Food – the Final Frontier of Digitalization
A look at the grocery retail business undergoing a digital transformation
Since the first agricultural efforts in the Neolithic era and the dawn of industrial food production in the nineteenth century, the food business is right now at a historical crossroads. This time there are two major factors that will permanently impact the way our food is produced and consumed in the future: 1) the climate & ecological crisis and 2) digitalization. Luckily, the latter can help humanity solve the former, while also offering opportunities and growth for businesses. Though what is needed is a transformation of the entire food system, one also has to approach this elephant one bite at a time. At SHIFT 2020, Food Tech Platform Finland zooms in on the digitalizing food retail business.
The most interesting and biggest digital leaps are taking place at both ends of the food chain; the agriculture and the retail business.
Food is a tricky business to digitize. Foremost, it’s a delicate product, and most of it perishes easily. Secondly, consumers want many different kinds of food, often, and only relatively small amounts at a time. The number and variety of transactions in getting the food from the farm to the fork is staggering. Furthermore, food is a product of a biological process, still dependent on the planet’s ecosystem and various complex nature’s phenomena (like photosynthesis).
Due to these mostly analogous features, the food business has been one of the last frontiers of digitalization. Now, finally, it is underway. The most interesting and biggest digital leaps are taking place at both ends of the food chain; the agriculture and the retail business. The landscape of agribusiness is shifting rapidly because of new technologies provided for measuring and monitoring the cultivation processes and quality of outcomes, at diminishing prices.
The servitization of food retail business, enabled by digitalization, is one of the most disruptive business developments currently emerging, and signifies interesting opportunities.
Whilst this traditional sector in the beginning of the food chain is at the start of its digital journey, at the end of the chain, the food retail is much further in digital maturity. Considering the vastness of the global food business, the food retail sector is a consolidated industry with 10 biggest players dominating ca. 30% of the world market. Large corporations ruling their national markets, including Walmart, Tesco, ICA, and S-group and Kesko in Finland, have already for quite many years put their truly BIG purchase data from millions of customers to good use in driving, for example, assortment development. Still, the real mavericks of grocery e-commerce are, of course, Amazon and Alibaba who as digital natives approach the food retail from a global and distinctively logistics-driven perspective. Especially Amazon with its Prime offering is showcasing how food retail is becoming a true service business instead of a “location business”.
Indeed, the servitization of food retail business, enabled by digitalization, is one of the most disruptive business developments currently emerging, and signifies interesting opportunities for new players. For consumers, it means genuinely new added value to grocery shopping, often offered by creative startups. The first innovation was meal kits, built on the insight that consumers are willing to pay for a ready-made weekly dinner schema and home-delivery of needed articles. Next, there were the food rescue services, making everyday engagement in the circular economy possible for the conscious consumers. Now, the local produce trend is driving digital, regional food co-ops, with unmanned pick-up centers backed up by technical solutions such as RFID tags and electrical keys. And recently, a Finnish startup Venner has launched a novel social impact business model where consumers can harness their grocery shopping for the purpose of donating a meal kit of healthy vegetarian food to disadvantaged families.
Further innovative services are under development where digital drives personalization and health-related food solutions.
No doubt that convenience in terms of UX and home delivery, economic pricing, and wide assortments continue as essential competitive advantages in the “traditional online grocery business”. However, the described new business models give us a glimpse of the other – value added – direction where the future of digital grocery retail is also going. Further innovative services are under development where digital drives personalization and health-related food solutions. In fact, it seems that in terms of digital food distribution coupled up with the platform and data economy, we haven’t seen half of it yet!
What comes to food, we are living historical times, painfully emphasized by the Covid-19 pandemic. The timing is perfect for launching new food systems transforming digital solutions. There really is no time to lose, so come and join the digitally fueled food revolution!
Laura Forsman is the Program Leader of Food Tech Platform Finland, operated by the University of Turku and funded by EU’s Regional Development Fund. At SHIFT 2020 Laura will host the panel discussion on digitalization and systems thinking for sustainable food business.
Food Tech Platform Finland is a food focused research-business network bringing together companies, startups, science and education communities, and the public sector. Its ambitious aim is to develop a sustainable Food System 2.0. For this purpose, it facilitates the breeding of science-based food innovations and novel business propositions. www.foodtech.fi