From Physical Retail to Online Business: Marketing and Logistics Principles for Supermarkets
Supermarkets and retailers around the world began distributing goods via order channels over a decade ago, often as a future-oriented addition to a minor business segment, complementing standard services. As such, ordering online and receiving groceries via delivery is nothing new. Caught off-guard by the COVID-19 outbreak, however, supermarkets and food-retailers today are facing the challenge of switching their business model from physical retail to online order and delivery with unprecedented urgency. With physical distancing measures in place across entire countries, people increasingly prefer to avoid purchasing their groceries as walk-in customers to safeguard their health and well-being.
In this situation, the supermarket industry finds itself in a fundamentally altered market environment. The changes required from them are profound. Their typical infrastructure, such as buildings and storage centers, was strategically designed to walk customers through a supermarket, positioning products on shelves as per marketing and product placement logic, factors that become obsolete in an online retail world. What matters now is safe, reliable, and fast supply of customers’ online orders via dedicated distribution services. Logistics is at the core of addressing these challenges and the interface between marketing and logistics indeed becomes vital for fast implementation in the current scenario.
For a swift short-term switch, the prerequisites are two-fold: On the one hand, the supply of selected products needs to be covered either through local production or through available imports. On the other, a functioning online ordering front-end needs to be made available to customers. Yet, especially for supermarkets, it is the seamless and efficient operation of the “pick and packing” functionality that has now become the bottleneck.
This has several consequences that can be addressed: First, online supermarkets cannot provide the full portfolio of goods to their customers, at least for the time being. Sales analysis is required to meaningfully reduce the portfolio of products available online, and hence decrease the complexity of assembling orders later on. Amid the current circumstances, food and canned products will have higher importance than non-food items, and any of the latter to be upheld would need to be chosen sensibly. While customers may have less choice, portfolio reduction will help significantly in maintaining capacity for faster, more reliable physical delivery.
Second, shortened product portfolios can be divided into two categories: High runners and low runners. High runners are regularly purchased in high volumes, and their turnaround is quick. Low runners might be appealing in the physical retail world, but have less meaning in the current landscape. Third, high-running products within a simplified offering need to be stored differently for now. Usually, they would be placed decentralized along strategic points throughout the supermarket to attract attention. In a recalibrated setup, identified high runners need to be stored centrally in a dedicated area of the market where employees have unhindered access for fast “pick and packing”. Fourth, the commissioning time needed for workers to assemble an incoming order, needs to be kept as low as possible by minimizing physical distances required to walk.
Fifth, in packing the online orders received and getting them ready for dispatch, standardized package box sizes can be used to further reduce complexity. Just like in a game of “Tetris”, utilizing uniform cubic sizes will allow for packages to be stored in delivery vehicles in the most effective fashion. This is particularly relevant for food retailers that do not rely on third-party logistics providers for reasons of quality and food safety assurance.
Sixth, physical delivery of the commissioned orders should be prioritized and planned in a calculated way. Typical linear concepts such as “first order in, first delivery out,” will not be efficient under the current circumstances. Seventh, because of the reduced product portfolio, the products offered should not be static, but optimized on a regular basis. In other words, the now required short-term shift should not limit the industry to short-term thinking. Requiring customers to order in excess of minimum order amounts, imposing high delivery charges, expecting customers to accept long delivery times, accepting the jamming of orders, amongst others pitfalls – all of which we are currently witnessing internationally, can be avoided by emphasizing the outlined marketing and logistics principles.
While it is clear that supermarkets are at the heart of consumer goods supply during the current pandemic, it would not be reasonable to compare them with established online giants such as Amazon and others. Their business model and logistical setups are different, from the outset. This naturally calls for customers to exercise patience and good-will with their supermarkets for a while. Supermarkets are logistical hubs, run by people, for people, through people, even if for the time being, they may appear as an anonymous online screen only.
Frank Himpel is a faculty member of the Engineering Management and Decision Sciences division at College of Science and Engineering at Hamad Bin Khalifa University in Qatar. Prior to moving to Qatar with his family in 2018, Frank served as a professor of business administration and logistics in Germany, where he also received his academic degrees. His research into aviation and air transportation management has taken him to several countries around the world.
About Hamad Bin Khalifa University
Innovating Today, Shaping Tomorrow
Hamad Bin Khalifa University (HBKU), a member of Qatar Foundation for Education, Science, and Community Development (QF), was founded in 2010 as a research-intensive university that acts as a catalyst for transformative change in Qatar and the region while having global impact. Located in Education City, HBKU is committed to building and cultivating human capacity through an enriching academic experience, innovative ecosystem, and unique partnerships. HBKU delivers multidisciplinary undergraduate and graduate degrees through its colleges, and provides opportunities for research and scholarship through its institutes and centers. For more information about HBKU, visit www.hbku.edu.qa.
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