Technology Innovation Strategies

There is no question that recent innovations in technology have had a measurable impact on food retail as we know it. Smart retailers have leveraged technology in countless ways as a business strategy to better their marketing, information technology, payment and promotions functions, among others. Let's take a look back at the most influential tools that emerged last year.

Mobile commerce stakes a claim

There is likely no segment of digital media that experienced the hype (and yes, growth) that mobile technology enjoyed in 2013. Not only did 2013 bring more mobile-optimized web sites, a host of mobile retail apps and a boon in digital marketing, it took us one step closer to the promise that many believe mobile commerce will deliver.

Many experts point to 2013 as the year m-commerce got the attention it appears to deserve. According to an April 2013 study by e-marketer.com, mobile commerce sales are expected to increase 82 percent, from $24.81 billion to $38.84 billion. By 2017, the study estimates m-commerce will generate more than $108 billion in U.S. retail sales.

Smartphone penetration in the U.S. hovered at around 68 percent last year, according to payment processing firm First Data. Its penetration among millennials? About 80 percent, says First Data. Many experts say that though mobile commerce has been slow to reach the grocery channel, the time is now to dip a toe in the water.

"One out of every 10 consumer e-commerce dollars is now spent using either a smartphone or a tablet, and growth in this segment of the market is outpacing that of traditional e-commerce by a factor of 2x, which itself is growing at rates in the mid-teens," comScore chairman Gian Fulgoni said in a statement in August 2013. "Any channel shift has the potential to be disruptive to established revenue streams, and it would appear that m-commerce spending has reached enough of a critical mass that key stakeholders must begin to address this new market dynamic today or risk losing competitive advantage."

All of that activity poses the question of payment, and both shoppers and retailers struggled to identify a mobile payment system that worked best for them. Mobile "wallets" are plastic cards or smartphone apps that both store value and serve as conventional credit and debit cards via a third party, often for more than one retailer.

"While consumers and merchants remain intrigued by mobile wallets, no single solution has emerged victorious," says principal analyst Jason Armitage, co-author of Boston-based Yankee Group's report, "The Secrets to Mobile Wallet Success." "As a result, the market is characterized by a multitude of mobile wallet vendors vying for dominance, with a dizzying number of available offerings. As the market matures, solutions that deliver actual value for consumers and merchants will proliferate, and clear winners and losers will become more apparent."

Social media is alive and well

The buzz about social media remained loud last year, as retailers and CPGs continued to learn how to leverage social media to further engage their customers. Strategies include using social media to spot emerging trends, measure promotional impact, avoid complaints and get ahead of poor performance, according to a Montvale, N.J.-based Beacon United study, "Social Media and Voice of the Customer as Competitive in the Grocery Category."

"By listening to what customers, industry influencers and potential clients are saying on social sites, brands tap into valuable demographic info–and they also have a chance to create responsive content that nurtures leads where they're already active online," says Katherine Griwert, who studies search engine optimization, social marketing and new media for Boston-based ContentLEAD.

Online promotions, especially when collaborative, have proven to be a powerful tool. In 2012, Tyson faced an overproduction of their chicken nuggets and had to sell the excess inventory by the end of the year. Tyson partnered with Sam's Club and, with the help of two media agencies, launched a campaign called, "Why Should Cookies Have All the Fun?"

Product demonstrators in Sam's Club outlets showed shoppers how Tyson nuggets could be decorated and arranged with other foods to form holiday images like a reindeer with a nugget head and baby carrots for body and legs, or a Santa Claus with Hidden Valley Ranch (another partner in the promotion) dressing for a beard. The pictures were featured on Tyson's Facebook page, consumers started sending in pictures of their own ideas, and the concept snowballed.

"It was viral. It took fire. People really engaged in the brand and loved it," said Wendy Jean Bennett, Tyson's director of customer marketing. "In fact, when you Google-search Tyson chicken nuggets a year later, those pictures still come up." The results were nearly 9 million impressions and a 42 percent boost in sales, which used up the excess production.

The question of ROI still remains, however. According to a September 2013 survey of CIOs by Chicago-based Grant Thornton, while 26.1 percent of CIO respondents saw social media as either very important or important for advancing business strategies, only 6.4 percent of respondents thought its use enhanced the bottom line.

Online, in-store–or both?

As during the year prior, there was no shortage of news about the future of food retail in 2013–particularly the familiar questions about the ultimate fate of brick-and-mortar versus online and hybrid retailers. A number of new players also entered the fray, most noticeably Amazon.com's AmazonFresh home delivery initiative, which expanded beyond Seattle last year to Los Angeles and San Francisco.

"Across all categories of goods, shoppers are buying more and more online both from desktop and mobile devices," says Rich Nanda, partner, consumer products at Deloitte. "In the last 10 years, e-commerce's average rate of sales growth has been over 19 percent, taking e-commerce to a 5 percent share of total U.S. retail sales. Shoppers are increasingly comfortable with digital commerce. What's more, many shoppers now prefer the digital commerce experience to the in-store experience."

