During the summer, fast food giant Chick-fil-A began selling meal kits—packages of uncooked and premeasured ingredients that help customers prepare complete meals at home. The effort was a trial balloon for Chick-fil-A, as it involved only 150 franchises in the Atlanta area and ended in October. But it serves as an interesting point of discussion for the radically shifting trends in food service, consumer products, and retail.
I’ve enlisted my colleague Jeff Warren, vice president of Oracle’s retail global business unit, to help sort through those shifts and what they mean for the future of the consumer markets. What follows are excerpts from our recent conversation.
Forhez: Meal kits may be a fad or they may be the future—but I don’t think that’s really the point. For me, what Chick-fil-A is doing exemplifies an ecommerce truism that’s truer than ever: If companies want to adapt to today’s highly connected business environment, they have to figure out exactly what business they’re in. Ask Kodak. Or Blockbuster. Or even Netflix, which used to rent DVDs by mail and is now seeing its hugely successful online streaming service being pressured by mobile video providers. In offering meal kits, Chick-fil-A may be asking itself just what business it’s actually in: fast food restaurant chain or versatile provider of nourishing meals for on-the-go consumers?
Warren: Historically, the retail business was driven by supply chains: Retailers bought stuff to sell stuff. At the end of the day, whom they sold to and how they sold it wasn’t as important as the need to optimize how they bought and produced goods as part of the supply chain.
Now, because of the internet and smartphones, consumers can buy anything from anywhere at any time. Such increased flexibility and choice have given consumers the power to dictate the way they interact with retailers—and it’s not just about sales transactions anymore, but personal interactions. As a consequence, retailers need to rethink the core processes by which they measured productivity and profitability in the past.
Forhez: That’s certainly true in the CPG (consumer packaged goods) industry. CEOs of CPG companies are under tremendous pressure because consumers are increasingly skeptical about processed foods. They’re looking closely at labels because, in today’s environment, shopping for food isn’t only about the product; it’s also about the integrity of the product. And that’s where the meal kit comes in—it’s a method of delivering fresh food specific to consumers’ tastes.
Smart CEOs know that if companies keep doing the same thing, with only incremental improvements, they’ll fail. For CPG companies that are competing with an increasing array of “fresh” alternatives, both products and services, it’s now death by a thousand cuts.
Warren: In the past, businesses tended to stay within their swim lanes. Regarding food preparation, there were fine dining, fast food, grocery stores, and convenience stores, and they each had their place. Today, retailers are realizing the value of creating enjoyable buying experiences and recurring interactions with consumers. Online clothiers such as Stitch Fix and Trunk Club, which offer convenient and fun shopping experiences to consumers at home, have tapped into this trend. So retailers are looking for more and more interaction points with consumers as a way to drive up interest and engagement.
Forhez: The home-delivery shopping model, like many meal kit models, is basically a subscription service. And subscription services certainly aren’t new. Depending on how far back you go, consumers subscribed to home delivery of coal, oil, ice, eggs, bread, milk, and butter. Milk delivery is even experiencing something of a resurgence!
Warren: The big advantage to subscriptions is that you know your customers and their interactions in detail. Whether it’s through subscription services or customer loyalty programs or Internet of Things technology, every retailer is on the hunt to acquire as much customer data as possible.
As retail switches from a supply-chain-centric to a consumer-led business model, identifying, engaging, and retaining the right customers is going to become more and more important. It’s a concept known as customer-value banding, and it’s becoming a core KPI (key performance indicator) for retailers. Determining which shoppers are likely to buy at full price, which are likely to have a higher frequency of transactions, and which are likely to post favorable social reviews is becoming a core retail competency.
Forhez: Our capacity to understand customers—who they are, what they need, what they believe in, what’s important to them—is no less important than how much money they spend or how often they shop with any given retailer. With all of that information, it’s possible to do a far better job fulfilling a more significant proportion of customer opportunities.
Warren: If retailers can capture customer interactions, including such “sentiment” data, and marry that with additional online data—from social media or chatbots, for instance—they can figure out how best to engage their customers. That’s what retail is all about.
Forhez: Building on that point, Jeff, I’d say that if you’re not constantly innovating—that is, using new technologies to discover what customers really want, even as their preferences change regularly—you’re stalled. The question now for Chick-fil-A might be: Can you take advantage of a captive market to innovate and expand the value of your franchise? Lacking that, you get Kodak, Tower Records, etc. It’s a process of constant learning, and a business model that goes through regular evolutionary transformations—what some observers refer to as “disruption as the new normal.”
Warren: It’s a delicate balance. Are Chick-fil-A’s meal kits going to impact the number of times that people eat out—including with Chick-fil-A? It’s a potential risk.
On the other hand, is this an opportunity for Chick-fil-A to position its brand beyond convenience and fast food but instead as a wholesome part of every American family? Can Chick-fil-A take the equity that they’ve built up with their customers and extend it into their homes, into their kitchens?
Forhez: It’s all about serving consumers more capably, more fluidly. It requires the capacity to understand what consumers really want, then provide customers with those products and services how and where they want them.
Warren: In the past, the retail supply chain was linear. Now the consumer is at the center of a supply chain that emanates in every direction.
It’s why retailers are using IoT technology to fundamentally re-invent their service models in new and fascinating ways—for back-end supply chain requirements, of course, but also to garner more detailed consumer data to help enhance customers’ experiences. Retailers and manufacturers are starting to deploy more and more sensors not just in their stores, but also in consumers’ homes—in refrigerators and washing machines–and on their persons, with smartphone apps and fitness trackers. By examining such disparate, cross-segment information, retailers and their suppliers can review every process in which they provide—or might provide—value to consumers. That makes for better outcomes for all parties.
Forhez: By introducing a range of experiments tempered by a thoughtful degree of risk management, manufacturers and retailers are trying to be more capable in serving consumers. We’re witnessing a breathtaking evolution of the consumer market—from mass manufacturing to mass customization, from products as end-use to products as service, from completing a transaction to forming a relationship. All of this represents the inverse of a long-standing equation: Instead of “How much can I make that I can sell?” it’s now, “What do consumers want, and how do they want it?”
Warren: Insight and adaptability rule. Knowing what consumers want this month, next month, two years from now, then adapting quickly to those desires and aspirations, will be paramount.