With increasing cost pressures and ever demanding consumers, Retail CPG industry is in for some interesting times (to say the least). However, this also presents a huge opportunity for companies to revolutionize the industry. The emerging markets and the technology platforms are key to potentially reshape this industry. Additionally, depending upon how the retail and CPG players approach the emerging markets, it will separate the leaders from the pack.
Now the immediate question which pops in our minds is, why emerging markets? Let’s just take China and India as examples. These two countries account for 36% of the total world population. So obviously, numbers do the talking. Another crucial factor is, the percentage of youth. India has more than 50% of its population below the age of 25 and 65% below the age of 35. It is predicted that by 2020, the average age in India will be 29. Younger consumers are always been craving for unique and novel experiences and are very accustomed to new technology.
A quick peek into some recent intriguing initiatives across India and China in the retail industry and CPG world.
- Walmart and Amazon are spending billions of dollars on wooing Indian customers through some interesting investments. Reaching Indian masses in every nook & corner of the country is very tricky – partially due to lack of infrastructure and traffic. Hence,
- Amazon has tied up with thousands of small shop owners in the most remote parts of the country “to facilitate transactions between Amazon and the Indians shopping online.”
- These small shops (200 to 500 square feet) in India are popularly known as ‘Kirana’ stores and sell essential household goods from Rs.1 shampoo packets to potato chips to lentils, wheat, rice, detergents, soaps, etc. There are approximately 12 million such Kirana stores. That is 1 store for every 100 Indians. Each Kirana store owner is a walking encyclopedia of data points around customer intelligence. They know intricate details about the customer, their families, preferences, likes & dislikes, timings, and nature of purchases, etc. Imagine the power which can be generated if a digital platform can aggregate & harvest the 12 million+ “human data-lakes”.
- Walmart invested $16 Billion in Flipkart as the majority owner in this Indian e-commerce company.
- Facebook stores are a raging success in India. Facebook pages for shopping could broadly be classified in two kinds of stores – (a) group selling various brands; (b) brands selling through pages. Similarly, there are promotions through sponsored posts and advertisements.
- Ever thought of ordering/receiving food at a restaurant without any human/waiter interaction. In Zhejiang province, the restaurant chain of Wufangzhai has made that a reality. Diners leverage Alibaba-powered technology to order food through their mobile phone or a screen at the entrance. On receipt of notification of a number, the diner uses it to unlock a locker cubby for food. Drinks are dispensed from smart vending machines which charge customers through a QR code scan. Sales in first half of 2018 increased 30% year over year for corresponding period in 2017.
- Yum China Holdings (operates 7,000+ KFC & Pizza Huts) has launched a franchisee KPRO, targeting younger and high-consumer audience. Diners place orders at a Kiosk which scans their face, leveraging 3D biometrics and matches them with information on Ant’s servers. Biggest advantage as claimed by the owners is the reduction in lines during peak hours, thereby delivering better consumer experience.
- Enough of food and restaurants. How about makeup/beauty products? Hope the girls are listening. Alibaba has helped with “magic mirrors” at a store in Hangzhou. These “magic mirrors” use augmented technology, so a shopper can virtually try lipstick or makeup by just waving an attached wand in front of her face and the mirror recommends products on basis of age, pigments, moisture, texture, color, etc. When the shopper picks a product from the smart shelves, the product information appears on the adjacent screen.
- Model Zhang Dayi sold apparels worth $2.9 million during a two-hour livestream in 2016. Similar influencers in China have roughly made $17 billion in revenues in 2017 by promoting their own styled designs. Enabling this ecosystem are the likes of Little Red Book (e-commerce/social media site claiming 100 Million users), or Meipai (video sharing platform, an offshoot of Meitu with 150+ Mill users). Alibaba’s Taobao marketplace has options for merchants to livestream.
- Alibaba facilitated a car vending machine which holds close to 30 models. Prospective buyers may test drive (models from BMW, Volvo, Ford etc.) for a nominal fee of $50 (obviously with thousands of $$ as security deposit).
The list is endless. All these examples drive home the importance of cutting-edge innovation in the emerging markets. Approximately a decade back, General Electric had coined a phrase called reverse innovation; (source https://hbr.org/2009/10/how-ge-does-reverse-innovation). An excerpt from the article explains: “historically, multinationals innovated in the developed world and sent those products to the emerging economies. Reverse innovation is doing just the opposite, which is, multinationals going forward must innovate in emerging markets, and then bring those innovations into developed markets. This is what we mean by reverse innovation.” In my opinion, a similar “Reverse Innovation” is largely at play in the world of Retail and CPG industry.
Some critical success factors listed below for the retail CPG companies, while embarking this journey.
- Ability to create great customized experiences while embracing convergence of human, devices, and digital platform with APIs
- High performance, irrespective of the infrastructure issues, leading to huge focus on non-functional requirements
- Create product/platform with zero defects and get it right the time. Since you never get a second chance to create a first good impression
- Innovation – having the agility to respond to business and compliance demands and monetize the digital ecosystem
- Ability to scale globally with minimal incremental work by reusing 70% or more of the foundation platform
- Create global payment solutions with complete coverage for risk & compliance
- Intelligent operations – enabling platform intelligence, self-diagnosis, and healing business dashboards
- Holistic control across the platform
- Consistent performance – with ability to overcome space constraints and harness embedded software to work with small chip sizes
- Heightened security – strengthening relevant firewalls for fraud and risk management, identity management, access management
- Ability to appeal to a wide range of customers/consumers and maximize on adoption rates
- Resilience to handle rugged conditions
To excel in all the above criteria, it requires an engineering-centric frame of mind to meet the business demands by leveraging technology. We have noticed an increased trend in the retail CPG industry world where they have onboarded senior management from technology companies like Google, Yahoo, MS, etc. The idea is to cross leverage best practices from the technology leaders in launching their own products/platforms. The other alternative would be to rely on partners whose DNA is around Engineering services and who are already delivering services to technology leaders and creating value for their end customers. Make no mistake, the future of several Retail CPG players will rest upon on how best they can leverage engineering innovation to harness the power of the digital ecosystem & capitalize in the emerging markets.