INNOVATION

What does the future of retail look like?

by Matthew Burbidge

Checkers thinks it knows.

When you go into Checkers these days, you’ll be sharing the store with an army of shelf pickers, haring up and down the aisles with their Android shopping lists and scanners and loading everything into brown bags. Outside, delivery drivers on bikes are purring off to homes and offices, all of which will be less than 60 minutes away.

The reason the company can get your groceries to you so quickly is partly because it has 3 000 stores, and knows that it has a shop within five minutes of 80% of the population. It’s been a wild success, and, as it says, contributed to the business’ 150% growth last year.

What’s behind this extraordinary growth story, and how did Shoprite Checkers manage to leave its competitors standing, particularly in the delivery business? It was partly a matter of timing. When the first lockdown was imposed towards the end of March three years ago, Sixty60 had been rolled out in only nine stores, but the company went ‘hell for leather’ to scale it and it now says it owns a 75% share of the online grocery market.

It also helps that it had a solid foundation built over 40 years by famous businessman Whitey Basson with a string of acquisitions and deals. He retired from the company at the end of 2016, but some years before, he’d approached his old university Stellenbosch, and asked for its top business graduate. The name he was given was Neil Schreuder, who after the obligatory year overseas after varsity, joined the company in 2004. He also seemed to arrive at just the right time, and, as it happened, was promoted five times in three years. He says he was sitting on top of a giant advertising budget at the age of 26. Two years later, Basson put him on the board, and while he remembers being "well out of my depth", he says the older man continued to mentor him for another decade.

Schreuder is heading towards his second decade with the company, and he’s now the chief strategy officer for the Shoprite Group as well as MD of its 400-strong innovation arm ShopriteX, which, among other things, runs the company’s Sixty60 delivery service, its Xtra rewards programme, and an advertising network business called Rainmaker.

Just rewards

While it was the last of the country’s major retailers to launch a rewards programme, it has now signed 25 million people (15 million at Shoprite and 10 million at Checkers), who swipe their cards every time they shop. Rainmaker is used by advertisers to find these buyers, who are tracked through purchases in stores and online. If, for example, an advertiser wants to target those in the market for single malt whisky, Rainmaker will know who these people are and will send them an email, a push notification, a WhatsApp message or an ad on Facebook and Google.

“We’re targeting someone who actually cares about single malt whisky, and the secret sauce is closed-loop measurement,” says Schreuder. “We know that within a week of seeing the advert, you went into a store or bought that whiskey on Sixty60. The ad worked, so we’re giving the advertiser a 100% return on ad spend. That’s the future of advertising. Google knows what people are searching for, Facebook knows what people are interested in, but we know what people are actually buying.”

This also means that the company knows what you don’t want. If a customer typically buys dishwashing tablets every 20 days, and they buy a pack of 30 today, they don’t want to see another Finish dishwashing tablet advert in any of the Shoprite or Checkers channels or, for instance, on Facebook, for the next 29 days.

While it was late to the rewards game, Schreuder sees this as a last-mover advantage. It appears the customers were also ready, as it signed up a million people in the first 72 hours. It’s building what he calls a "hyper-personalisation engine" and the app will suggest products that you normally buy, but may have forgotten. The app also suggests things, and he says a shopper may get an offer for chewing gum if they’ve bought a head of garlic.

“Only machine learning can get that done at scale,” he says. To make all this happen across its billion or so transactions a year, it built a microservices architecture, "some of which is on AWS".

A seismic shift

Older companies sometimes ossify, and this was one reason why he thought it important to start ShopriteX four years ago, and then start filling it with software and machine learning engineers and data scientists. While the unit is trying to build a smarter business and not rely on its legacy successes, at the same time, its core business needs to be "respected as an operational machine".

ShopriteX, with Sixty60, came up with something that was an attack on its traditional business model and could potentially take shoppers out of stores. Its grocery retailing business had been built on repeatable successes and predictability, and he says there were some "tough calls, culturally".

He thinks Sixty60 is "the most disruptive thing that’s happened to food retail in the last 40 years", and the company couldn’t have done that "if we’d invested in other stuff because we would have been protecting the legacy business".

