The Future of Food (and other retailing) : No Advertising?

Technology and information will increasingly determine our consumer product choices and change the way food and other consumable goods are marketed, distributed, and sold

I spoke at the Techspo Conference (Dirt-Data-Droids) in Western Australia last week on the future of agriculture in 2027. In part that future is tied into the future of retailing of food and fibre. On the consumer side I proposed that we are on the verge of a complete disruption of the retailing of food around the world. This will be led by changes in the advertising and distribution model as well as other factors. (see: The Supermarkets Demise – A Scenario which is also linked to an earlier post ). This piece expands some of the thinking in those posts further.

These changes to food retailing will be part of a larger change in retailing. Technology will play a much larger part in determining our purchasing preferences.  There will be two parts to this story.

Firstly, we will move some of our purchasing decisions into the hands of technology in a similar way that Nespresso has influenced the purchasing of coffee. It will be far more sophisticated, and less subject to product substitution by the consumer than the Nespresso process. This will be because the systems will provide complete supply solutions in a way that makes our lives easier. The technology and purchasing will disappear into the background, and it will be too much effort to change them. This will solidify our habits

Secondly, technology developments at the consumer level will facilitate the use of information in a way that has not been possible to date. This will increase the value of influencers. Additionally, new technologies will provide more detailed, and continual information about the products we purchase.
The combination of these two changes will alter the advertising and distribution models for consumer goods.

Jeff Bezos has long been famous for stating that “your margin is my opportunity”.  One of the major margins in consumer goods is marketing and advertising. It is the reason why branded products can sell at much higher margins than home brands. What if Jeff Bezos (and others) can eliminate most of the advertising costs. Statista has estimated that global advertising costs in 2017 will be US$547.37 billion. That is a hell of a margin to take advantage of. Statista has also shown that advertising has been steadily growing. This is happening even while digital advertising takes over from more traditional methods. This means that I am bucking against that trend so let’s look at the logic of how it might happen.

Last week CNET published an article on a concept scanner from Bosch (pictured).

bosch-x-spect-wand-7

The X-Spect scanner is a combination of two optical scanners. Together they are able to determine which stains are on your clothes, and how they should be washed. It does this by uploading the data it creates from the scanner to the cloud. An algorithm then determines the result which is sent back to the scanner. You can then send the washing instructions to your washing machine. It is not a long leap from that process to Bosch having partnerships with laundry detergent companies. Bosch will recommend, direct order, and deliver three or four varieties of detergent to go with several wash settings. Possibly in partnership with Amazon as a logistics back end. The process of washing your clothes will be: scan, separate into piles, press this button and add this detergent for the first pile, and so on. It is not hard to then imagine that the detergent will come in pods like your Nespresso machine and pressing the wash type button will add the decided detergent. As soon as that detergent type is below a certain level in your machine it will be automatically ordered and delivered to you. You do not care about your detergent type, you care about getting clean clothes. Think about Nespresso advertising. Are they advertising the coffee or trying to get take up of the machines to lock you in?

How Stuff Works says that the average life of a new washing machine is 11 years. If the system as described above works, you will hand over your preference for washing detergent to Bosch for 11 years once you buy the system. You are no longer a viable prospect for advertising for laundry detergent on any media. This adds to the fragmentation of audience that is occurring as media choices widen. If less people in a group are valuable to advertise to then you either target them more specifically, or you come up with an alternative model.

This is an extension of the sort of work that Amazon has been doing on the Amazon Dash Button and the Amazon Wand.  Amazon has been making these products free for Prime Subscribers (around 85 million people) by giving subscribers a credit to the Amazon store of equal or greater value than the hardware price. They are doing this in the same way that printers, and Nespresso machines are subsidised. They are chasing the lifetime value of the customer rather than the hardware margin. This is the opposite of the Apple model where the business is designed around locking you into constant high margin hardware upgrades. In Amazon’s case the prize is much larger than printer supplies, or coffee pods. They attempting to capture most of consumers spending on consumables, and consumer goods.
This sort of change drives changes around the retail market:
  • Direct delivery is determined by the technology. The machine will automatically replace its consumables. The button or wand will deliver products to you at the touch of a button. There is no longer any need or desire to buy these products at a shop. This reduces retail volumes at physical shops.
  • The Wand technology is more complex in that it is seeking to create a wider ecosystem using recipe recommendations. This is because food involves more detailed purchasing decisions. If it is successful then the results are similar – your influences and decisions are tied to the Amazon system and their direct delivery.
  • If advertising spend is reduced then Amazon (and others) can use that margin to compete and/or subsidise delivery systems.
So in a world that looks like this what happens to advertising and discovery?
  • First of all the advertising margin for the consumables could be re-purposed to reducing the costs of the hardware. Just like ink or laser cartridge margins are used to subsidise printers. Imagine a washing machine that can do all the things described above but is cheaper than a current model that can’t.
  • Secondly they could be tied to a leasing arrangement where you agree to a forward contract for consumables. The reduced advertising spend reduces your lease commitments.
  • Alternatively more marketing dollars will be focused at the point of purchase of the hardware.
  • fouthly information and influencers may become more important in these decision points.

