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In Part I article of this series of Outside In (https://outsideinlens.substack.com/p/retailer-digital-maturity-variable), we outlined why it is important to track retailer digital initiatives closely – using a structured framework – when we evaluate stocks to invest in.In Part II article this week, we cover the proposed framework and few retailer examples – like Dominos, McDonalds, Raymond – for concept illustration purposes only. This piece will not be a specific comment on select companies or my recommendation to pick in your portfolio. We only attempt to outline a unique concept that blends the domains of equity investing and digital maturity assessment of retailers. Request you to kindly do your own research before making your stock picks :)
Framework for Measuring Digital Maturity of Retailers
Adapted from the Deloitte Digital Maturity Model, below is the proposed framework to assess the digital maturity of Retailers – measured against 5 key capabilities of a business: Customer, Strategy, Technology, Operations and Organization. These 5 capabilities are further extended to 27 competencies that need to be assessed for impact on next-generation readiness. Impact will be noted down as low, medium and high – for a simple overall maturity assessment view
Illustration 1: Jubilant Foodworks – Dominos Pizza India
Digital transformation has been identified as a key pillar for growth. Pursuant to this, they have created a full-fledged digital team – under a CDO – that will look at improving customer experience through upgrading their digital assets, driving data analytics, improving store technology and strengthening our digital marketing. Some of their Digital initiatives are covered as follows:
Digital QSR Pioneer: 1st food service company to launch online & mobile ordering in India – Mobile app downloads stand at 33.1 million in FY19-20
Mobile-first Order Ecosystem: Online orders contribute 86% of delivery sales (up from 70% in 2019)
IoT for Cost Efficiency: IOT (internet of things) Solution with Wipro – Deploying utility sensors to keep an eye on energy utilization, which cut backs operational cost. Rolled out across 600 stores which is likely to cross 1,000-store mark soon
Consumer Tools: Riders armed with GPS so consumers could track movement of delivery boys
Professional Digital Marketing: Exhaustive Social Media Interactions (Facebook, Twitter, Instagram, Youtube and Snapchat) – managed by WATConsult
Personal Customer Connect Program: Customer-centric Discounts & Happy calls made to customers to check their Experience
Single National Helpline Number: Deployed to ensure customer issues are addressed promptly
E-learning: Only one in India to have a dedicated e-learning set up at most Restaurants
Manpower Platform: To map demand and supply of manpower to optimize resources
Digital Platform Partner ships: Partnerships with Food Aggregators like Zomato & Foodpanda , Railway Services and All-night delivery in cities such as Mumbai, Gurgaon and Bangalore
Ongoing App Upgrades: New functionalities in App: GPS-based store locator and digital wallet
Scientific Order Delivery: It studies each neighborhood, its streets, and traffic flow. Then each store’s area is meticulously mapped, down to every intersection and traffic light, to find the fastest delivery routes. A deliveryman and his manager plot out route he’s about to take. Each delivery is allotted eight minutes, and there’s a seven-minute buffer for traffic jams and bad roads. More than 99% of pizzas arrive within promised 30-minute deadline
Next-gen Ordering System: Deployed Nuance Conversational IVR platform with natural language understanding (NLU) technology in Delhi/NCR stores allowing customers to simply speak their orders naturally to self-serve, eliminating need to wait on phone or in physical lines
Illustration 2: Westlife Development – McDonalds India
They believe that the new age customer is changing and technology is becoming wide spread. Customer experience is getting elevated through Digital. So this – EOTF (Experience of the Future) restaurant is more about giving control in the hands of customer through Interactive Tech. Some of their Digital initiatives are covered as follows:
Digitally-Enhanced Store Experience: Various payment modes, high speed Wi-Fi, air-chargers and tablets to provide consumers with more convenience & more reasons to visit McDonalds
