- The only humans you will see in your local supermarket will be other shoppers.
- Profits in the supermarket industry are only 2%
- Brick and mortar locations will still exist but with so much technology built into them that they’ll really be brick, mortar, and machines locations.
- Unemployment levels among supermarket workers – especially entry-level workers – will be well over 50% and will eventually reach 90%.
90% of what you buy in a supermarket is completely predictable. As a result, automation will be easy to implement in the supermarket business. This article will give you the projected outline of how this will come about.
As Jeff Bezos wrote in a letter to shareholders:
“We didn’t ascend from our hunter-gatherer days by being satisfied.”
While Bezo’s Amazon drives innovation at its ever-more-automated grocery stores, it’s becoming clear that in the hyper-competitive supermarket industry, owners and managers are increasingly adopting automation to stay a step ahead of the competition – or to just try and keep up.
How will this continue to transform the supermarket industry?
Overview of the Supermarket Industry right now in the United States
The large players run the supermarket business. Walmart and Amazon – the number 1 and 2 measured by sales in the USA – accounted for $ 670 billion in sales in fiscal 2020-2021. That’s as much as the rest of the top 10 industry players combined. Or, for example, if you add up the sales of the bottom 30 of the top 50 players, you end up with $245 billion – just slightly more than Amazon’s $236 billion and far less than Walmart’s 434 billion. So, while there are estimated to be over 60,000 supermarkets and grocery stores in the U.S. it’s a highly concentrated industry measured by sales. Furthermore, there has been little growth in the number of stores/supermarkets with the quantity of locations remaining steady over the past 5 years (2018 – 2023).
Clearly the growth is coming from the largest players. It’s hardly a coincidence that both Amazon and Walmart have been pioneers in their industry – constantly innovating and disrupting. As consumers expectations are transformed by the innovative large players, the mid-sized and smaller stores have no choice but to automate to try and keep up and avoid losing clients to major players like Walmart and Amazon who are automating at an increasing pace.
Next, let’s look at some of the numbers.
- There are 2,285,000 supermarket and grocery store employees currently in the U.S.
- The average location employs more workers per store than 5 years ago.
- The revenue per employee has fallen over the same period.
- Supermarkets and grocery stores employ more people than any other retail trade industry in the U.S.
How do these numbers compare with the world’s other major markets?
Supermarket/Grocery store industry as a percentage of the total workforce
- European Union: 1.10%
- USA: 1.45% (158,000,000 divided by 2,285,000 = 1.45%)
- Canada: 2.20%
- Australia: 36%
- China: Less than 3%
While American supermarkets are clearly well ahead of Canadian and Australian competitors, EU stores are slightly ahead in terms of efficient use of labor. Consider Mercadona, a Spanish supermarket retailer that has invested in automated distribution centers that serve 600 of it’s over 1,600 retail stores, having robotics work behind the scenes where the customers can’t see them, providing just-in-time distribution of quality produce through separate, climate-controlled sections of the automated distribution centers. This provides farm-to-table delivery in 24 hours – on a scale that even a large farmer’s market can only dream of.
Delivering customers farm-fresh produce in optimal condition means less spoilage and greater sales for Mercadona. Remember, in the supermarket business, how attractive your produce section looks is key to retaining customers and boosting sales. Labor costs are more manageable with less employees needed doing predictable physical work, and greater productivity from those employees who still work at their automated centers.
That’s just one aspect of how automation can radically transform the supermarket industry. Let’s consider how a supermarket works to see where more of the opportunities for automation may lie.
What are the main objectives of the supermarket business – including the growth model?
- Supermarkets are in the service business. They don’t grow or produce what they sell. They transport it and distribute it to their stores where they sell what others grow and produce.
- People in the supermarket business know that margins are very low – 2% or less is often common and even specialty stores have only 5% to 12% margins at best.
- That means if you sell $1 million of goods on average every month, your monthly profit is $20,000 and your annual profit is $240,000 on $12 million in annual sales.
- To squeeze more profits out of this extremely competitive industry, they reduce what is called shrinkage (spoilage and theft) and keep labor costs as low as possible, often by hiring part-time rather than full-time staff.
- If you reduce your costs by $2,000 in a store with a 2% profit margin, that’s equivalent to increasing your sales by $100,000.
