Beating the Beast
How Machine Learning can help Loblaw beat Amazon in Canadian Grocery
Amazon’s 2017 acquisition of Whole Foods was a wake up call for North American grocers. Most Whole Foods stores are US-based[1][2], and the acquisition gave Amazon immediate access to “prime-location distribution nodes”[3], particularly for their grocery business. Canadian grocers, including Loblaw Company Limited (Loblaw), are temporarily protected by the lack of Canadian distribution (only 10 Whole Foods stores in 2017[4]), but Amazon Fresh’s entry seems inevitable. So how does Loblaw prepare for an invasion that could change the face of the Canadian grocery industry? Predict how they will beat you, then beat yourself before they can.
Importance of Machine Learning for Loblaw
Loblaw is Canada’s largest food retailer, with ~1,050 grocery retail operations across the country[5]. In contrast, Amazon is a technology company that has dominated a variety of industries with superior technology and effective use of data. Grocery retail is primed (pun intended) for an Amazon disruption: POS systems offer a wealth of data that machine learning can use to drive predictions. Amazon can feed Whole Foods’ data into its algorithms[6] and innovate a new, improved grocery retail experience. To stave off Amazon, Loblaw must leverage machine learning to deliver key benefits in Canada before Amazon does:
Benefit #1: Customizing Product Offerings
Customers are increasingly looking for a more personalized retail experience[7]:
- “86% of consumers say personalization plays a role in their purchase decisions”[8], and
- “48% of consumers say they purchase more when marketers leverage their interests and buying behavior to personalize the experience across channels”[9].
Machine learning is an effective method to drive customization[10], and should be used by Loblaw to develop new “products” that deliver superior customer experiences.
Benefit #2: Superior Supply Chain
Machine learning can also be used as a process improvement tool for Loblaw’s supply chain, improving customer experience and simultaneously lowering costs. Machine learning drives efficient process improvement as it can “quickly pinpoint the most influential factors to a supply networks’ success”[11] (i.e., bottlenecks). As a starting point, process improvements can be made on inventory levels, demand forecasting, supplier quality, and transportation management[12] to drive consumer benefits and reduce cost.
Loblaw is starting to address the Amazon threat…
Loblaw was not naïve to the impact technology was would have on grocery. Prior to 2017 Loblaw was investing in technology, and continues to do so today, including machine learning. Actions Loblaw has taken or is taking include:
Created a digital division
Loblaw launched a new division called “Loblaw Digital” focused on all things digital. To date, the group has launched online businesses for Loblaw portfolio companies[13], but has potential to do more in the future.
Actively hiring experts
Loblaw is also moving to hire people with machine learning experience. With a Manager of Advanced Analytics and an open role for Senior Analyst, Applied Machine Learning[14], Loblaw is building an in-house team to propel its machine learning capabilities forward.
Investing in next generation talent
Loblaw is investing to make Canada a leader in the machine learning / AI space[15], showcasing their belief in the importance of machine learning and setting up a future talent pipeline.
… But there’s always more that can be done
While Loblaw is making strides to position itself against Amazon, they should also consider:
Buying / partnering to obtain technology (next 1-2 years)
Building capabilities in house works when you have long lead time; Loblaw doesn’t have this luxury if they want to establish benefits for consumers before Amazon’s arrival in Canadian grocery. Buying / partnering with a technology company that has developed machine learning capabilities could cut this time down significantly; Loblaw has a history of using this tactic to gain technology, such as partnering with Instacart for grocery delivery[16].
Investing to overcome legacy systems (next 2-5 years)
“46% of companies say legacy technology are major barriers to their personalization approach”[17]. Getting the right technology in place will allow Loblaw to unlock the full potential of machine learning across its business. As a starting point Loblaw could leverage Amazon’s AWS products[18].
Questions going forward:
There are two other questions Loblaw should be asking themselves as they think about machine learning:
- Is our leadership team structured to enable effective use of Machine Learning? We lack a high-ranking technology representative[19], but given the importance of machine learning should someone be driving it from the top?
- How can we stay ahead of the curve? What other ways can we use machine learning disrupt ourselves and maintain our market share leading position?
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Endnotes:
[1] “Whole Foods Market | US Locations | Emarketer Retail”. 2018. Emarketer Retail. https://retail-index.emarketer.com/company/data/5374f24e4d4afd2bb4446642/5374f3104d4afd2bb444b219/lfy/false/whole-foods-market-us-locations, accessed Nov 2018.
[2] “Whole Foods Market | International Locations | Emarketer Retail”. 2018. Emarketer Retail. https://retail-index.emarketer.com/company/data/5374f24e4d4afd2bb4446642/5374f31c4d4afd2bb444bfa1/lfy/false/whole-foods-market-international-locations, accessed Nov 2018.