Personalization & Table Service: The introduction of self-order kiosks at restaurants will give customers a modern and convenient opportunity to try their own hand at personalizing their menu and order at their own pace. Using self-order kiosks, customers will be able to customize and build their own perfect burgers and skip the front counter entirely, with their food being served right at their table. Once an order has been placed, customers can take a seat while they wait for their order, guided by a Radio Frequency Identification Device (RFID) right to their table
Engagement Devices: Customers will also be able to enjoy interactive table-top games whilst they share a meal and even charge their smart phones using wireless charging devices in a contemporary and stylish ambience. The result is a more comfortable and personalized experience
Smart Sustainability: Enhanced its efforts in the area of sustainability by installing smart hand wash systems which will enable the restaurant to save approximately 400,000 litres of water per year. Additionally, the restaurant will save up to 6,000 units of energy with LED lighting Besides this, the restaurant will use bio-degradable cutlery, reusable cups, and recycle its waste with the vision to send zero waste to landfill
Investment in Interactive Tech: The new store will cost McDonalds 10-15% more than regular store which costs anywhere between Rs 3.5-4 crore. The target is to transform 25-30% of existing 250 stores in next 3 years, starting with Mumbai. They will continue to open 25-35 new stores enabled with new technology every year simultaneously
Digital Delivery Ecosystem: It has also refreshed its delivery application, and says about 50% of sales comes from online ordering, through its app and website. It has also collaborated with 3rd party food aggregators like Zomato, Swiggy and Foodpanda to create a more efficient delivery network and address a larger consumer base and their growing demands. As on 31st March 2018, 165 out of the 277 stores delivered food to customer’s homes
“Secret Santa” Cross-channel Activation Illustration: In 2017, the brand did a series of quirky Christmas posts on social media for a week to engage with its patrons. Amidst the series of posts and comments, a consumer expressed her wish to have unlimited supply of McDonald’s fries. McDonald’s surprised her by granting her wish. She was invited to the restaurant and she along with her friends was pampered with unlimited hot and fresh French fries, accompanied with burgers and beverages. To make it interactive, McDonald’s played a quiz with a few quirky questions about the brand and presented her and her friends with a lovely hamper of McDonald’s goodies and toys as a token of gratitude for their love: McDonalds Secret Santa - Christmas 2017 – https://www.facebook.com/McDonaldsIndia/videos/1781879691851946/
Illustration 3: Raymond
They believe that the customer value proposition has now gravitated towards convenience. Today customers don’t have to plan a purchase. They can do it at their convenience. They want to shop while commuting, from the comfort of their home, at a time of their choice. For new age customer, it’s all about getting a product at his demand, at his price point, delivered at his doorstep. Raymond is trying to transform and is almost entirely getting reborn to move from being a menswear product centric organization to a full wardrobe solution organization. Some of their digital initiatives are covered below:
3 Digital Horizons: 3 milestones for their digital transformation journey –1st horizon is the ongoing horizon. 2nd horizon goes from 2019-2020. 3rd horizon goes beyond that
The first horizon is about digital enablement of the entire organization and its value chain. They are doing micro-segmenting, digital archetype, profiling our customers, trying to reach them in a more focused way. It’s largely about campaign management and marketing. That is the crux of the digital enablement strategy
The second horizon is ongoing as we speak: Single CRM of 4.5 million customers converged across 4 brands – Raymond, Park Avenue, Parx, ColorPlus – running today. If the pace continues, then in two years they should have a 10 million customer base which can then walk into any store seamlessly- physical or virtual and get a much larger gratification
Plan to create a single window of the customer and the supply chain. They have about 25,000 SKUs distributed across 30,000 point in sales. They don’t want one single store to have more than 2-3 options. So, a typical store will have 200 options but the customer could potentially have 25,000-30,000 SKU options. They want to be able to identify every customer who comes into our store physically or virtually from any part of the world