- They keep a produce section (fruit and vegetables) that looks attractive and appealing with fresh-looking items, to encourage customers to spend more at the supermarket because they can literally see and touch the value in front of them.
- They worry about solving long waits in checkout lines because that means less sales as frustrated customers leave their carts in the aisles and exit the store without buying anything. And even if your customers are more patient than the average supermarket client in 2023, those long waits still mean less sales due to less purchases moving through your checkouts.
- They understand that items with less mark-up that sell far more frequently over the course of a day, or a week, or month, create a higher profit margin than high-mark-up items that sell less frequently.
- In other words, supermarkets manage a complex supply chain that only really ends when a satisfied customer loads up their car and drives out of the parking lot. And it’s a supply chain that is in constant motion 24/7, relying on large amounts of data to keep the store running smoothly, ready for the next returning customer to walk through the doors and enter a well-stocked store with wide aisles, a competitively priced variety of goods, including fresh produce, and quick and convenient checkouts.
- However, they also understand that shoppers’ habits change rapidly, and they can switch the store they shop at very quickly – especially younger shoppers – if the store doesn’t respond to and even predict what they are looking for.
- To solve this, they are increasingly using O2O strategies – online to offline – like BOPIS (buy online pick up in store) to draw online customers into their physical stores by offering them a well-functioning digital experience at every stage of a purchase. And it’s increasingly including the actual checkout process. Download the app, scan the items you want as you load them into your cart, pay with your phone, and leave the store with your purchases. No cashiers. No checkout lines.
What is the current investment in automation in the US Supermarket Industry?
It’s unlikely that even Amazon’s latest food stores are truly fully automated, but they’re already getting close. To consider how automated supermarkets are in 2023 in America, it’s important to follow the money and ask what investment levels are present in the business.
|No investment||Low investment||Moderate investment||High investment||Full automation|
|Most tasks performed manually or with little automation||Automation limited to only a few areas or processes||Automation in wider range of areas & processes – more integrated into daily operations||Automation widely adopted & integrated into most areas & processes yielding significant improvements in productivity||Almost all tasks & processes automated with humans focused on maintenance and supervision of automated systems|
|Most SME players||Larger Players||Amazon??|
As the industry continues to consolidate, automation will increase as the merged companies try to squeeze profits out of their combined businesses. That means supermarkets will be increasingly moving to the right in the above table as increasing investment moves them inexorably towards full automation. Even smaller mom-and-pop grocery stores will have to make moderate investments in automation or sell the business and do something else.
How is the supermarket industry changing? – what to look out for?
To answer this question, a more granular focus on where the investment in automation might be most likely is needed. McKinsey have broken down the areas where – as they say – machines could replace humans and have done so by industry groups. Here’s what they say about automation in retail.
The most likely area of automation in the retail trade is predictable physical work – restocking shelves, cleaning the store, as well as lifting, moving, and sorting boxes and pallets in warehouses/distribution centers. One should also include cashing out customer purchases, although not every supermarket is going to immediately replace their cashiers. Additionally, increased automation also means safer working conditions for workers who will now monitor and maintain these systems rather than lift and stack things.
The least likely areas for automation are the managing of workers and stakeholder interaction. So, customer service of various kinds is unlikely to be replaced by machines. In fact, this is an area that will receive increased focus – and increased requirements and training for qualified staff – as automation in other areas frees up workers to advise customers rather than stock shelves.
However, data collection and data processing are the next most likely areas for automation and are essential for the kind of customer interactions that a successful supermarket needs to grow over the next decade. The store’s analytics capacity will increasingly determine how quickly a supermarket can respond to changing customer trends and to individual customer preferences and buying patterns and therefore offer them the right bargain at the right time.
This data processing is done through what are called supply chain control towers. These are cloud-based software platforms that use the collected data, working with AI, Machine Learning, and the Internet of Things (small CPUs built into consumer appliances and other products) to monitor and control and provide a 360° view of the entire supply chain. The better the data collection at any store, the better a job a control tower can do processing and providing actionable solutions to any problems that arise. And that means more efficient distribution of produce and other goods to individual stores.
So, what is changing and what will continue to change in the supermarket industry?
- Staff in stores will be there to offer suggestions on recipes, nutrition, and health, especially if you have special allergies or other needs, for example.
