The retail landscape is changing drastically. Do you remember the video store? Only 250 video stores remained In the Benelux in 2018. That is one-tenth of the total number of video stores in 2008. In February, the bankruptcy of Intertoys took The Netherlands by surprise, while in Belgium commotion arose concerning BNP Paribas Fortis’ announcement to close several branches. In 2018, there were 5133 bank branches in Belgium, which is a 38% decrease compared to 2008, but still 5 times more per capita than in the Netherlands.The food market seems to completely dodge this trend. In the Netherlands, the number of supermarkets grew by 3.2% to 6,000 in the period between 2008 and 2017. The total number of food stores increased by 1.5% to 19,000 during this period (Source: CBS).In Belgium, the number of self-service supermarkets decreased slightly (Source: Nielsen, F1, F2, HD, F3 superettes). However, we have seen an upward trend the past few years. The top 5 retailers continue to open new supermarkets. AH and Jumbo have an eye on Flanders and both expressed the ambition to reach the number of 100 stores.

The apparently innocent statement by Wouter Kolk: “I do not think we will have more than 1000 stores in the Netherlands in the future” (Source: Financieel Dagblad of 12 December 2018) – can be considered as a prelude of what is to come . Although many think that transformation will skip the food sector, we believe that all companies should prepare themselves for a future with far less physical stores.

The evolution of store functions.

There is a broad consensus that the primary function of supermarkets and food retailers should evolve towards shopping experience. Supplementary shopping (so-called top-up purchases), such as fresh products or forgotten items, as well as impulse purchases, will certainly continue to play a role. Given the growing consumer demand for convenience, speed and efficiency, convenience shopping is bound to increase.

Retailers encourage grocery collection (pick-up shopping). It allows them to continue using their existing retail park, while collection costs are paid for by the consumer. A large proportion of consumers, mainly millennials, consider home-delivered groceries as the ultimate convenience (if they are delivered at a suitable moment). In addition, for millennials, free delivery services are self-evident. Retailers in fashion and in the non-food sector have set these practices as a standard for e-commerce. Even returns are free. No wonder that the consumer finds this normal.  

Food retailers’ behavior in the Benelux ranges from denial to careful trying. But free home delivery is avoided at all costs. At present we estimate that the share of home delivery within food retail in the Benelux is less than 0.5%.

E-commerce in the food market is growing by more than 30% annually. Most estimates for 2025 range from 5 to 10%. Officially, food retailers do not believe in free home delivery and they expect this share to remain very small: “no demand, no profitable business model”.

But things might turn out differently.

The retail architecture of the future

Broadly the changes are clear. Most existing stores offer little convenience and experience. A thorough transformation is needed. The physical store of the future will have to excel in terms of experience, location (so-called convenience stores) or pick-up convenience. A good combination of 2 or 3 of these features is of course also possible.

The online concepts of existing retailers all focus on pick-up. Although many experiments with home delivery have already been carried out, these are all put on the market with a hefty price tag. New players work massively with free home delivery. This model is closest to the expectations of the digital consumer. Of course they also have no stores, so no legacy business to defend.

The waves of disruption

The above architecture endangers the continued existence of many retail chains such as we know today. Retailers must ask themselves whether their existing stores are sufficiently adapted to the future needs and whether they are located in the right location. An adjustment of the retail park will require a considerable investment.

Profitability in retail is reasonably low. The net margin in the Benelux is around 3% on average. Colruyt and Ahold have the highest net margins, while other players have lower or even negative margins. An optimistic estimate shows that in Belgium 1 out of 10 supermarkets are loss-making, in the Netherlands this would be more in the lines of 1 in 15.

The shift towards home delivery is providing troubling times for  the retail sector. This is due to the high fixed cost model of the sector. The fixed costs fluctuate between 60% and 70% of the turnover. So a small loss of, for example, 3% revenue to home delivery represents an average of 2% less underlying operating profit. The net margin in the sector would drop to 1% on average. This means that about 30% of the stores would become loss-making. Few retailers have the cash reserves to sustain this for a long time. The independent entrepreneurs (franchisees), who have a lotof stores at some chains, might then be even more inclined to throw in the towel.