Though comparisons are commonly made between online commerce in food versus apparel or hard goods, Deloitte has found that grocery shoppers are increasingly invested in online purchasing.

"Consumer survey respondents stated that 10 percent of their online food, household consumable, and personal care purchases over the past year had been completely new–that is, purchases that they would not have made at all had the online purchasing option not been available," says Nanda. "Digital is creating new shopping trips and usage occasions. Even if only half of this potential incrementally is realized, it would be a staggering growth opportunity."

To be sure, shoppers perceive specific pros and cons related to online shopping, with delivery being a consistent sticking point. In "The 2013 CPG Digital Commerce Study," Deloitte researchers found 56 percent of consumers were unwilling to pay for same-day home delivery. In addition, more than 85 percent of consumers were also unwilling to pay for same day in-store pickup (or "click-and-collect").

The click-and-collect concept, already popular with European retailers like Tesco and Asda, gained ground in 2013. The model allows shoppers to purchase their goods from the retailer online and then arrange for pickup at a predetermined location.

In "U.S. Grocery Retailing: Top trends shaping tomorrow's landscape," author Sandy Skrovan, U.S. Research Director, Planet Retail, identifies click-and-collect as one of 2013's clear innovations. "It was bound to happen – we view the AmazonFresh rollout as a huge game-changer, disrupting existing grocery models. We forecast click & collect services to accelerate and the drive concept to gain legs. Retailers will need to rethink their go-to-market strategies."

Understanding the shopper and his or her buying habits remains as critical for retailers as ever. "The time-shifting ability to shop online is one of the most important soft benefits associated with click-and-collect," says Bill Bishop, Click Meets Brick. "It allows consumers to shift when they make decisions about purchases to a time when they can be more deliberate about it."

According to the Food Marketing Institute report "Food Retailing 2013: Tomorrow's Trends Delivered Today," online grocery sales will exceed 10 percent by 2025. Certainly most retailers are struggling to achieve the perfect balance of brick-and-mortar versus online commerce for their shoppers, no matter what the future holds.

The mysterious cloud

2013 was the year that the phrase "the cloud" became an everyday part of our business conversation, at least for those of us who are not meteorologists. Though nebulous (pardon the pun) is a fair description of many professionals' initial understanding of the concept.

Essentially the cloud is an off-site network of connected devices that makes information accessible to those with the proper credentials in multiple locations and via multiple devices. Placing software or data "in the cloud" simply means that the information no longer resides on your in-house servers, but instead is hosted by a third party responsible for its integrity.

Retailers are faced with the strategic decision to keep their digital assets in-house or turn to any number of providers to find out what type of cloud works best for them. With recent events about cyberhacking being what they are, data security is understandably top of mind. Some experts go as far as to predict that cloud security is the next logical addition to enterprise risk management.

"Everyone has questions about cloud security in today's business environment: 'Can the government see my data?' 'Can my competitors hack in?' With strong security controls on the vendor and user sides, we can minimize these concerns," says Grant Thornton's Matthew Thompson, managing director, Governance Risk and Compliance.

In the "2013 Grant Thornton & TechAmerica CIO Survey," researchers found that the notion of a "private cloud," where a company's cloud sits behind the protection of its firewall, to be gaining in popularity. Other solutions include hybrid models that combine the security of in-house systems with the functionality of the cloud.

Stepping up cybersecurity The retail world was rocked last December when it was revealed that Target had suffered a massive data security breach. The credit/debit card numbers of 40 million shoppers, and personal information of up to 70 million more, were compromised in one of the biggest retail data hacks in history. Many retailers try to protect customers' data by sending it to a processing center, either internal or a third-party, on a private network. In theory, that will protect even unencrypted data. But the type of malware used by the hackers works by reading card data during the short period of time they're available in the memory of the cash register or other POS device, before they're sent to the processing center. The most effective way to address this vulnerability would be to use credit and debit cards with encrypted computer chips, instead of the non-encrypted magnetic stripe on most American cards. Europe is far ahead of America in the use of chip cards, and retailers probably will have to accommodate magnetic-stripe cards for at least a few more years. Tiffany Jones, iSIGHT Partners Measures that retailers can take now include developing an assessment of their data system so that they know what normal, and abnormal, traffic flow looks like, says Tiffany Jones, iSIGHT Partners' senior VP for client solutions. "Develop a baseline of your network and understand what normal looks like, so once you have a sense of what the normal baseline is, then you can flag abnormal data flow that's happening within your environment for future activity," Jones says. However, even when that's in place, someone has to notice and take appropriate action. In the Target case, a report in Bloomberg Businessweek alleged that a security team based in India noted the unusual data patters caused by the hack and alerted Target's security team–which took no action while the breach proceeded. –by Pan Demetrakakes

Editors' Note: Keep an eye out for the March/April issue of Retail Leader, which will feature a full-length article, "Demystifying the Cloud."

Jennifer Acevedo is editor-in-chief of Retail Leader.