A Business Model of the Food-Retailer "FreshCo"

Table of Content

Introduction

2. Literature review
2.1 The different innovation areas
2.2 Systematics of source selection and critical reflection

3. Empirical Research
3.1 Innovation Paths
3.2 Current examples

4. Discussion
4.1 FreshCo’s Business Model Canvas

5. Conclusion

1. Introduction

“Good tools lead to half the work” (Hungarian proverb)

In this context, good tools can be regarded as technical tools. The quote illustrates that the right technical tools can save a great deal of work and according to that costs as well. The primary goal of a retail company is to reduce costs in order to maximize the company's ultimate profit. The increasing price sensitivity of the customers is leading to an intense competitive pressure between all companies. The costs incurred by products offered at a discount must therefore be saved elsewhere, otherwise the profit will be reduced.

These points are leading to the fact that the control of cost dynamics and the greatest possible increase in efficiency are becoming more and more important for companies. (Hilgenfeld, 2017)

For this reason, companies continue to search for technical ways to make their work on the sales floor as efficient as possible and thereby minimizing their costs.

A large part of the costs that affect a company are personnel costs, which is why efficient personnel controlling is becoming more and more important in the management toolbox of a company.

The focus of a company is placed on its cost structure: Transparency and optimization of personnel expenses are in the spotlight. (IFH Retail Consultants) Wouldn't it therefore be economically successful to open a store in which there are no employees and therefore the personnel costs are close to zero?

This question will be addressed in the following chapters of this paper.

The elaboration will begin by illustrating current retail innovations areas. Technological solutions are analysed in more detail using literary works and reports in professional journals.

Due to the actuality of the topic, there is not too much specialized literature yet. Therefore, the selection of literature will be evaluated after the analysis, since there is often circulating grey literature on new or futuristic topics.

The next point deals with the empirical research, by presenting various innovation paths of the FreshCo. company that enable the food retailer to work efficiently and

cost-effectively. In addition, the chapter lists current examples of other companies that also use technical solutions in their workflows.

The chapter is rounded off by an evaluation and discussion of the data obtained from the empirical research. Another part of this chapter is the presentation of FreshCo's business model, which is done using the Business Model Canvas.

The paper ends with a conclusion in which the previous gained findings are summarized.

2. Literature review

This literature review provides a critical appraisal and systematic presentation of the available literature on the various different innovation areas. Relevant literature in the area of digitalization and technology in food retailing are mostly professional articles as well as journals or studies conducted on the subject area. Literature on business management topics can be found in modern business management textbooks. The current status in the literature on the innovation areas mentioned is explained below.

2.1 The different innovation areas

In recent years, more and more innovations can be observed in food retailing. While some companies are already pursuing innovative ideas, some food retailers are acting in the classic stationary style. No matter what strategy the companies pursue, the decisions are largely based on the requirements of the customers. Technological developments and changing customer behavior are forcing companies to make wide-ranging changes.

Developments that have arisen as a result of customer requirements are presented below. Relevant literature in the area of technology and digitalization in food retailing are primarily articles in trade journals that present the state of the art. Business management topics are presented primarily in current business management reference books.

Robots in food retailing:

The technological change is also progressing ever further in Germany. Due to the positive response from the environment, robots will be part of the store fittings in the coming years and it will be hard to imagine life without them. Even today, individual entrepreneurs are already planning the use of these technologies in terms of store fittings and store design. (Saumweber, 2018)

The robots are able to relieve the employees in the following tasks by built-in artificial intelligence:

- Record and check inventory levels
- Detect shelf gaps and misplacements
- Check prices
- Clean shelves and floor areas

Currently, the technology of humanoid robots is not yet developed to the point where they could completely replace all the tasks regularly performed by employees. Apart from that, the machines are still so expensive that hardly any retailer can afford them, especially not in large numbers. (Anonymus, 2018)

The two graphics each show a different type of robot in retail. The robot on the left acts in a textile store and serves customers, for example, to provide different sizes of a special product. The robot shown in the right image operates in a supermarket to detect empty shelves and to check price labels.

