With COVID-19 derailing what had promised to be a strong year for retailers, grocers and restaurants, many have had to turn to new ideas and technologies to deliver safer experiences to consumers.
Key Trends Driving Digital Innovation in 2020
If anything, this pandemic has taught merchants how resourceful and innovative they can be when pushed, and how technology plays a big part in streamlining everyday operations and creating better customer experiences.
An in-depth look at consumer trends driving the future of innovation for restaurants, grocers, and retailers. This article reveals:
- The trends we see shaping future consumer commerce experiences.
- Strategic shifts that will accelerate growth over the next decade
- Best practices merchants will need to thrive going forward.
Table of contents
Executive Summary
Technology will continue to drive innovation in the 21st Century.
Brands will reimagine the brick and mortar experience.
The Drive-Thru of the future
Consumer behaviour will drive store innovation.
Privacy is moving away from the Wild Wild West.
The shift in consumer behaviour due to COVID-19 is real.
Curbside and in-store pickup must be a prioritized channel.
Thought Starters
A literal interpretation of consumer centricity
Format proliferation
A-commerce is here
What should brands be doing today?
Executive Summary
The 2020s have gotten off to an inauspicious start, with COVID-19 derailing what had promised to be a strong year for retailers, grocers and restaurants. On the economic side, unemployment has skyrocketed, and hundreds of billions of dollars in consumer spending disappeared. Bankruptcies, store closings and layoffs define the economy, accelerating challenges that have been developing throughout the last few years.
Despite this, we have a highly optimistic view of the 2020s.
Before COVID-19, we were experiencing a confluence of new ideas and technologies being employed by retail, grocery and restaurant brands to deliver better experiences to consumers.
For all of the pain that COVID-19 has caused, it has shown merchants how creative and resourceful they can be, when forced. During this time, merchants have also learned how technology can play a big part in improving the customer experience. The biggest opportunity that we see for them in the decade ahead is to bring that level of resourcefulness and innovation to bear every day, post COVID-19.
At Rakuten Ready, we live at the intersection of mobility, e-commerce, and innovation, serving retailers, grocers, and restaurants. This gives us a unique vantage point to identify the trends that are beginning to influence the consumer in many facets of their lives.
In this article, we will:
- Define the trends we see shaping the consumer landscape today.
- Identify strategic shifts that will accelerate growth over the next decade.
- Share best practices merchants will need to thrive going forward.
The forces that will define tomorrow’s consumer experience landscape
We see four significant trends emerging today that will have an outsized impact in the decade to come.
- Technology will continue to drive innovation in the 21st Century.
- Brands will reimagine the brick and mortar experience.
- Privacy is moving away from the Wild Wild West.
- The shift in consumer behaviour due to COVID-19 is real.
Technology will continue to drive innovation in the 21st Century.
The 1990s brought us the Internet and e-commerce. The 2000s gave us the smartphone. In the 2010s, our voices became interfaces to internet-enabled technologies, powered by huge advances in artificial intelligence. In the 2020s, these three core consumer technologies will be amplified by always-present broadband access, enabled by 5G networks along with location technology.
The next great innovations to come from merchants over the next 10 years will be characterized by a notion we call ‘bytes driving bricks’, where strategic brick and mortar transformation will be made with digital innovation and customer experiences as the primary catalysts.
- Connectivity: 81% of Americans own a smartphone (Source: Retail Indicators Branch, US Census Bureau)
- Assistants: 34% of Americans own a smart speaker (Source: Retail Indicators Branch, US Census Bureau)
- Screen time: Americans spend 3 hours per day on their smartphones, more than television (source: eMarketer)
Brands will reimagine the brick and mortar experience.
Driven in large part by competitive threats and significant changes in consumer shopping patterns, we are witnessing the early stages of a fundamental transformation of the role of the brick and mortar store.
US grocers are making pioneering investments to figure out the right online grocery fulfilment model. Kroger is partnering with Rakuten Ready to power their online Order for Pickup and with Ocado on highly automated ‘sheds’, as large as 350,000 square feet, to optimize their fulfilment experience. Many other grocers are making bets on micro fulfilment centres that are smaller, less capital intensive and often physically connected to stores.
The Drive-Thru of the future
Taco Bell’s latest restaurant design includes two drive-thru lanes, pickup shelves, curbside pickup and predictive arrival technology that notifies the kitchen when a customer has arrived. The ‘Burger King of Tomorrow’ concept similarly imagines smaller restaurants, more drive-thru lanes, and increased implementation of technology. Both new formats are intended to push customers to order their food ahead of time and keep drive-thru lines short.
