Survey reveals operators’ pain points

Food production and retailing globally is undergoing a radical transformation. And as a result, the food industry is likely to transform more in the next decade than it has over the past 50 years.

Technology innovation is fueling an explosion in disruptive business models. Consequently, new competitors are emerging, redefining consumers’ expectations and offering unique value propositions that are disrupting the industry.

The emergence of digital platforms, urban agriculture, DNA-based diets, vertical farming and food as a service are signaling a dramatic shift in how consumers interact with food. Underlying these rapid changes are macro forces shaping the way the world produces, distributes, buys, sells and consumes food.

Global population growth is expected to exceed 20%, and the shift from rural to urban life will increase demands for future food stocks and shorter, more efficient supply chains. In addition, wealth inequality continues to widen, creating disparities in access to healthy food among socioeconomic and income groups; at the same time, healthy eating is a rising trend in developed parts of the world. These macro forces and many more are combining to make immediate and lasting impacts on the industry.

The future of food is fast and fresh and, in turn, requires a new set of solutions to a new set of challenges. Over the coming years, we see five areas of focus for companies operating in this space to consider as they embark on a “moving-to-modern” journey of tech-led innovation.

We are seeing retail’s value proposition transition from product-centric to service-centric, organized around the consumer. Big brands are moving to cut out the middleman, and grocers are considering new routes to market, such as the growing number of companies exploring subscription services. In this environment, new business models will be essential in delivering competitive differentiation, consumer lifetime value and shareholder profits that traditional models will be challenged to produce.

With margin pressure mounting on commoditized categories, digital and physical transformation will be essential to the food marketplace. Companies have the potential to unlock market value by taking note of the basics that small brands and tiny disruptors get right from the start—largely stealing market share by simply being faster, more agile and relevant.

Grocers will need to create platforms that enable greater supplier collaboration, and integrated services to capture revenue outside traditional categories of goods. These platforms will need to prototype and deliver new technology, business processes and ultimately customer experiences in weeks, not months.

Successful companies will place the customer at the center of all decisions and design a seamless journey that is more fluid, responsive and predictive to their ever-changing demands and expectations. The winners will be those who invest heavily in data, tools and capabilities to keep their insights and knowledge on par with technology companies. They will create differentiated experiences by tirelessly removing customer pain in both physical and digital environments with a combination of services and new in-store experiences.

To succeed, grocers will need to harness social and “internet-of-things” technologies to define faster approaches to innovation, organizing products, services and experiences around how the individual is behaving in real time.

Convenience is no longer defined by the location of a retailer’s brick-and-mortar store—it now demands an ecosystem of products, technologies and services that enable easy interactions for consumers.

Grocers will need to redefine their own end-to-end experiences that make food planning, shopping, delivery and preparation effortless. The winners will be those who build an ecosystem of suppliers, technology peers, distributors, startups and customers to support the expansion of the digital value chain. These ecosystem partners will be key to widening the sources for creating new innovative products and services.

Digital technologies are enabling organizations to create new levels of efficiency, sources of growth and experiences that satisfy the growing demand among consumers for relevant, convenient and cost-effective products.

To free up cash to invest, fend off unwelcome acquisitions and improve asset leverage, traditional grocers need to modernize operations from supply chain and field operations to IT. The challenge for organizations is to carefully balance transforming core businesses while scaling new ones, which demands reinventing customer value propositions and business model innovation.

Regardless, efforts will include automation, spend optimization, inventory rationalization, and entirely new technology and supplier delivery models.

As the food industry continues to undergo seismic changes, the battle for market supremacy is well underway, with consumers being the ultimate winners. The rules of the game have changed, and for grocers to succeed, they must be proactive in building businesses for the future. This will require traditional food companies to embark on a moving-to-modern journey of tech-led transformation that will see them well-placed to respond to changing consumer tastes and expanding customer expectation for years to come.

Steve Pinder is managing director of Kurt Salmon, part of Accenture Strategy