For 2016, one can expect new dynamics in the retail business in Europe. Amazon announced in 2015 to introduce Amazon Fresh in some European countries. Its online shopping service for fresh grocery will include delivery times less than twenty-four hours after putting the order. Competitors reactions have been for instance improved delivery times of only few hours after the order to outperform Amazon in advance. E-commerce is merely one of the big digital issues where retailers are forced to invest. Connected with that is also a great logistic chain that has to be digitally coordinated in order to keep track on the demand and crowds of data that have to be processed. Furthermore, there are efforts to develop digital in-store solutions for an im- proved shopping experience. In the past years, big traditional retail players have missed the chance to develop accordingly to the pace of technological developments. Now where non- traditional retail companies such as Amazon expand into grocery offerings as well as extent their logistical facilities, they are finally in their wake-up mode and grow their efforts to innovate digitally as this is a key competitive factor. The German retailer REWE Markt emphasizes digital innovation in their business strategy to optimize its supply chain efficiency and to be first in new innovative solutions that attract customers in- and off-store, off- and online (REWE GROUP 2015a). The following paper addresses digital innovation practices of REWE Markt over the past years as well as its role within the retail industry that it takes in digital terms.
REWE Markt GmbH is one of the leading supermarket chains in the German grocery market. More than 90,000 employees are working for REWE Markt and around 3,300 stores are located in Germany. They are operated through franchises or by independent merchants. The stores are divided into different concepts. REWE Center is with its 3,000 to 5,000 square meters the biggest format and offers the biggest assortment of fresh food as well as non-food products. REWE Supermarkt is a smaller and classical supermarket version of the Center and sells its products on a space of 1,000 to 3,000 square meters. To provide frequented areas of big cities with food staples, REWE City focusses on fresh, regional as well as convenient products in store areas of 500 to 1,000 square meters. REWE To Go is the newest concept. Since 2014 REWE opened ten of those stores which should offer convenience to take away in high frequented areas like train stations, airports, petrol stations and city centers. Clients can buy their snacks ready-to-go or ready-to-heat in order to save time. The REWE online shop offers home delivery as well as supermarket pick-ups (REWE MARKT 2015). Furthermore, REWE continues to develop innovative store concept ideas. In 2016, Starbucks will open its first stores in central REWE Markt places in big cities. Grocery shopping should become more attractive for customers (DPA-AFX 2015).
REWE Markt GmbH is a company of the cooperation REWE Group that is a leading retail and tourism group in Germany and Europe. Its operations obtained total external turnovers of 51 billion Euros in 2014. It occupies 330,000 employees in 15,000 stores in twelve European countries. According to their annual balance report, the group describes their strategy as one of constant modernization. It is one of the most important objectives to grow through the implementation of innovative concepts (REWE UNTERNEHMENSKOMMUNIKATION 2015). On the digital side for REWE Markt, this can be broken down to efficiency improvements throughout the supply chain, the increasingly important role of in-store experience, new payment solutions and a growing expansion in e-commerce as an additional retail channel for a traditional retailer.
To preserve a well working supply chain means to coordinate the flow of goods twenty-four hours a day from identifying the demand in the retail channels as well as the capacities of suppliers and to keep products in a fresh and good condition. Grocery retailing is a just-in-time business considering its up to seventeen hours’ open stores per day. Thus, the support of processes by smart digital systems and applications is crucial for a smooth and efficient flow from sourcing to selling. Through digital innovation within the supply chain, REWE grows a strong logistical network which can become an important competitive advantage.