It has no ambitions to become a digital-only business, he adds, and while it used its stores for the delivery service, it also stages "food theatre" with tastes, smells, sushi and fresh produce. “It’s got to be worth it to come to the store,” he says, even with the typical retail problems of queues and stockouts.

Johannesburg-based technology analyst Arthur Goldstuck says its premium outlets have turned a Checkers store into "an experience and an appealing destination as opposed to just a grocery shop". These premium outlets have opened in Rosebank and at the Cornubia Mall near Durban, among others, and at this last location, he says, there’s also a Pick n Pay, "which is a dismal experience".

About Sixty60, he says: “It was unheard of in this country to get grocery deliveries in 60 minutes. In fact, it was unheard of in most of the world. It was a seismic shift in online retail in this country.”

Before Sixty60, most stores would ‘graciously’ grant a shopper a delivery slot, which was, on average, three or four days away.

“With Woolworths, it could be as much as two weeks away at the beginning of lockdown and you can’t buy groceries on the basis of getting them in two weeks. The moment people used Sixty60 and it worked, their entire mindset changed, and, in turn, they were able to attract a completely new audience.”

The need for speed

Goldstuck says Checkers has shown that it’s possible to grow online retail market share as well as physical stores, and that one doesn’t have to cannibalise the other.

“It was astonishing to watch this happen, given the history of Checkers being almost anti-online. Whitey Basson didn’t believe in online, and it held Checkers back. With ShopriteX, they have a secret weapon.”

Schreuder says there are about a billion calls to its IT systems every week-and-a-half or so, tracking out-of-stock items, what items are going through the tills, which informs demand capacity, as well as route optimisation.

Sixty60 launched with 500 products and it was envisaged as a "pop-up shop in your pocket". Now it has 17 000 products and Schreuder says the service is doing 180 times its best five-year business case scenario. Another advantage is that it hasn’t had to invest in fulfilment centres, but, as he says, the downside is that shoppers have to compete with the pickers. This means that an item may be out of stock by the time the picker arrives at the shelf, and so online customers are asked to choose an alternative.

“We still get it wrong, and we spend a lot of time trying to get it right,” he says. Getting things delivered fast is like crack cocaine,” he says. “It’s not easy to unhinge yourself from speed. In the beginning, people were, ‘Wow, this amazing’, but the consumer curve goes from infatuation to entitlement quite quickly.”

Some shoppers may complain that they can only get a slot in 90 minutes, he says, but during the pandemic, they were getting their delivery on the same day, "and with some of our competitors, you’d wait three weeks".

Paraphrasing author Arthur C Clarke, Schreuder says that "great technology is indistinguishable from magic".

“The customer just taps their phone and the groceries arrive at their door, but the real magic is happening underneath that.”

Feel the rush

Another initiative the ShopriteX team has been working on is its Rush concept store, loosely based on the Amazon Go shops in the US and UK, where customers use their app to enter the store, pick up what they need, and leave without passing a till. ShopriteX MD Neil Schreuder thinks this has gotten a "disproportionate amount of airtime" in the local media and believes the concept won’t scale to the point where it’s displacing supermarkets.

“But if you think about it as a vending machine without borders, it’s quite exciting.”

He says it’s using three Hikvision system-on-a-chip cameras, along with edge machine vision for its solution, and they’re being used in a little test store at its offices in Brackenfell.

Schreuder thinks there are other more interesting applications than customers skipping a checkout line, and mentions things like fraud detection, wastage management, out of stock identification, or on-shelf availability in its normal stores.

But, as he says, Rush stores aren’t going to be popping up anywhere in the near term, and he envisages practical implications around the cost of running high-speed fibre to stores as well as the number of cameras, shelf sensors, security, as well as shrinkage management that will be needed.

What’s in the stack?

It’s hard to know what’s going on under the hood at ShopriteX and Checkers, partly because Neil Schreuder says it "won’t be elaborating on the specifics of our cloud and container strategy". Anecdotally, it appears that the company has experimented with various cloud services over the years, but it does have its own datacentres, from where it presumably runs its core systems. He says: “We don’t put heavy code running at scale that doesn’t require real-time customer availability in the cloud.” He adds that Checkers uses a number of AWS services, and here it’s probably using the machine learning tools from AWS’ Sagemaker set of products. It’s also thought to be using Azure and Google Cloud Platform.

Republished with permission from ITWeb Limited

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