Digital Disruption and Food Retail Environment

The growth of digital innovations has altered the food retail industry, with self-service technologies now being the commonly used strategy. The theory of disruptive innova-tion, created by Harvard professor Clayton M. Christensen in 1995, explains the “phenomenon by which an innovation transforms an existing market or sector by in-troducing simplicity, convenience, accessibility, and affordability where complication and high cost are the status quo”. The process of disruptive innovations usually follow a typical path, where a product or service is initially created or developed in a niche market, but then moves upmarket, and eventually reshapes the industry. (Clayton Christensen Institute 2018.) The process is typically longer and more risky than the conventional approach, but as soon as the innovation is out in the market, the penetra-tion is much faster and the degree of impact is higher on the established markets (As-sink 2006).

Disruptive innovations are typically developed by outsiders and entrepreneurs, rather than existing market-leading companies. The reason behind this is that disruptive in-novations are rarely profitable enough for the big players in the beginning. Yet, it is argued that “disruptive innovations are not breakthrough technologies that make good products better; rather they are innovations that make products and services more ac-cessible and affordable” (Clayton Christensen Institute 2018).

From the theory of disruptive innovation emanates the concept of Digital disruption. It is best described as a transformation process that is caused by emerging digital tech-nologies and business models, which can affect the value of existing products and services offered in the business environment. (Oxford College of Marketing 2016.) Digital Disruption has influenced also the grocery retail industry and according to Chris Morley, U.S. President FMCG and Retail, Nielsen, “the grocery industry is cur-rently in the age of digital experimentation, where the roadmap on how to navigate and achieve real and profitable growth continues to evolve” (Nielsen 2018).

Digitalization is continuously influencing the way in which customers are planning their shopping trip, how they shop in the brick and mortar, and what they do after they get back home. Not long ago, digitalization was a very small part of the shopping ex-perience and nowadays, most of the shopping and customer experience is digitally influenced and increasingly more people are using mobile during their shopping trip. As a result, retailers need to understand how their customer are enabling digital ser-vices while they are in the store and, before and after they shop. (Hoffman 2017.)

Digitalization in Kesko

As stated in the previous section, the grocery retail sector is undergoing a major change, where digitalization is affecting all aspects of trading. Most of the grocery retail companies, both global and local, have awaken to this transformation, and are trying to answer the constantly changing customer demands by creating the best digi-tal customer experience. Kesko has also identified the new digital environment and has updated its strategy in 2015 to involve a stronger digital approach in order to cre-ate competitive advantages and offer its customers the best digital services.

One of Kesko`s strategic objectives is to offer the best digital services in the trading sector. In order to reach it targets, Kesko has made a significant emphasis on creating new digital services, which include digital interaction with customers in all channels, targeted and personalized digital marketing, innovative e-commerce solutions, as well as customer-oriented mobile services. (Kesko 2018a.) To ensure implementation of the new strategy, in 2016 Kesko made changes in organizational design and employed tens of new digi-professionals.

One of Kesko´s most significant digital services is the K-Ruoka mobile application, which was launched to public in 2015. The mobile application was developed to make customers everyday life easier and to gain competitive advantage. From corporate point of view, the launch of the application was an important step towards implement-ing the digistrategy.

The K-Ruoka mobile application has several functions that customers have found very useful: shopping list, recipes, product and price information, personal offers, online grocery shopping, K-Plussa point and K-Plussa cash balance information, maps to the nearest K-food stores and an intelligent purchase history based on a shopping list, which can be shared with others. Not surprisingly, K-food store customers have be-come very fond of the application and the moment, there are more than half a million registered user of the application in Finland. From business point of view, not only has the application improved the image of K-food stores, but it has also been calculat-ed, that purchases of customers who use the application are twenty euros bigger, com-pared to non-users.

Another remarkable development in Kesko´s digital services is the digitalization of the K-Plussa system. The K-Plussa loyalty card can now be downloaded as an appli-cation, and it works just like the ordinary K-Plussa card in the K-Group stores. Bene-fits for customers are visible: no more carrying around different loyalty cards in their wallets, and all data about K-Plussa points, offers and campaigns are accessible via mobile.