The first robots have already moved into supermarkets in Germany. At an Edeka store in Fürth close to Nürnberg, "Pepper" a humanoid robot from Japanese manufacturer Softbank, helps customers with their shopping. The company expects this to make visits to the supermarket an eventful experience in which the customer is entertained in the best possible way and offered assistance when needed. (Hildebrand, A. 2017)

Self Service Technologies:

One of the outcomes of this changing nature of services are self-service technologies which are “technological interfaces that enable customers to produce a service independent of direct service employee involvement” (Meuter, Ostrom, Roundtree, & Bitner, 2000). Those Technologies become more and more widespread and either replace or supplement the traditional face-to-face service encounter. In food retailing, self-service technologies are used as self-scanning or self-checkout, so that customers can carry out their payment process independently and without the help of any employees.

Companies and customers are increasingly faced with the proliferation of Self Service Technologies. The current “EHI retail institut” on the use of self-checkout systems and self-scanning systems in Germany as of August 2019 documents that stationary self-checkout counters can now be used in 903 stores and that self- scanning, either by a handheld scanner or via app using a smartphone, is offered in 96 stores in Germany.

Reasons for companies to introduce those Self Service Technologies are diverse, but mainly related to cost savings, productivity increase, expansion of delivery options, provision of a more constant service atmosphere, handling of varying demand, and expansion of service availability (Bitner, & Gremler, 2006).

Location-based services:

Location-based services are increasingly coming into focus when it comes to mobile marketing. Location-based services link the position of a mobile device with additional information in order to generate added value for the user. They can be regarded as services that use a GPS receiver in a mobile device to query the location in order to provide the user with individual information that matches his or her current position. Based on the assumption that the recipient always carries his mobile phone with him, his current location can be determined via the mobile network. The use of GPS also enables him to disclose his location himself. The collected data is transmitted to service providers, who can then send the user location-based information. (Werner, 2014)

The services performed are divided into reactive and proactive services. The reactive services occur when the user has made a direct request for information.

The proactive services send a wide range of information about the immediate environment.

Location-based services can perform the following different functions, among others:

- Advertising
- Navigation
- Tracing services (e.g. hotel guide)
- Security (e.g. localization for emergency calls)

Location-based services are of particular interest to the business community, as marketing content can be placed in a more targeted and thus relevant manner via a location reference. (Stieninger, M.; Auinger, A.; Riedl, R. 2019)

Extended Shelves:

One way of advancing digitization in stationary retail is the use of extended shelves, which will be examined in more detail below. Extended shelves are classified as multi-channels, since they combine several channels in order to optimize the customer's shopping experience. Smart channel connections, for example through tablets, in-store apps, QR codes on shelves or information terminals, generate advantages that are usually given in online retailing, but are now directly available at the point of sale. (Heinemann, G. 2019)

Exemplary advantages are the large product selection. Since the problem of insufficient sales space does not exist in the digital world, an infinite number of different products can be presented. Another added value is the simple provision of information. Digital extensions provide information about the composition of the product, about return options or, for example, about ratings made by previous buyers. (Wirtz, B. 2013)

2.2 Systematics of source selection and critical reflection

The area of technological developments and digitalization in food retailing is a topic that has great relevance, as competition between companies is becoming more intense and some companies are attempting to differentiate themselves from the competition through various innovations.

Due to the actuality of the topic and the reason that some innovations are only in the planning stage and have not yet been concretely implemented, there is little specialized literature on these topics. Literary works that have been written down in books are still the exception. However, the topic of digitization and innovations in retail is often addressed in trade journals.

Self-scanning services, for example, are already a widespread topic. The EHI Retail Institute developed various studies around the topic of self-checkout. They analysed the spread, acceptance or even the best possible implementation for retailers. The institute not only deals with the topic of self- checkout, in 2019 they launched the ninth edition of the study "IT Trends in Retail 2019". IT decision-makers in 90 German-speaking companies were asked about technological trends and investment priorities in personal interviews. (IT Trends im Handel 2019)

Reports from users, or websites from unknown individuals tell a lot about the topic of innovations in food retailing. Some of them are about the current state of the art or about potential developments in the next 10-20 years. This area can be defined as grey literature, since neither author nor reference sources are known.

Finally, it can be stated that various areas of technical possibilities, such as self- checkout or extended shelfs, have already been examined in more detail and investigated and even partially applied by various institutes or companies. In other words, it is easy to find scientific literature in this area.

If one searches for information or literary works on the topic of robots in food retailing or future developments, one comes across some grey literature and there are still large gaps in the literature, as the topic has been dealt with by too few.

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