The last man standing

Within the next 10 years we expect that 30 to 40% of the supermarkets will have to close due to a lack of profitability. We therefore have to ask ourselves why the big retailers still keep opening new stores. After all, they have sufficient insight into the market to be able to properly assess the above dynamics.

There are two main reasons: a tactical and a strategic one. From a tactical point of view, it is very difficult to close stores without losing sales and market share. The remaining stores in the neighborhood would immediately pick up that turnover. Most consumers do not shop more than 3 to 5 km from where they live or work. Strategically, the last remaining retailers will acquire a stronger market position. Indeed, a large proportion of consumers continue to shop physically. Consequently, the remaining stores would become extra profitable. “The last man standing wins”.

We are on the verge of a revolution in the retail sector, of which the ever-increasing changes will leave a lasting impact. The stakes are rising, the risks are getting bigger. Whoever will ultimately be the winner depends on the vision, flexibility and resilience of the players within the sector. “The only way to win is to learn faster than anyone else” as Eric Ries says.

About the author  

Nils van Dam is a seasoned manager, with more than 30 years of experience in the FMCG sector. He had a career at international, European and local level at Unilever, AB InBev and Censydiam in marketing, sales and general management. In his last role as CEO of Unilever Belgium & Luxembourg he led the digital transformation trajectory aiming to prepare the company for the future. Nils is fascinated by marketing, change management and company transformations.

In 2018 Nils became Global Head Food, Beverage & Food Retail at Duval Union Consulting. He is also a partner and director at Jacoti, a new technology company in hearing aids. He is a director at the Westmalle brewery and at Spaas candles.

Artificial intelligence is one of the ultimate buzzwords at the moment. But what is it exactly and how can it be created? And most importantly, how are we helping it to perform even better? Marvin Minsky, a cognitive scientist, described Artificial Intelligence as the science of making machines do things that would require intelligence if done by humans.

Well, that seems pretty obvious isn’t it? Just like human beings, artificial intelligence shows the ability to use external data and uses this data to reach its goal to the best of its abilities. That’s where one of the issues comes in. Right now, a lot of these AI systems can grab and use this external data, but they struggle to know what is ‘correct’ and how it should interpret this data. It still needs a third party to verify whether or not the AI is on the path to reach its goal.

That’s where you and I come in. The best way to make Artificial Intelligence resemble Human Intelligence, is, well, humans. But if one person had verify everything AI is trying to decipher, he’d have a burn-out in no-time. If millions would verify a solution multiple times, however, it would be way more efficient.

That’s one of the reasons why CAPTCHA was developed. CAPTCHA stands for Completely Automated Public Turing test to tell Computers and Humans Apart. What an acronym. In short it’s a huge test everyone can fill in, to make computers so smart, you couldn’t tell them apart from humans. At  least in intelligence.

Do you remember the tests like the one on the left? I’m sure you’ve filled in several before. This is a great example of a CAPTCHA, made by Google’s reCAPTCHA.

Back in the day, Google was trying to digitise old books, but their scanning intelligence had some problems identifying all of the letters and words. That’s why they took a few excerpts from different books, threw them online to let you decipher them and bang, you just helped making Google’s AI smarter.

The great thing about this insight is that you and I can now reverse-engineer Google’s next steps in AI through their reCAPTCHA strategies. Lately I’ve been bumping into other ones online and they looked a little like the one below. Google is asking us to verify whether or not there are street signs, lampposts and street lights in the picture. We do know that they are testing self driving cars, so I have a pretty valid hunch we are teaching their AI how to drive.

I’m wondering what Google’s next reCAPTCHA will be. Verifying Celebrity faces? Recognising different kinds of foods? Identifying emotions? How do you think we will help Google in the future?

P.S. If you want some more insights on the future of mobility, be sure to download our free Vision Slide Deck through this link: bit.ly/Future_of_Mobility

On a Monthly basis we’ll highlight 6 articles that caught our attention while doing our research. We’ll show you key events or trends in the Mobility industry that you shouldn’t have missed this week. All articles were gathered and processed in our Trendbase tool.

