The food is going digital – who will be the winners in Finland?

Blog: Markus Hemminki

Digital innovations are now transforming the food industry as they have done to several other industries and markets over the last decades. Why do we still want to go to the supermarket and collect groceries from a “warehouse” of limited assortment? Shouldn’t it be the end user’s decision to choose where one wants to collect a shopping bag and what products and services should be included?


The trends that are suggesting change

Technological development has disrupted industries. It has enabled new digital business models e.g. by digitalizing contents, such as movies and music, that are now used and delivered in digital format instead of physical copies. Digital is also changing business models in retail. There are several examples of business moving online from brick and mortars in areas like electronics and clothing. When looking at the development of the grocery business, digital seems imminent.

Megatrends of ‘urbanization’ and ‘digitalization’ have made it possible to offer affordable alternatives for cooking at home. More people are living in smaller areas and at the same time technological development has made a lot of new services and solutions available. The food business has become a service industry.

The food business has become a service industry.

People are also increasingly willing to invest in their free time. A busy urban lifestyle makes it difficult to spend hours in front of a stove or in supermarkets after a long day at work. Luckily an increasing interest towards trends of fitness and authenticity have brought alternatives to home delivered pizza. For example, in the Helsinki region, food delivery companies (e.g. Wolt and Foodora) and cook & deliver companies (e.g. Epic Foods) are offering alternatives to shopping at a brick and mortar store or having a dinner in a restaurant.

Major players dominate the market

Today’s food industry is a very capital intensive business. In many countries there are a few retailers that have grown to their dominant role over the last century - they have been able to build their brick and mortar stores in strategic locations around the countries. The same concept of last mile delivery – collecting groceries from supermarket and bringing them home – has been existing forever and e.g. the online grocery business in Finland has a minor role with less than a one percent share of the whole industry.

Current major players have fine-tuned their supply chains and operating models to increase efficiency and gain profits to maintain their dominating position. They have invested a lot of capital in properties and warehouse inventories. They make all decisions of goods and services they sell independently and the clients don’t have any say in this. In doing this they are limiting new product and player entry to the market and are forcing the industry to play by their rules.

Moving towards digital groceries

Is there any player who would risk its current market leading position and change the status quo? Perhaps no. However, digital transformation is going to change the food industry. Players like Spotify, Netflix, Amazon and Apple, to name a few, have already disrupted the old industries. No one really expected it to be possible to a global leader and digital pioneer Kodak to end up in bankruptcy after choosing to stick with old technology that paid the bills at the time.

How does the grocery industry differ from clothing or electronics? Basically just logistics: the need for products recurs more often (delivery time), there are three different delivery temperatures (frozen, cold and dry), and the products have a best before date. The player that tackles these challenges will transform and disrupt this long stagnant industry.

The player that tackles these challenges will transform and disrupt this long stagnant industry.
If the current players are not ready to change their ways of doing business, someone else will. Amazon’s acquisition of Whole Foods and investments to logistics by leasing a fleet of airplanes might be a signal - a tech giant and online retail business disruptor wants to make a digital transformation in the food business. Innovations like the endless aisle, open platform, dynamic pricing, and customer centricity, are all things that have already led Amazon to success in other sectors of retail. It has also been rumoured that Amazon will be launching its services in the Nordics.

Will the industry be transformed by incumbents or disrupted by new players? It will be fascinating to see!

Deloitte participated to a research program aimed to develop a concept of cross industrial, digital, and customer centric, open data platform of the platforms. The program was coordinated by Martika Oy and funded by Tekes together with participating companies from food industry in Finland. Tekes is funding the program from Innovative Cities (INKA) programme for the development of business spearheads and ecosystems in the platform economy. During the program Deloitte wrote two reports: Is food digital business – A point of view to digital transformation to food industry in Finland and Industry Expectations to an Ecosystem. Additionally, Deloitte participated to writing a research paper Roadmap for Renewal - A Shared Platform in the Food Industry together with researchers from Aalto University and ETLA.

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