Is The Grocery Store Industry Ripe for Digital Innovation?

Is The Grocery Store Industry Ripe for Digital Innovation?

Let’s face it – grocery retail stores are a timeless staple in our lives. It has everything we need, from fresh ingredients to party supplies. In the grocery retail world, there are hypermarkets and supermarkets.

Supermarkets like Jaya Grocer and Mercato in Malaysia are the ones right around the corner; they supply both local and international products and generally fulfil your shopping list. As for hypermarkets, they have a grocery retail store and a department store. Hypermarkets like Tesco (now renamed Lotuss Stores Sdn Bhd) are also characterised by fast-moving consumer goods (FMCG) that are cheaper and sold under the hypermarket’s brand.

One thing I’ve noticed is how the grocery retail industry is a competitive market by itself. I live in an area with a lot of grocery stores; within a 10km radius, there are possibly over 5 stores in operation. Most of the time, these retailers have the same products stocked.

A comparison I’ve conducted was between Jaya Grocer and Village Grocer, which are located in malls that are across the street from each other. After shopping in both grocery stores, I discovered that Village Grocer has a wider variety of exports as compared to Jaya Grocer.

On average, people are more likely to spend 30 minutes to a few hours shopping for what they need. In a study conducted in 2015, people would prefer to go to hypermarkets for major purchases at a lower cost.

Hypermarkets are also typically built in areas with a high population density, like 1 Utama Shopping Centre’s AEON in Bandar Utama. Hypermarkets are budget-friendly and often have a variety of products. However, major hypermarkets like AEON and Lotuss Stores are often associated with lower-quality products, even though they stock the same products as Jaya Grocer.

At the start of the pandemic in Malaysia, grocery retailers became more important for many households. In this period of mass uncertainty, buying groceries from the nearest supermarket provides peace of mind. Due to the enforcement of the Movement Control Order (MCO) in 2020, many people resorted to stocking up on more supplies to reduce their store visits and their chances of catching the coronavirus.

Eggs, as well as dry and fresh foods, were the top three items that were popular. Additionally, the retailers that were frequented the most were local grocers and supermarkets like 99 Speedmart and Lotuss Stores.

If you’re not into weekly grocery runs, you have the choice of having your products delivered to you. You can do this by selecting food items from a mobile device app and schedule your deliveries to your home. Delivery services like HappyFresh and GrabMart offer this service, and even grocers have jumped on the bandwagon to help as many people as they can. But a disadvantage to these delivery services would be the potential delay in deliveries since there’s an increased demand for the services.

In light of my grocery runs at retailers like Mercato and Jaya Grocer, I’ve noticed that they did not reduce their prices during the MCO. That is, their items remained at the same price. If our groceries were considered a necessity, are we unconsciously overpaying for food?

To answer that question, we need to look into the prices of food items among farmers, wholesalers (or companies that buy in bulk at a lower price and sell the items to other retailers), and end-grocers (e.g. Ben’s Independent Grocer, Qra, and Mercato) in Malaysia.

In lieu of my research and calculation, it can be assumed that we may be overpaying for food. However, when these primary food items are exempted from consumption taxes, we need to look into the potential factors that contribute to the pricing of grocery items.

An article by The Star Online has revealed that food production is low in Malaysia since much of the land (88%) is dedicated to palm oil and rubber production. As a result, the country has to depend on imports for its food supply.

Global factors (e.g. climate, supply levels, and export prices) from foreign countries can also affect the retail price of our groceries. For example, if Australia were to raise the prices of their milk, the price would also increase in Malaysia.

Climate conditions and product supply are synonymous in the sense that if the growing conditions of a product are not desirable, it can potentially delay harvests and reduce export supplies. Due to the high demand, they may resort to increasing their export prices.

Another significant factor is how foreign countries monopolise their supplies, which in turn, manipulate the market. This is described as how the “middlemen” of the supply chain (the intermediaries between farmers and retailers) would acquire the farmers’ products at an incredibly cheap price but sell it to the consumers at three times the price for the sake of profit. This is because within an economic monopoly system, prices can be determined by a single producer.

On top of that, there is the Malaysian Sales and Service Tax (SST) that was implemented in November 2018. This tax is mainly imposed on imported products, with a rate between 5% to 10%. You can check out the full list of various imports and their taxes here. Notice how there are a lot of imported products that are exempted from the SST, like eggs and spices.

In my opinion, the main idea of a grocery store is to provide high-quality ingredients at an affordable or lower price. But as a grocery retail market, how can we do that?

The solution lies in disruptive technology. Disruptive tech is meant to ease the shopping experience, with instances such as the delivery services I previously mentioned, e-commerce sites, e-wallets, robots to clean up and calculate your receipts, and many more. There is also the internet, where you can learn more about a brand and its products and services, thus affecting how one makes an informed decision when it comes to shopping for groceries.

However, there is something that technology cannot replicate in the shopping experience. And that is the human touch. When you’re shopping in person, you can get a feel of the ingredients and the packaging. Maybe someone will be offering you food samples by a stall. Even as an adult, there’s always a sense of kindness and helpfulness among the promoters and employees – after all, it’s their job.

While I do think that supermarkets should upgrade their facilities and adapt to technology, I also think that grocery shopping should remain human. In my eyes, shopping should be a balance of 60% technology-assisted and 40% human-managed experience. Or else the whole shopping experience will feel lifeless and mechanical.

To resolve the issue of costs, grocery retailers can kill two birds with one stone by looking into packaging reduction while maintaining sustainable shopping practices. Grocery stores are prone to using a lot of plastic packaging, especially in their fresh produce aisles.

In Malaysia, supermarkets and hypermarkets have encouraged people to bring along their reusable bags to hold their purchases. For extra plastic bags, customers are required to pay 20 cents per bag. In addition, there are zero-waste stores where you can bring your own containers and bags to reduce your plastic usage.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily represent official policy or position of Pandan Social.

Natasha Effendy