73 Mind-Blowing Implications of Driverless Cars and Trucks

Uber just announced that it ordered 24,000 self-driving Volvos. Tesla recently released an electric, long-haul tractor trailer with extraordinary technical specs and self-driving capabilities. Furthermore, Tesla also announced what will probably be the quickest production car ever made. Google just ordered thousands of Chryslers for its self-driving fleet.

In September 2016, Uber had just rolled out its first self-driving taxis in Pittsburgh, Tesla and Mercedes were rolling out limited self-driving capabilities and cities around the world were negotiating with companies who want to bring self-driving cars and trucks to their cities. Since then, all of the major car companies have announced significant steps towards mostly or entirely electric vehicles, more investments have been made in autonomous vehicles, driverless trucks now seem to be leading rather than following in terms of the first large scale implementations and there’ve been a few more incidents.

Read more about the implications of driverless cars and trucks here

Lime bikes and scooters on Google Maps

Starting this week, you can see nearby Lime scooters, pedal bikes and e-bikes right from the transit tab on Google Maps in over 80 new cities around the world. When you need to travel short distances or that last mile, Google Maps can tell you if a Lime vehicle is available, how long it’ll take to walk to the vehicle, an estimate of how much your ride could cost, along with your total journey time and ETA.

Read more about Lime scooters and bikes on Google Maps here

D’Ieteren saves Zipcar with Poppy

Through its car sharing subsidiary Poppy, D’Ieteren saves the soon-to-be-dead Zipcar. Activities will be merged by May, thus expanding Poppy’s reach to Brussels. The company’s aim is to offer a comprehensive range of clean cars, electric mopeds and scooters on a free-floating base.

In January, Avis Budget Group announced it was pulling the plug on its free-floating car sharing company, Zipcar, in Brussels, Paris and Barcelona as of February 28th. Yet, in Belgium, Volkswagen group importer, D’Ieteren, saves the day for the seven employees and some 20.000 users. The group jumped on the opportunity to expand the activity of Poppy to Brussels.

Read more on how D’leteren plans to save Zipcar here

Chinese bet on electric to conquer Western car market

With the Chinese market dropping, local car manufacturers are looking to expand to other markets, such as North America and Europe. To probe the latter, some have chosen to present futuristic electric concepts at the Geneva Motor Show.

For the first time in twenty years, Chinese market sales have dropped. In 2018, the market lost 2,8% with 28,1 million cars sold. Yet, electric and hybrid cars are experiencing a huge growth (+62%) in the land of the red dragon while they only weigh at 4% in the worldwide market. To conquer western markets, Chinese carmakers are betting on electric power.

Read more on how the Chinese Bet on electric power

VW says driverless vehicles have limited appeal and high cost

Fully autonomous vehicles will take at least another five years to perfect, with the cost and complexity of rolling out the technology globally serving to undermine the business case, Volkswagen’s head of commercial vehicles said.

Autonomous cars require high-tech infrastructure, hugely expensive lidar and radar systems, as well as pricey deals with cloud computing and mapping providers, VW’s Thomas Sedran told Reuters on the sidelines of the Geneva motor show.

Read more about VWs take on the development of completely driverless vehicles

Tesla has a self-driving strategy other companies abandoned years ago

An overhaul to Tesla’s Autopilot webpage might represent the clearest acknowledgment yet that the company has failed to deliver on Elon Musk’s ambitious vision for a self-driving future.

“You will be able to summon your Tesla from pretty much anywhere,” Musk wrote in July 2016. “Once it picks you up, you will be able to sleep, read or do anything else enroute [sic] to your destination.” Indeed, he predicted, Tesla customers with full self-driving capabilities will be able to have their cars join a ride-hailing network in order to “generate income for you while you’re at work or on vacation.”

In January 2016, Musk predicted that Tesla cars would be able to drive autonomously coast to coast “in ~2 years.”

Needless to say, this hasn’t happened. And after more than two years of peddling unrealistic visions of Autopilot’s future, Tesla’s Autopilot page has finally been updated to reflect that reality.

Read more about Tesla’s self-driving strategy here