Digitalization is often understood as something that happens only online. In grocery retail environment, it is important that also stores are a part of the digital experience, because the store is still the place to create the WOW effect for customers. By creat-ing digital solutions and service, Kesko has been able to make shopping easier in brick and mortars. For example, the self-checkout kiosks, deployed in over 120 K-food stores, have improved customer experience significantly and according to a sur-vey conducted by Finnish Commerce Federation in 2017, 90 % of respondents felt that using a self-checkout was either very or fairly easy and smooth (Kurjenoja 2017a). A technology that makes shopping even more convenient and is also closely related to self-checkouts, is the self-scanning service. In the next section, we will dis-cuss self-scanning, advantages and disadvantages of the service, its functionalities, and different technologies.

Self-Scanning

Overview of Self-Scanning

Self-scanning is a technological solution that gives the possibility of a more simple and comfortable way of making purchases due to the fact that it skilfully unifies the three essential elements that customers and marketers highly appreciate — conven-ience, service and effectiveness. Self-scanners allow customers to collect, buy and pack the items while shopping around, which consequently quickens the process of making purchases and gives cashiers more time for other assignments. With the help of self-scanning technologies, part of the store employees’ tasks is transferred to the customer and as Marzocchi (2006) argues, self-scanning technologies are a form of customer participation in service creation.

Generally, there are two types of scanners in retailing: hand-held and mobile scanners. The hand-held scanner is a separate device, that can be picked-up by the customers in the beginning of shopping and is used for scanning items while making purchases. Mobile scanners are applications provided by store owners. A customer downloads the application to his/her mobile device (for example smartphone), and uses the mo-bile devices camera to read barcodes from the products he/she wants to buy.

Self-scanning offers many advantages and boundless opportunities. As noted in a study by the VDC Research Agency “retailers who had deployed self-scanning have seen a minimum 8% of daily customer traffic preferring to self-scan and checkout items themselves during shopping trips and frequently have bigger average basket siz-es”. In the study, it was also observed that people of all ages use self-checkout. The solutions are widely used among buyers looking for a new experience and freedom of shopping at their own discretion. (Husain et al 2016.) An overview of advantages and disadvantages of hand-held scanners presented from the point of view of retailers and customers is provided in Table 1.

Advantages of self-scanning

Disadvantages of self-scanning

Retailers

• Profitability
• Sales increase
• Automation
• Reduction of labour costs
• Shoplifting augmentation

Customers

Efficiency

• Ease of use
• More control
• Reduced queuing time
• Uncertainty
• Self-scanning errors

Self-scanning grows fast. According to the list of retailers already using or testing this solution (Appendix I), we can see that totalled up to 22 chains have adopted this solu-tion. According to the research carried out by VDC Research Agency, the expected annual growth rate for self-scanning software reaches 14% (CAGR, 2015-2020) (Hu-sain et al 2016). In addition, Nielsen investigated through a survey conducted among 30,000 consumers in 60 countries, that “a hand-held store scanner to purchase prod-ucts as they shop to avoid checkout lines is used today by 12% of global respondents, and 70% are willing to give it a try when it is available” (Ekman 2016).

There is a growing demand for self-scanning solutions in Europe, and the number of European stores using self-service solutions (SST) as part of their customer service strategy grows increasingly. For example, self-scanning solutions have been success-fully applied and scaled in such retail chains as Waitrose (U.K.), ICA (Sweden), and Tesco (U.K.). A study conducted in Sweden revealed that Swedish customers use the self-scanning service and they agree that it allows to shop easier, faster and more effi-cient (Ekman 2016).

In the USA, customers also emphasize speed and convenience during shopping. Ac-cording to the survey conducted by eMarketer of American Internet users, at least about 30% of participants indicate that they will return to the stores where smooth and fast self-service options are provided. In addition, Harris survey data from 2013 showed that an astonishing 88% of adult Americans want their experience in retailing to be faster. (Nallapureddy et al 2017.)

Available Self-Scanning Technologies

Due to speedy progress of self-scanning services, there are several ways of recogniz-ing and reading data for self-scanning devices. In this section, we will discuss three main scanning technologies presented in the market. They are barcode, Digimarc bar-code and radio frequency identification (RFID).

Barcode

Being an optical representation of data, machine-readable array of parallel lines alter-nating between white and black lines as figure 2 shows, barcode technology repre-sents an easy and cheap way of recording data or information in a number of applica-tions.