Going forward, the entire retail at Raymond will be infused with customer-relevant technology. They are currently experimenting at a few stores in Bangalore where the customers can use virtual trial screens and do away with the physical trail rooms
On their e-commerce site, they have invested in invested in 3D scanners where in comfort of your house you can click pictures and they will have ability to precision map your body on basis of that picture and deliver ”Made to Measure” garment to customer
They have launched online tailoring service in Mumbai. Customers do not have to travel to get a suit stitched. They can book an appointment and the tailor visits their house, takes their measurements and stitches the suit. Customers can then order from online. They also have a Garment tracker called GPS(Garment Positioning System) so customer knows where his garment is online
In last 2 years, they’ve got designers from Italy, Spain, UK and other parts of the world through open source – in addition to the 350 they have at HQ. Givenchy, Burberry, and Prada are giving them the designs. Instead of getting top class designers from around the world to shift base to India and have complete expat dependence here, they’ve opened up the entire system and that’s creating a dramatic capability to upgrade the designs at fraction of the cost and be very nimble. Goal is to enroll 3-30 million designers through crowd-sourcing who can open source designs at a fraction of cost
They are already looking at something in China and France in robotics to oversee low-skilled processes which constitute 40& of their key processes (like moving goods from Point A to Point B). The payback is coming to under three years so that’s a very attractive RoI
They are working with a technology firm in Silicon Valley to set up hi-tech 3D cameras with high precision. The 3D cameras will be set up in 3 or 4 positions in a store and customers can come and spend a minute in two different profiles. They’ve invested in a technology where we can take 96 measurements out of that and convert it into CAD/ CAM designs for their factory. So if a customer walks into a Macy store in New York at 11.02 AM, by 11.05 AM they can have 96 measurements of his body in their Bangalore factory converted into CAD /CAM designs. They could then deliver the dress that has been customized to his body, within a week. The biggest barrier to global expansion of a fashion retailer is physical retail and digital takes that off
Almost 50 percent of the apparel purchase at Raymond’s happens from 11 PM- 1 PM in the night when most of the 5000 sales staff of Raymond’s is sleeping
The third horizon is what gives them sleepless nights. Their sense is that clothing will become irrelevant within the next two decades at least for a part of the population. There could just be a stack of plain and simple digitally designed T-shirts. That would mean that Raymond would have to move from being a product company to a software company
They have created a digital customer centre which is a dedicated team specifically focused on building digital capabilities, not just in an incremental manner but in a breakthrough manner
Takeaway
Thanks to the Digital Transformation Era, New Retail Has Come, if you go by Alibaba’s extraordinary vision here at:
Therefore, it is necessary – when evaluating the future orientation of retail organizations – to gauge their measures and readiness in becoming Digital-savvy Organizations. The ones that are savvy are likely to sustain the next decade of Customer and Business Transformation. The ones that are not may struggle in the market and hence may not be good investment choices today. The use of Digital Maturity Assessment of Retailers should be used to gauge Endurance of your Stock Investments
References and Sources
1) India Investor Forum 2018 - Digital in Retail – Presentation by Kedar Mehta
2) Deloitte Digital Maturity Model Reports
3) Raymond: How Sanjay Behl is charting a roadmap for digital transformation of Raymond, IT News, ET CIO
4) Raymond_ Raymond's digital team will focus on building online capabilities_ Gaurav Mahajan, Marketing & Advertising News, ET BrandEquity
5) The reinvention of Raymond - Rediff.com Business
6) Raymond’s virtual mirror gives customer a digitized experience in store _ CIO.in
7) DTI_Dominos_pizza_masters_series_final
8) Jubilant Foodworks- 3QFY18 Result Update-22 January 2018; Annual Report FY19-20: https://www.jubilantfoodworks.com/Uploads/Files/140akmfile-JFLAnnualReportFY2019-20.pdf
9) Fast food chain McDonald's undergoes brand transformation, Retail News, ET
10) McDonald's India launches its first EOTF restaurant in South Mumbai
11) WDL_Annual Report-201718
12) Marketoonist Cartoons on Obsolescence and Drones as Sales Associates