By Charles King, Pund-IT, Inc. January 16, 2019
An announcement that slipped beneath some radars during CES 2019 reemerged at this week’s National Retail Federation (NRF2019) conference in New York. In the original press release, Microsoft and Kroger announced the first Retail as a Service (RaaS) solutions which they believe will “redefine the customer experience.” At NRF2019, the companies demonstrated the new solutions, and Rodney McMullen, Kroger’s chairman and CEO, detailed the effort during his conference keynote.
Is this a big deal? Perhaps, but in any case it casts light on the current state of consumer sales and how mainstream retailers, with the help of partners, like Microsoft are proactively using technology to transform their customers’ shopping experiences and streamline their own operations. Since this also reflects and has implications for online retail, it’s well worth further consideration.
A RaaS by any other name
So, what exactly is the new Kroger/Microsoft solution? Leveraging Kroger’s homegrown technologies and the Microsoft Azure cloud platform, the RaaS product is based on Kroger enablement software “built by retailers for retailers.” An initial effort will transform two pilot stores located in Monroe, Ohio and Redmond, Washington (near each company’s headquarters). Eventually, the pair plan to jointly market a commercial RaaS solution to the retail industry.
The pilot stores will incorporate shopping technologies, including the latest generation of Kroger’s EDGE (Enhanced Display for Grocery Environment) Shelf, a system that uses digital displays, instead of traditional paper tags, to indicate prices, promotions and nutritional/dietary information. Microsoft Azure will be used to store and process the data generated in stores and Kroger’s app.
Using Microsoft Azure AI, EDGE Shelf will also connect with Kroger’s Scan, Bag, Go, providing customers a guided experience designed to simplify shopping and checkout. By means of video analytics, personalized offers and advertisements can be presented to customers based on their demographics.
For store associates, a pick-to-light productivity solution can reduce the time it takes to fulfill curbside pickup orders. Microsoft Azure-powered video analytics will also help store associates quickly identify and address out-of-stock items to ensure customers can successfully locate products. Kroger also plans to generate new revenue by selling digital advertising space on EDGE Shelf displays to consumer packaged goods (CPGs) brands.
Retailers’ taste for tech is evolving
Does the Kroger/Microsoft partnership really deliver or portend anything new? In fact, yes. Though Kroger has previously deployed its EDGE Shelf technologies in some of its outlets, integrating those displays with data from its shopping app, analyzed and delivered with the help of Microsoft is new. Standardizing on Microsoft Azure is another new cloud-enabled wrinkle that should benefit both companies with both short- and long-term payoffs.
Why is that the case? First and foremost because perceptions about the uses for IT in retail and relative positions of related vendors appears to be changing significantly. For the past decade, Amazon has typically been considered the horse to beat due to the company’s dominance in online retail. That notion was amplified by the misfires and slow starts that plagued most traditional retailers’ online efforts.
Additionally, many saw Amazon’s 2017 acquisition of Whole Foods as a coup that would lead the company to become a substantial threat to brick-and-mortar retailers. While the deal did provide Amazon some intriguing opportunities, including helping to power its online grocery sales, some analysts suggest that traditional grocers who offer delivery and/or in-store pick-up on orders placed online are doing far better than Amazon.
Also consider that while Whole Foods owns some great locations and maintains a firm position with high income clientele, the company is ranked ninth among Top-Ten global supermarket chains with $15.4B in 2018 revenues, far behind #1 Kroger’s 2018 revenues of $105.1B. Plus, though Amazon’s AWS organization offers a number of cloud-based services designed for retailers and has racked up some interesting client wins, most are specialty firms, like Brooks Brothers and Eataly.
How will that stack up against Kroger and Microsoft’s enterprise-class solutions “built by retailers for retailers”? That’s impossible to say for certain, but it’s likely that the two companies’ effort will be considered with interest by medium to large-sized brick-and-mortar retailers and chains.
In addition, companies that have seen their business transformed due to competition with Amazon may be particularly attracted to the Kroger/Microsoft offerings. If the solutions pick up momentum, the two companies could well become the integration platform of choice for bricks-to-clicks retail transformation.
How big a deal is this for the parties involved? It has huge potential. Consider that after a bit over two decades of steady growth, ecommerce accounts for around 10 percent of overall retail sales in the U.S. Owning a bit over half of online retail has helped Amazon become a juggernaut within the tech industry and other markets. But when the company’s results are compared to the greater retail market results, Amazon’s 5%+ of the whole shows just how much upside broader technological transformation of retail players and processes might achieve.
It’s also worth noting that Microsoft is doing nothing like resting on its laurels. Under CEO Satya Nadella’s leadership, the company has become a major force in cloud computing, up to and including taking on and besting AWS in some markets—an achievement many would have scoffed at 2-3 years ago. It is also actively pushing into broader markets and vertical industries.
Plus, following its Kroger partnership strategy/solutions and the NRF2019 demoes, Microsoft announced a new seven-year strategic partnership with the Walgreens Boots Alliance (WBA) which is designed to develop new health care delivery models, technology and retail innovations. Along with rolling out Microsoft 365 to WBA’s 380,000+ global employees (in 11,500+ stores in 11 countries), Microsoft will also become WBA’s strategic cloud provider, with plans to migrate the majority of the company’s IT infrastructure onto Microsoft Azure.
Taken together, these announcements show Microsoft shooting for leadership in designing, developing and delivering transformational IT solutions and services for large retailers. If these efforts proceed as the company and its partners intend, the future of bricks and clicks consumer sales is likely to be brighter and quite different than many in the industry have long assumed.
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