Nowadays, it is quite difficult to imagine life without barcodes since they totally changed the process of checking out and inventory control not to mention many other industries. According to GS1, the number of scans exceeds 5 billion per day, so, con-sequently, barcodes are going to last a long time due to the level of implementation that they have already reached.

Barcode technology represents such essential benefits as the status of being a proven technology and having deep roots, the absence of adoption challenges for technology that works with barcodes, and established ecosystem. (Nallapureddy et al 2017.)

Digimarc Barcode

Being faster, more trustworthy and more functional than today’s UPC/EAN symbol and occupying zero space, Digimarc Barcode is an essential advancement to classic barcode functionality. With Digimarc Barcodes, product packages can be scanned with Digimarc‐enabled POS image scanners at checkout noticeably faster than classic UPC barcode scanners. The Digimarc Barcode is based on a Fixed Code Direct Se-quence Spread Spectrum robust image watermark technology using a pattern that is rotation, scale, and translation invariant (see example given in figure 3 below). (Nal-lapureddy et al 2017.)

Digimarc and leading manufacturers of retail networks and thermal printer suppliers distribute a more potent labelling solution for retailers and packaged food brands. Digimarc Barcode for Thermal Labels provides more safe and effective scanning, which allows economizing time and reducing costs actively encouraging accurate data in retail and logistic environments at the same time. (Nallapureddy et al 2017.)

Tenable adoption is questionable unless there are some stimuli beyond the short lines for the customer to proceed to accept this solution. Digimarc-based codes must over-come the implementation problems with the manufacturers, package‐printing compa-nies and checkout data capture solution providers. Despite the sufficient traction with data capture solution providers, more needs to be done to push the acceptation from the packaging side. (Nallapureddy et al 2017.)

There are the following essential advantages of this solution (Nallapureddy et al 2017):

• Orientation (fast scan) – Package adjustment concerning the scanner is no longer obligatory due to the character of the barcode which is designed as ro-bust against orientation, and due to the imperceptibility of the watermark providing considerable printing redundancy on all sides of the package.
• Customer Engagement – Secondary advantage of orientation agnostic scan ability is that cashiers at checkout counters can provide more efficient cooper-ation with customers. Moreover, customers can proceed engaging with the product related interactive mobile content even after leaving the shopping area because Digimarc enabled barcode scanning application on smartphones can straight engage them with the products and promote advertising and cross selling opportunities.
• Cost – Almost does not affect the existing solutions for printing and scanning because it can substantially replicate the same workflow as modern barcode-based solutions. The only difference to the workflows is several software up-grades.
• Aesthetics – Since the barcode does not demand certain design limitations such as space and shape restrictions, it provides more flexibility for package cover designers.

Radio Frequency Identification (RFID)

Being a well-proven and fundamental technology in the field of tracking and invento-ry management, RFID can eliminate retail checkout solving some of the modern tech-nological challenges. RFID uses electromagnetic waves to identify and track labels attached to products, meanwhile passive tags utilize the energy from neighbouring RFID readers in order to send electronically stored information to the reader. (Nal-lapureddy et al 2017.)

RFID tags (constitute a small chip and an antenna) carry similar information as the barcodes about the products and eliminate the requirement of line of sight and short range between the tag and the scanner. RFID tags can be scanned at several meters and possess a radical new feature as compared to barcodes that can only be read - they can be both read or written to. (Nallapureddy et al 2017.)

Radio frequency identification (RFID) is the most reassuring in terms of increasing productivity in the value chain because it is already widely used in distribution, track-ing and inventory management leaving only the last stage of POS. Cost of tag is still a barrier that prevents the technology to go from carton level tags to item level tags, but if the problem with costs is resolved, this will be the best solution for both retailers and customers since theft problems are implicitly worked out by this solution. (Nal-lapureddy et al 2017.)

The key advantages of this solution are the following (Nallapureddy et al 2017):

• No alignment/orientation requirement such as in barcodes,
• Concurrent scanning of multiple products,
• Read/Write capability helps with reducing shrinkage,
• Integration with billing and inventory management,
• Scan distance requirement will be relaxed.

The solutions considered here have certain complicated impediments to overcome and implied advantages over other technologies, just like any new disruptive technology facing acceptance challenges. (Nallapureddy et al 2017.)