Too Cool: The Real Meaning of Chilled Drop Boxes for CEE Retail
08 Jun 2015
In May 2015, online merchant Merlin announced it will deliver perishable food through collection lockers. To prevent fruit from rotting and ground meats from turning into bacteria farms, the Poland-based seller will keep things cool with refrigeration. This bold bit of value-add signals advancement into a much broader and potentially revolutionary arena: the Internet of things (IoT).
Multiple delivery options have always been important in retail, and delivery innovation is nothing new in Central and Eastern Europe (CEE). The region's retailers have often proven more prescient than sellers in the U.K., arguably the world's most advanced market in terms of innovation. For instance, online retailer Ozon, widely known as the "Amazon of Russia," spun off its own logistics company to compensate for unreliable postal services. It partnered with thousands of stores, enabling shoppers to "click and collect" goods ordered online at locations convenient to them, well before similar services were widely available in the U.K. In Poland, packages too bulky for slipping into letter slots generally made it to the correct neighborhood post office for pickup. But opening hours were (and are) terribly inconvenient for those with regular jobs. InPost, a private delivery firm, emerged to fill the gap, deploying drop boxes as far back as 2012 before exporting the service to other markets.
Refrigeration adds a new layer of complexity. Some form of remote monitoring has always been a part of locker pickup (even if just CCTVs to ensure security). Cooling lockers down requires monitoring temperatures, seals, electricity consumption, refrigerant levels, mechanical parts, and availability. (In this case, the U.K. is a little ahead of CEE, as Wal-Mart's Asda stores have already deployed remote delivery coolers.) Moreover, locker data can eventually be integrated with ordering data and item availability in stores and warehouses, opening the door to the automation of a great deal of the process. And at some point, lockers will communicate with each other to optimize cooling systems and minimize energy consumption by ensuring close proximity when stashing perishables for pickup.
This automated coordination is at the heart of IoT; and Merlin's deployment marks a proactive embrace of its possibilities in the retail industry. IoT in retail is still small, being only one-tenth the size of the sector's total IT spending in the region. But investment is rising fast. According to a recent IDC study, annual spending among CEE retailers on IoT solutions will jump more than 27% annually through 2018, with growth in Poland and the Czech Republic soaring upwards of 30%. (This is right in line with global trends, as worldwide retail IoT spend is growing by around 29%.) A great deal of that will be directed to in-store digital offers and personalized shopping experiences. Using a combination of in-store sensors, RFID chips that track how merchandize is handled, and customer smartphone location and use within stores (some actions will require customer cooperation), personalized offers can be created on the spot to boost sales and loyalty. The data can then be sent back through supply chains to warehouses and manufacturers to ensure popular items are always in stock.
For the lockers per se, it is possible (perhaps even probable) that consumers will respond with a barely audiblemeh. But that matters little in the medium term. Omni-channel retailing is increasingly essential to any store or chain of stores that wishes to remain competitive. Being first to experiment with a new delivery channel is an enormous PR coup. Even if the project does not take off, laying the groundwork — through systems that can coordinate delivery, monitor pickup locations, use data to streamline supply chains, and improve the customer experience — raises the bar on what customers will expect from their favorite stores.
And loyalty is now what the retail game is all about. The old paradigm of increasing same-store sales has shifted to maintaining and increasing same customer sales. IoT will be an important tool, not just for keeping food cold and generating positive PR, but also for providing value that keeps people coming back.
This commentary was inspired by Internet of Things in Retail in Central and Eastern Europe (IDC # ERI01X), a study outlining and sizing the IoT market in the retail sector of Central and Eastern Europe. It examines the overall retail landscape, presents key indicators, and addresses the main drivers of IoT deployments in this relatively immature market.
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