Chipotlanes, for example, are mobile-only drive-thru lanes at the majority of Chipotle restaurants opened thus far in 2020. Arising out of the omnipresence of mobile technology and to satisfy the rise in consumer expectations of a faster, more seamless order for pickup experience.
Consumer behaviour will drive store innovation.
None of these would be considered ‘bet the franchise’ moves at this point, as they are limited and still experimental in nature. We expect, though, that the imperative for innovation coupled with changes in consumer behaviour will accelerate the widespread adoption of these new formats far more quickly than would have been expected in the past.
Privacy is moving away from the Wild Wild West.
Brands are developing consumer applications that promise to make consumers’ lives dramatically easier.
- Mobile devices can access the precise location from consumers and use that data to predict arrival times and provide better consumer experiences at pick up.
- Stored payment information can simplify every subsequent interaction.
With more consumer data becoming available and privacy concerns increasing, it’s vital to make clear to customers HOW you’re using their data and WHY it’s beneficial to them.
But consumer privacy permissions in digital environments are multiplying as brands try to adapt to ever-changing mandates from governments (CCPA, GDPR) and big technology companies. Apple’s new iOS 14 operating system, for example, adds a new level of complexity by creating two layers of location tracking and adding new permissions, all designed to give privacy control back to consumers.
However, we feel about this; the future is fairly clear. There is an incredible array of consumer data available to merchants. Still, they need to operate with the assumption that their customers will be persistently reminded of their privacy options, what data is being collected and stored, and how said data is being used. This significantly elevates the burden on merchants to deliver incredibly effective and convenient solutions derived from consumers’ personal information. Anything less will likely not cut.
The shift in consumer behaviour due to COVID-19 is real.
COVID-19 has been a defining period for merchants and consumers. Merchants have been forced to offer new services that tested their adaptability. Consumers, under duress, tried many new services for the first time. During Q2 2020, online sales jumped 44% while overall retail sales dropped by 3.4%, according to the US Census Bureau (Source: Retail Indicators Branch, US Census Bureau). We saw multiple years’ worth of e-commerce and technology innovation in just a matter of months, much of which was used to address drops in sales.
The base of potential repeat customers for many new services has become immensely larger than it was before COVID-19. Whether COVID-19 has accelerated e-commerce growth by 1 year or 3 years, the fact remains that e-commerce will continue to be the driving force behind growth well into the future.
- Online Sales: Online sales increased by 44%
- Retail Sales: Overall retail sales decreased by 3.4%
Curbside and in-store pickup must be a prioritized channel.
Which of the following activities did you try for the first time during the COVID-19 shutdown?
Which of the following activities did you try for the first time during the COVID-19 shutdown?
Thought Starters
In the next section, we will introduce three conceptual thought-starters that are intended to encourage merchants to re-imagine the trajectories of their businesses based upon the trends that we believe are driving the most important change in the retail, grocery and restaurant industries.
- A literal interpretation of Customer Centricity
- Format proliferation
- A-Commerce
A literal interpretation of consumer centricity
‘Consumer Centric’ is typically used as a metaphor by organizations that aspire to put the consumer at the centre of all decisions. We believe that mobile and geo-location technology enables a more powerful, literal meaning of the term consumer-centric and will define important strategy shifts amongst merchants in the years to come.
The technology that exists in consumers’ hands today can literally revolve around the consumer. To understand this concept, think about Uber, whose business revolves around the current physical location of the rider. Armed with permission to access the customer’s location and with the consumer’s desired destination, Uber pivots around those two data points to deliver the best route and experience.
We see the seedlings of this thinking in the retail, grocery and restaurant industries today. Technology such as Rakuten Ready’s ARRIVE enables merchants to understand exactly when customers will arrive to pick up their online order. It also tells store operators when they have pulled into the parking lot, and wherein the parking lot they are – powering successful curbside pickup programs.
Technologies like ARRIVE allow brands to fulfil orders around when customers arrive, versus previous operational models that had orders fulfilled when convenient for store employees. The brands that will define the 2020s will not look at their business as homogenous stores and restaurants. They will instead build a trusted, technologically-enabled relationship with consumers, which literally puts the consumer at the centre of the enterprise.
Format proliferation
Historically, brands have sought to find the right brick and mortar model and then scale it as much as possible. This is driven by the desire for efficiencies in scale and the belief that consumers place a significant value on consistency.
