When Robert Ilijason, aged 39, had to drive 12.5 miles to find the nearest grocery store that was still open, he conceived the idea of Naraffar – a wholly unmanned, convenience store. Naraffar, located in the town of Viken, Sweden (population 4,200) is an employee-less, tech-enabled store that is open 24×7, 365 days a year. Customers unlock the door using the Naraffar smartphone app which provides them with a unique id number linked to their Bank ID. The customers then proceed to scan the individual items that they wish to buy and are charged monthly for their purchases, all through the Naraffar app. (Watch: Naraffar Video – https://www.youtube.com/watch?v=ShNL3oU4Mi0) In Ilijason’s mind, the value proposition of Naraffar lay in providing 24×7 convenience to remote towns like Viken by getting rid of the constraint of scarce and costly labor. While Naraffar has only been in operation for 10 months now, it does pose an interesting question about the growing trend of customer self-service in retail.
This trend is clearly evidenced by the “click and collect” boom in Europe. In this model, retailers enable customers to order and pay online and then pick up their purchase at one of several strategically-located, highly-accessible, 24×7 pick-up points. In 2015, the number of click and collect points in Europe grew by 20% to reach an estimated number of half a million. The UK by far has seen the most traction with ‘click & collect” with nearly a third of online revenues coming from this channel. Several brick-and-mortar retailers in the UK have successfully decoupled the buying and collection process to minimize costs and maximize customer convenience. The supermarket ASDA has over 600 collection points across the UK located in operating ASDA stores, Tube stations, public parks and gas stations. These collection points, which are accessible 24×7, consist of temperature-controlled “intelligent” lockers which customers can unlock using a QR code given at the time of purchase. Similarly, Waitrose has installed “chilled”, unmanned lockers at Tube stations and Gatwick Airport (so that travelers returning from a trip can just pick up pre-ordered groceries as they exit the airport).
So let’s break it down. Why are these models working?
Firstly, the collection model solves many of the inefficiencies that exist within the current doorstep delivery model for online retail. It increases customer flexibility by shortening delivery time. ASDA for example offers same day pick up after 4 pm for customers that order before noon. This is invaluable for perishable and last-minute buys such as groceries. Moreover, from the seller standpoint, it takes away the high cost associated with last-mile logistics. Oftentimes for goods ordered online, customers aren’t home when the delivery arrives and the parcel needs to be either returned to a central depot or redelivered later. It is estimated that the direct cost to retailers of failed first time deliveries is over $1 billion per year in the UK alone.
The cost and convenience implications for a more direct model like Naraffar are also huge. For a traditional retail/grocery store labor costs form 10-20% of the cost bar. The absence of labor cost allows for retailers to expand into less dense areas and keep stores open in low-demand hours. Having said that however, this model is also more capital intensive. It requires significant investments in software and infrastructure such as POS and “temperature controlled lockers” which does pose a challenge to rampant network expansion.
Another significant challenge is security. Naraffar has employed some interesting mechanisms to deal with security issues. In addition to allocating a bank-linked, unique identifying number to each customer, the store is equipped with over 6 surveillance cameras. A state-of-the-art alarm system guards against break-ins and notifies the owner if the main door is open for longer than 8 seconds. While these may be effective deterrents in a small Swedish town the scalability of this model in larger cities and different markets is a question mark.
Slower adoption of technology, especially in rural areas, and a lower quality retail experience from lack of human interaction, pose additional hurdles. However, all-in-all, as smartphone penetration increases, the growth of this model seems inevitable.
The question then remains – what will the impact of this be on employment in developed markets? Retail sales in the US alone provide ~5 million jobs. How well are we equipped to absorb the displacement of a significant part of the workforce? While it may seem like self-service retail is paving the way to better economics and higher consumer convenience what we need to really ask ourselves is, at what cost?
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- Deloitte Industry Report – “TMT predictions, 2015”
- Forbes – 2010 Benchmark Breakdown: Key Metrics on 25 industries
- United States Bureau of Labor Statistics (http://www.bls.gov/ooh/sales/retail-sales-workers.htm)