 

If we look at this third point then obviously our decisions on food products can occur without connections to the technology discussed above. But they will still be mediated by technology. The launch of the Apple iPhone X may represent a tipping point here. The new iPhones have been built with augmented reality experiences in mind. We are already seeing some interesting applications using the developer kit. However, the process of pointing your phone or tablet towards an object to use augmented reality is still somewhat clunky.
What we need to remember is that the iPhone is 10 years old this year. If you compare the technology difference between the new iPhone and the original iPhone the changes are stunning. If we extend out another 10 years to 2027 we are likely to see a similar level of technology differences. We may be in the early stages of technology that powers glasses or contact lenses that can perform augmented reality processes. If this comes true then we will see information attached to every object in the world.
So if we look at food and other consumable goods, easily accessed information changes buy decisions. We are not going to dive down into every piece of information that is available every time we buy something. Most of us are too lazy or hardwired into habits to do that. When we look at discovery and trial of new products or an alternative it does matter. In this area information and influencers will be very important. In a shopping ecosystem like Amazon search is vital for discovery rather than advertising. Jeff Bezos does not want people spending on advertising inside the Amazon store. What drives purchasing decisions is a great search capability, and the capacity to look at the views of people that you trust inside the review environment. What happens if you can access that system and that information any time you are thinking about buying stuff? That is what augmented reality in a more usable form can bring. That can displace advertising.
Which takes us back to my presentation on agriculture. My key message was that information was becoming more and more vital to farmers. In agriculture we are starting to enter an era where farmers will have more and more information. They will be able to see continual streams of data from their land,crops, and animals using systems like The Yield. They will be able to get frequent data from the air using drone systems. Farmers will use this information to reduce their operating costs. At the same time they will be able to communicate more to consumers about their product. That communication can be direct to the consumer for farmers that are value adding their own products. It will also be a requirement of supply chains into larger scale markets.
A lot of people are concerned that the advent of augmented reality in glasses/lens form will result in a polluted visual environment where we are continually bombarded with advertising related to our location and our personal data. Paradoxically this may drive people towards less advertising. The changes i have described here may assist that change.
If I am right then the nature of shopping changes, and along with it the nature of advertising. Along with business models that depend on advertising. It could be a very different world.
Paul Higgins

 

 

 

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Tim Tams and the Social v Messaging Battle

A few weeks ago I did a presentation for the managers of a major global food manufacturing business on digital tools and what they might mean for their business. One of the major topics for discussion was using digital tools to connect to the consumer in order to try and level the playing field between food suppliers and the major supermarkets.

I was watching the ABC news here in Australia last night and there was a story about that iconic Australian biscuit the Tim Tam being pulled from the shelves at the major supermarket Coles because the supermarket was refusing to pay a higher price.

tim_tams

source: wikipedia

The story is a microcosm of the one that is being played out across the spectrum of products in Australian supermarkets and is now moving into new territory. You can see more detail on the story at:

Coles pulls Tim Tams from shelves as Arnotts price war goes public

In the end Coles relented because there is so much demand for Tim Tams. There are only a handful of products that can afford to go head to head with the major supermarkets in Australia because their hold in the mind of the consumer is so strong. Tim Tams is one, Coca Cola is another, Huggies nappies and Pal dog food are on the list. The rest are in a perpetual battle on price and shelf space where the supermarkets hold the whip hand because they control the gateway to the consumer.

The supermarkets hold that gateway and also now hold masses of data connected to loyalty cards and credit cards so they have a a continual view of what is working and what is not. The standard way of the suppliers to gain a greater foothold has been branding and marketing campaigns that try and catch the mind of the consumer.

Over the last few years social media has been the added tool that many have used to try and capture the hearts and minds of the consumer. That does not always work as evidenced by the disastrous taxi social media campaign (#YourTaxi campaign backfires as passengers share horror stories) here in Melbourne:

@yourtaxis Every single woman I know has, at some point, been sexually/verbally abused by a cabbie & now every single woman I know uses uber

.@yourtaxis Got kidnapped by a driver who wanted me to pay more than was on the meter. Had to call police to pull us over.

.@yourtaxis last time I caught a taxi he had no idea where he was going and stayed on his mobile the whole time. Uber from now on

Good and bad news is that messaging apps like Facebook Messenger and WeChat are moving heavily into this space as described in this great Wired article Facebook Messenger: inside Mark Zuckerberg’s app for everything .

Essentially Messenger seems to be trying to emulate the WeChat model of putting services inside the app like payment systems, airline bookings, etc in order to keep users inside the app and therefore in their ecosystem rather than elsewhere in the mobile or internet ecosystem. This is both good news and bad news for suppliers to supermarkets. The good news is that the way the apps are configured is creating a much closer one to one relationship with a wider range of customers rather than just communicating with “fans” on social media. The bad news is that if they go down this route then they will be swapping one gateway controller for a different one.

Now the supply of supermarket items is much different than the supply of airline booking services as described in the Wired article. Suppliers can think about product changes or they can reconfigure the delivery system.  In my next post I will put forward some ideas on how that might happen.

You can read that at:

Beans, Uber and the Post Office