The early experimentation with ‘Ghost Kitchens’ by established restaurant chains and ‘Dark Stores’ by brick and mortar retailers illustrate very different thinking about the evolving role of brick and mortar – moves that represent more flexible thinking that about the form, location and role of bricks and mortar.
Given the disruption in the brick and mortar landscape caused by digital technologies and consumers’ appetite for better experiences, we believe that this is not a time for merchants to lock themselves into one format that they then scale nationally.
We believe that the brands that will dominate the next decade will develop pickup and delivery formats that serve many different types of consumers across a proliferating number of possible purchase channels, all tethered around the concept of literal Customer Centricity.
A-commerce is here
We believe that the term ‘A-Commerce’ or auto commerce will begin to emerge as a critical force for merchants over the next 5 to 10 years. We spend a lot of time in our cars – more than 200 hours per year on our commutes to work (source: Washington Post, Oct 2019) in addition to the time that we spend driving the kids to soccer practice, running errands, and taking trips.
Increasingly we’ve been trained to control technology with our voices. Digital personal assistants like Alexa, Google, and Siri have become widely adopted. By the end of 2019, a quarter of us owned at least one smart speaker, according to survey data from NPR and Edison Research. Increasingly, these voice-powered operating systems are coming hardwired in new model cars, and the quality of those experiences will improve dramatically with the rollout of 5G.
We believe that as we move into the 2020s, this confluence of factors is poised to open the door for purchasing of goods and ordering of meals from our cars safely and efficiently. At the same time, we drive, opening up a new realm of e-commerce that will reshape the landscape for purchases that require immediate fulfilment.
Some examples of A-commerce that are available with today’s technology
- On your drive home, you can ask your voice-powered assistant to order a Domino’s pizza and have it ready for curbside pickup; location technology enabling instantaneous pizza-to-car drop-off.
- You haven’t had a date night with your spouse in a while. During your morning commute, you can tell your car to make reservations for dinner at Flemings Steakhouse.
- You will be able to do your Amazon shopping on-the-go or order a new charging cord from Best Buy when it breaks in the middle of a road trip, and pick it up from Best Buy immediately.
Purchasing safely from our cars, we believe, has the potential to make consumers’ lives considerably more convenient, and we believe that the passive communication of geolocation between consumer and merchant will be a critical enabler of the best A-Commerce experiences.
What should brands be doing today?
The broad trends that we have defined are intended to get brands to start thinking about what they need to prepare themselves for the opportunities unlocked by shared geolocation in the years ahead. Below, we lay out the best practices that should guide merchants’ thinking of moving forward.
Prioritize trust
The coming opportunities that we see, driven by 5G, geolocation, expansion of mobile capabilities, and opportunities for new retail and restaurant formats are dependent upon a high level of trust from consumers. Failure to protect consumer personal data, including current location and planned destinations could set merchants back years while competitors speed by. Creating a transparent and customer-centric relationship built on trust is critical.
Focus on the location of customers, not stories
Bankruptcies caused by COVID-19 gave many merchants new flexibility to re-evaluate their real estate portfolios. They need to transform this opportunity to foster far more active management of their real estate strategy and a culture of organizational agility. Merchants need to develop mechanisms to keep their real estate footprint in a constant state of evolution. Too often, real estate acts as an anchor to innovation, rather than as an enabler of innovation. Real estate should be driven by the location of the desired consumers and the trends those consumers in those markets have, vs thinking about the location of the store and driving consumers to it.
Invest in understanding evolving customer behaviour
New consumer behaviours, combined with innovation from merchants, are fundamentally shifting consumer expectations with every trip out of the house. Merchants need to understand how consumer expectations are evolving and what technology is needed to serve them well. Improvements in point-of-sale systems, eCommerce sites and location technology will be necessary for years to come as brands invest in innovation and technology to give them a superior perspective on customer behaviours.
Experiment with A-commerce
While the reality of A-Commerce may well be a new car purchase away for many consumers, brands need to begin experimenting now with the development of simple voice-powered mobile applications and business models to prepare them for mainstream A-Commerce adoption. The communication of geolocation between the consumer and merchant will be a central enabler of the best A-Commerce experiences.
Maintain a COVID pace, after COVID
COVID-19 has forced merchants to scramble to develop and deploy minimally viable products that were, in many cases, imperfect and highly analogue behind the scenes. Successful merchants will maintain these values in innovation, even when COVID-19 is happily in the past tense. Healthy, flexible relationships with line employees will be more important than ever.
Source: Rakuten Ready