Within the past ten years, REWE has implemented and improved the radio frequency identification technology (RFID). This technology refers to a system that transfers data from one object, normally a microchip, to another using radio waves. With a storage size of some kilobytes of data, it contains product information such as date of manufacture, shipment, destination and expiry. A reader device receives this information and sends it to a computer system. Even though REWE announced to start the integration of RFID in 2005, the first patents for the technology were given already in the 1970s. After it was initially used for un- locking doors, tracking nuclear materials and cows, it started to become more common for supply chain optimization in the beginning of 2000 in the US. Companies finally have imple- mented RFID after it became cheaper due to higher volumes in RFID sales and adaptions to open international standards (VIOLINO 2005). By means of RFID, REWE aims to be the process leader in Germany to serve its customers as best as possible. At the moment, RFID is specifically at the level of logistics to track transport boxes that store the goods to be delivered to the markets. The company can track every moment the location of its transports and goods as well as the assignment to a certain logistic partner (BOSCH SOFTWARE INNO- VATIONS 2012). Within the next five years, it is planned to prepare the implementation on product level. It will be possible to track shelf capacities in the markets, immediate figures about sales as well as the complete retracability of the products between manufacturer and pre-suppliers. Fresh product qualities could be improved since it will be easier to monitor the product durability and quantities. Products won’t be missing in their shelf places because of more precise forecasts and ordering processes. By the use and further integration of RFID, REWE will be able to decrease total costs and increase turnovers in the market through optimized product availability (REWE SYSTEMS 2015b).
Until RFID will be applied directly on the products, REWE continues to retrieve inventory data through mobile data collection technology (MDE). Incoming goods and quality inspections via MDE devices work by scanning the barcodes and entering the quantities of the products. Instead of long manual captured lists of product availabilities, the data collection happens directly at the shelf by an employee operating the MDE device. Also the process of ordering new products for the market is supported by MDE. The shop personnel receives a proposal on its MDE device that is calculated out of the markets inventory management system, information about quantity and durability of the goods as well as the delivery cycles between warehouse and market. With the help of that technology, the orders are adapted automatically to the individual needs of the store. In 2013, the REWEs MDA system was awarded for an outstanding innovative IT solution by the RETA Europe Award (REWE SYSTEMS 2015a/b).
In order to facilitate the price capturing of the goods in the market, in many cases REWE Markt uses automatic price labeling. A market has up to 45,000 products. In addition, there are frequently special offers as well as price updates that come up in some extent on a daily basis. The use of automatic price labels makes it much easier to update and avoid mistakes in assigning prices to the goods. The labels communicate via radio waves with the cash desks which transfer all price information automatically. Costs for printing new labels are completely eliminated. Nevertheless, REWE is still in the expansion phase to equip its stores completely with that digital service (REWE SYSTEMS 2015b).
The problem of price labeling at the shelf does not exist for e-commerce. At the moment, there are huge efforts to expand in the online channel for grocery shopping. In 2014, REWE group founded the new business unit REWE Digital that bundles all digital group activities on strategic and operational level. The units’ purpose is to digitalize the German food retailing in order to set its important role on the local market before Amazon Fresh will launch its services in Germany. Amazon is already identified as a big competitor within that channel. It recently announced the German market entry in 2016 for Amazon Fresh that has been already on the US market since 2007. It offers for Amazon prime members to deliver their Amazon order of everyday essentials either on the same day or the next morning firstly in densely populated regions after its market entry. The products range from milk to electronics, local to non-local and there is a promise that all food products will be still fresh when delivered. The purchase can be done by the website as well as by mobile apps. REWE only offers online purchases via its website. The REWE mobile app serves only as a tool for an advanced shopping list. Together with its other prime offers which include music and video streaming, e-book libraries and all the product offers for home delivery, Amazon becomes more and more an ‘everything store’ for online-shoppers. The existing network of Amazon shoppers could be easily attracted to the new service since there are no bigger switching costs in the young German grocery online market. Additionally, it innovates outside its common online shop interface. In the US it launched Amazon Echo, a speaker to order products via voice command as well as a bar code scanner or buttons to be fixed on washing machines where one can push to order washing powder (HORIZONT ONLINE/DPA 2015). It is obvious that expansion is just a time issue that makes Amazon as a competitor to one of the biggest challenges for REWE due to digital change.
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- Karolin Hommel (Author), 2015, Innovation Practices of REWE Markt in Germany. Digital Innovation and Business Strategy, Munich, GRIN Verlag, https://www.grin.com/document/317889