A buyers' market
The world of retail has always been highly competitive. Firms fight for easily distracted customers by running low margins and high levels of marketing spend, all while trying to balance complex and delicate supply chains. Thanks to this, innovation and new technologies are vital to surviving and turning a profit, but bring their own challenges, from changing consumer behaviour as e-commerce continues to gain traction, to respecting the right to privacy as the ability to collect data grows.
To try to understand how South African retailers are making the most of technology tools at their disposal, and where they should be investing for maximum impact, Brainstorm convened a special roundtable of experts to discuss some of the opportunities and challenges they face.
What was painted was a very mixed picture.
The driving force in retail, says Vino Govender, executive for strategy, M&A and innovation, DFA, is the consumer experience, and using IT to drive efficiencies in the value chain. In certain areas, South African stores are on par with the rest of the world, but in others, we're still catching up.
Online shopping and ecommerce are the obvious examples of where South Africa lags, says Simon Shaw, business development manager: retail and consumer, WiPro. "Overseas, there's a lot of online shopping, whereas here, so many people aren't connected yet that it can't happen."
Anand Pillay, retail presales consultant at Altron Bytes Managed Solutions, reckons the demand for online shopping is there, but held up by problems around the lack of formal addresses in many areas. Many firms are looking at geolocation for delivery, or using networks of spaza shops as collection points to meet growing customer needs.
"There's a big difference between general merchandise and food," adds Franita Bosman, MD of BDS business development services, an organisation that supports SMEs in the consumer goods sector. "In the US, more than 50% of people buy food online already. We're a long way behind there."
That's not to say that innovation isn't happening, Bosman adds, pointing to specialist Ucook as a successful online startup, which delivers ingredients for meals to your door.
Because bricks and mortar stores are more important to South African retailers than they are overseas, technology here tends to be focussed on what Pieter Engelbrecht, business unit manager, Aruba HPE, describes as the shopping equivalent of 'bums on seats'.
"If you shop online, you're only buying one item, the thing you need," Engelbrecht points out. "If you go into a store, you're more likely to buy three or four things. Lots of retailers are building partner programmes that drive people in-store instead of online."
Zongamele Jacobs, senior solutions strategist at BCX, agrees.
"We're seeing ecommerce going physical," he says. "The challenge is that retailers here haven't been able to perfect what Amazon has done, which is cross-selling items online."
If you go into a store, you're more likely to buy three or four things. Lots of retailers are building partner programmes that drive people in-store instead of online.Pieter Engelbrecht, Aruba HPE
The cost of logistics in South Africa makes this even more appealing - the cost soon mounts up when sending out one item at a time.
"I was working with one retailer where the cost of delivery was R70 a time," says Paul McKane, industry value advisor for consumer industries at SAP.
McKane says that one area South African retailers are doing well in is with reward schemes. "Some of them are up there with the best in the world," he claims.
WiPro's Shaw agrees, but adds that many retailers aren't yet using the data generated through loyalty programmes to its full advantage.
"Many are putting in a reward scheme that can cost one percent of turnover, but they aren't using the information to get that money back," he says.
It's a big opportunity, says Engelbrecht, adding that one coffee chain he worked with used WiFi as a reward mechanism, encouraging potential shoppers to stay in-store. As a result, it grew revenue 15 to 20%, he says.
"There's still a breakdown between IT and business," says BCX' Jacobs. "IT has the data, but it's not using it. A lot of CEOs still feel that IT is a cost centre, so how do we empower CIOs to start mining their data for value?"
The other big opportunity for data use is in supply chain automation, says BDS' Bosman. Large stores, however, find this difficult because of errors in stock counts, she adds. RFID tagging is one solution, but, Shaw points out, no supermarket is going to invest in tagging tins of baked beans.
Any tech investment is a big decision for retailers, Bosman continues. "It's a massive industry, but the margins are tiny."
Many are putting in a reward scheme that can cost one percent of turnover, but they aren't using the information to get that money back.Simon Shaw, WiPro
SAP's McKane also draws on the analogy of tinned pulses. "I always use the example of asking how many more baked beans you need to sell to justify the cost of a new solution."
That's not to say investment isn't happening.
Aruba HPE's Engelbrecht provides the example of retailers he's worked with that are implementing in-store location technologies, such as iBeacons, to push contextual offers to customers via in-store screens.
"We could ID around whether the shopper was male or female, and which way they were walking to direct in-store promos at them."
All participants agree that smart advertising is a big opportunity, but one challenge, points out SAP's McKane, is who pays for it.
"Suppliers are often paying for digital displays, and they want their time on it," he says. "It requires a different way of interacting between supplier, vendor and retailer."
Systems that can target digital advertising to customers are often in place, McKane continues, but getting people to use them is a bit harder.
Many point to skills issues.
"It's where analytics, algorithms and automation come into place," says DFA's Govender. "However, one retailer we worked with had digital menu boards in place, and no one was refreshing the content."
The participants agree that South African retailers are missing opportunities for enhancing the customer experience and creating efficiencies through automation. Prime examples are self-service checkouts or, to a lesser extent, the kind of drone deliveries being pioneered elsewhere in Africa, but these are met with largescale protests here. Union power, everyone agrees, is holding back innovation.
"We need to start leveraging 4IR technologies," BCX' Jacobs says. "Look at the number of jobs that are at risk in SA - it's 67% (of today's jobs). If we don't automate, we will be outdated. What are we doing to educate the unions to think ahead?"
Cost of connectivity, even in the larger urban centres, also makes things tough. The good news, however, is that even though the biggest retailers in the world - Amazon and Alibaba - are fundamentally tech companies, local firms shouldn't feel too threatened because the retail landscape in South Africa is different to bigger markets overseas.
Innovation and tech investment will happen, but it will have a very South African flavour.
"I wouldn't limit myself by saying we'll see this or that happening in this country," says DFA's Govender. "We don't know what business models will come yet. Digital services are evolving fast."