- Robotics and automation will take care of cleaning the store, stocking the shelves, monitoring your purchases and automatically debiting your account through your cellphone’s app, as well as transporting goods from farms and manufacturers to the distribution centers to individual stores. The remaining workers will now be focused on doing the maintenance and monitoring of these systems.
- Your app will allow you to choose how you want to shop: online with home delivery – including delivery by drone; BOPIS – buy online pick up in store; or in-store with a cashierless purchasing platform. Your app will offer suggestions (an option you can disable if it bothers you) depending on your habits and preferences as well as the availability of seasonal specials.
- Disruptions to supermarket supply chains will be solved much more quickly through real-time control, monitoring, and actionable solutions done with the assistance of cloud-based control towers.
- Smaller grocery stores will have to merge and automate or to avoid being priced out of the game by larger fully automated stores with efficient home delivery options for their customers. Some specialty stores may remain and even thrive. For example, the only Chinese food supermarket in smaller town or city.
What will the industry look like when the automation is complete?
Brick and mortar locations will still exist but with so much technology built into them that they’ll really be brick, mortar, and machines locations.
- As you enter the store, its facial recognition system will detect as you walk in.
- Its AI will predict, based on your body language, mood, and time of day, what you are most likely to buy and what you are most susceptible to adding to your purchase (For example, it will know if you are slightly tired and hungry, the store will see an extra 10% in sales).
- You will already have an account with this chain, so payment is automatic.
- Upselling, nutrition recommendations, and even cooking recipes will be made with hologram-projected humans. Regarding sales, these AI tools will be very dangerously efficient. Think of the best salesperson in the world merged with AI knowledge.
- Most people will opt for direct delivery to their homes at some point in the future. With AI, it will know exactly what you want and what will make you happy and use virtual nudges to get you to purchase these items (we know you are sad, here are the best cupcakes).
- At some point, even brick-and-mortar stores will be a thing of the past. It will be replaced with virtual shopping using tested, refined, and much improved metaverse technology. Users will opt for this option to find new products and to see what is trending.
How Realistic is the above production?
The above scenario is likely in the midterm, although the current economic model does not support it happening immediately given that unemployment would be very high.
With this in mind, a timeline for supermarkets to reach full automation has to start by looking at the predictions for the retail trade in general. The Yale-Oxford survey suggests that retail salespeople will have their jobs done by machines by 2031 – 8 years from 2023. However, McKinsey consultants suggest as we pointed out above, that automation will mean salespeople can focus entirely on customers. Who will turn out to be right?
One has to suspect that a global business consultancy like McKinsey is more attuned to the multitude of factors that owners of supermarket chains face compared to AI researchers that tend to operate in a more academic environment. Nonetheless, if AI does indeed reach High-Level Machine Intelligence even sooner than predicted, the business environment will have no choice but to adapt by automating at an even faster rate than anybody has predicted.
On this basis, we predict HLMI in the supermarket industry will be reached by mid-century – sometime between 2035 and 2045.
The question is: does HLMI mean no more humans working in the supermarket industry? We predict this to be wrong. The nature of the work will be radically transformed, and the quantity of workers will be greatly reduced. Nevertheless, along the supply chain of any supermarket you will still have humans occupying key posts.
- Your fruit and vegetables will be fresher.
- Doing your shopping will be faster, and at some point, it will turn into something you do a few times a year, and having the AI automate and predict what you need and deliver it to your home.
- E-coli and other human or animal contamination will be dramatically reduced.
- Some people will opt out of this control and automation of their food and start growing food on their small-scale farms.
- It’s possible that local farms will change their business model and directly supply local families that don’t trust big corporate food suppliers.
Note: Food is national security, and we expect national conglomerates to take over and multinationals to have a more limited role.
- An industry that will see entry-level jobs completely vanish with unemployment levels of 60% to 90%.
- Supermarket industry will further consolidate into a few national players.
- At the same time, farming will undergo the same transformation.
- Supermarkets and farming will become centralized. This will have a few major issues:
- Overreliance on food-related technology will become a national security issue. It will take one aggressor to cripple a nation by attacking its food supply.
- The temptation of shortcuts, saving resources and other factors will see the issue of genetically modified food and other unnatural products entering our food supply.
- Fewer humans also mean fewer whistleblowers when unethical things occur.
- These National conglomerates will have tremendous power and say over government policy.