[3] Thompson, Derek. 2018. “Why Amazon Bought Whole Foods”. The Atlantic. https://www.theatlantic.com/business/archive/2017/06/why-amazon-bought-whole-foods/530652/, accessed Nov 2018.
[4] “Whole Foods Market | International Locations | Emarketer Retail”. 2018. Emarketer Retail. https://retail-index.emarketer.com/company/data/5374f24e4d4afd2bb4446642/5374f31c4d4afd2bb444bfa1/lfy/false/whole-foods-market-international-locations, accessed Nov 2018.
[5] “George Weston Ltd. | Loblaw Companies Limited”. 2018. Weston.Ca. http://www.weston.ca/en/Loblaw-Companies-Ltd.aspx, accessed Nov 2018.
[6] Krazit, Tom. 2018. “Amazon Just Acquired A Training Ground For Retail Artificial Intelligence Research”. Geekwire. https://www.geekwire.com/2017/amazon-just-acquired-training-ground-retail-artificial-intelligence-research/, accessed Nov 2018.
[7] “Customization Crucial At Loblaw And M&M”. 2018. Canadiangrocer.Com. http://www.canadiangrocer.com/top-stories/headlines/customization-crucial-at-loblaw-and-mm-81370, accessed Nov 2018.
[8] Sukhraj, Ramona. 2018. “The Problems With Personalization In Marketing [Infographic]”. Impactbnd.Com. https://www.impactbnd.com/blog/the-problems-with-personalization-in-marketing-infographic, accessed Nov 2018.
[9] Sukhraj, Ramona. 2018. “The Problems With Personalization In Marketing [Infographic]”. Impactbnd.Com. https://www.impactbnd.com/blog/the-problems-with-personalization-in-marketing-infographic, accessed Nov 2018.
[10] Solis, Brian. 2018. “Extreme Personalization Is The New Personalization: How To Use AI To Personalize Consumer Engagement”. Forbes. https://www.forbes.com/sites/briansolis/2017/11/30/extreme-personalization-is-the-new-personalization-how-to-use-ai-to-personalize-consumer-engagement/#69958acd829a, accessed Nov 2018.
[11] Columbus, Louis. 2018. “10 Ways Machine Learning Is Revolutionizing Supply Chain Management”. Forbes. https://www.forbes.com/sites/louiscolumbus/2018/06/11/10-ways-machine-learning-is-revolutionizing-supply-chain-management/#526a0eb63e37, accessed Nov 2018.
[12] Columbus, Louis. 2018. “10 Ways Machine Learning Is Revolutionizing Supply Chain Management”. Forbes. https://www.forbes.com/sites/louiscolumbus/2018/06/11/10-ways-machine-learning-is-revolutionizing-supply-chain-management/#526a0eb63e37, accessed Nov 2018.
[13] “Our Work”. 2018. Loblaw Digital. https://loblawdigital.co/ourwork/, accessed Nov 2018.
[14] “Sr.Analyst, Applied Machine Learning”. 2018. Loblaw Companies Limited. https://jobs.loblaw.ca/ca/en/job/LCLICA29585/Sr-Analyst-Applied-Machine-Learning, accessed Nov 2018.
[15] “Big Brands Sign On With Government-Backed AI Institute”. 2018. Strategy. http://strategyonline.ca/2017/03/30/big-brands-sign-on-with-government-backed-ai-institute/, accessed Nov 2018.
[16] “Loblaw And Instacart To Offer Grocery Delivery To Millions Of Canadian Homes”. 2018. Media.Loblaw.Ca. http://media.loblaw.ca/English/media-centre/press-releases/press-release-details/2017/Loblaw-and-Instacart-to-offer-grocery-delivery-to-millions-of-Canadian-homes/default.aspx, accessed Nov 2018.
[17] Sukhraj, Ramona. 2018. “The Problems With Personalization In Marketing [Infographic]”. Impactbnd.Com. https://www.impactbnd.com/blog/the-problems-with-personalization-in-marketing-infographic, accessed Nov 2018.
[18] “Retail On AWS”. 2018. Amazon Web Services, Inc.. https://aws.amazon.com/retail/, accessed Nov 2018.
[19] “Loblaw Companies Limited – Leadership”. 2018. Loblaw.Ca. https://www.loblaw.ca/en/about-us/leadership.html, accessed Nov 2018.
Such a fascinating article! Even though it seems like they have a great plan to use machine learning, I’m wondering about the Loblaw’s ability to compete with Amazon in the long-term on pure technology. From a human and financial capital I think it will be tough for them.
However I’m thinking that, in the long term, they might be better partnering with a technology company (e.g., Google) whose core competency is AI/ML to develop ML applications and focus on their sources of differentiation (e.g., service). That way, they would spend their time on things that differentiate them. The drawback of that approach is obviously that they would become very dependent of the technology company they partner with.