is that these stores have minimal warehouse space. As far as the operating model is concerned, I imagine this has broad/deep effects on inventory management (e.g., safety stock) and the supply chain. As an example, the company may need to deliver goods on a daily basis in order to keep the shelves stocked, which requires increased coordination between suppliers and vendors. Perhaps the company leverages the point-of-sale (POS) data on a real-time basis to maintain appropriate inventory levels?

  13. Fascinating post. I wonder if B-fresh can leverage it digital price indicators to practice more real-time pricing that will help manage inventory and better match supply/demand. “Price discrimination” as we have discussed in Marketing… For example, when the store has very low inventory on a certain item, say bread, they can more readily adjust the price up to keep bread to extract maximum value for the highest WTP consumers versus being out of stock on bread.

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