The new competitive space of hyper-convenience and last yard service

Digitalization has fundamentally disrupted the competitive landscape and, more than a technological revolution, it is a marketing revolution in how customer needs can be fulfilled through new business models. Hyper-comiectivity enables hyper-convenience. The much discussed omnichannel is just a reaction to the search for hyper-convenience, which is now the competitive space for retailers as well as manufacturers. When brick-and-mortar retailers introduce same-day delivery and online retailers straggle with instant delivery options, they are trying to occupy the same competitive space of hyper-convenience. Adding personalization explains how manufacturers are entering into this competitive space, e.g. through subscription models.⁴¹ Winning in the competitive space of hyper-convenience means fully connecting the route to purchase with the route to market.⁴²

The number of new players to deliver hyper-convenience, applications, equipment through loT solutions or voice ordering solutions such as Alexa shows that this is an entire new ecosystem interacting to serve customers. This convenience ecosystem is no longer fully represented by the traditional and linear value chain perspective divided between upstream and downstream activities, a view that classically puts the route to market and supply chain in the back seat to support marketing and sales. In the new marketing reality of the convenience ecosystem, route to market and supply chain become marketing, upstream becomes downstream, and the route to market and supply chain need to move from the back seat to the front seat, from planning and operations to a real-time customer management function.

Amazon Go has already shown that the fixture of brick-and-mortar is about checking in, not about checking out. In Stockholm, Sweden, Nordic Tech House received permission in 2018 to install facial recognition equipment in stores to facilitate shopper check-in.⁴³ Knowing the shopper means that personalized information and promotions can be sent to his or her smartphone, changing the activation game in store as well.⁴⁴ The shopping ecosystem is expanding not only through the tech giants and providers of check-in, and other store technology, but also by apps for digital shopping, and food aggregators, meal kits and delivery service providers and their apps.⁴⁵ As eating out increasingly becomes eating in,

manufacturers selling products for these channels, e.g. beverages, are not only selling into the channel, but in fact need to activate their brands through these providers and their apps as well. By 2022, digital food delivery' may comprise 11 percent of the total market, compared to 6 percent in 2017.⁴⁶

The emerging competitive space for consumer goods companies and retailers is not about online vs. offline, but about hyper-convenience. A new ecosystem of new players and solutions driven by digitalization and technological innovations is enabling companies to deliver and present products where they create value to customers.

Between 2010 and 2016, the market share of Gillette dropped from 70 percent to 54 percent amid the market entry of new players like Hany’s and Dollar Shave Club. Both brands work through direct-to-consumer and subscription models. Additionally, the average price of razors decreased by 12 percent in 2017. Walmart online sales grew by 44 percent in 2017. In 2018, Walmart introduced pick-up groceries in 1,200 stores, and introduced grocery delivery using their stores as fulfillment centers in more than 100 metropolitan areas, covering 40 percent of US households.⁴⁷ In a report from 2016, McKinsey identified 308 start-up companies focused on prepared food.⁴⁸ A recent article in Boss Magazine mentioned several start-ups, like Deliv, Doorman, Dropoff, Pickup and Postmates.⁴⁹ In February 2019 CNCB reported that Amazon will become a logistics company, and is building its own air fleet. Amazon has also invested in systems like Amazon Dash, allowing customers to more automatically re-order products, or Amazon Key, for delivery into homes through smart lock systems. Walmart introduced a similar system through Deliv, and acquired Parcel in 2017.⁵⁰

Traditionally, route to market and supply chains have been focused on efficiency and outsourcing opportunities, as they have been viewed as more operational upstream activities of the value chain. In the emerging ecosystem and competitive landscape of hyperconvenience, the route to market and the supply chain become a vital part of the marketing offer to the customer to create value and gain competitive advantage.

The route to market and supply chain constitutes a major part of companies’ total sales costs. Some sources position the cost of the supply chain between 50 percent and 70 percent of total sales costs and over 50 percent of those costs are attributable to the last mile.⁵¹ In the competitive space of hyper-convenience, last mile service is not enough. The last mile is about bringing a product or service to a customer, normally a channel outlet, but in the reality of hyper-convenience the challenge is to bring the product or service where the enduser will use it, where it creates the value it is meant to create. It is beyond the last mile, it is the last yard.⁵² In the traditional route to market and supply chain model the last yard has been the responsibility of the shopper.⁵³ The model has normally been the manufacturer selling to retail, and retail selling to shoppers, who need to come to brick-and-mortar stores to assemble their purchases by looking for products, checking out and bringing the goods home for their final use.

Managing the last yard, i.e. delivering products and services and presenting them the way they were meant to create value, has become a key concern for companies and it is where the last mile and last yard connect to become integrated route to purchase and route to market solutions. Companies like Diageo and Pernod Ricard even talk about route to consumption to clearly indicate that last mile distribution, channel activation, as well as final customer activation, be it in a channel or at home, are indivisible. Still, the logic follows the logic of the value chain, with logistics serving marketing. In addition, in that logic, upstream activities are more about efficiency, while downstream activities develop the real value. Often, this means the outsourcing of the last mile, and the deployment of a sales force to activate channels.⁵⁴ Route to market and supply chain are often viewed as support functions

Connecting routes to purchase and market 151 to marketing, mainly about planning and managing efficiencies within clearly pre-defined service levels. Within these levels, third parties are managed, measured and compensated. Retailers and manufacturers have developed a joint system to work together that clearly minors the value chain approach, and the division between upstream and downstream activities. With the introduction of the ECR concept in the 1980s the division between supply and demand-side management was firmly established. Supply side is about efficiency at a certain pre-determined service level, and is often fully or partly outsourced. Demand side is about developing shopper needs and fillfilling these. The last yard is mainly in the hands of the shopper, and the challenge is to influence in-store performance through presence and presentation, expanding the last mile challenge from managing out of stock to managing out of shelf. In this system, operations until the last mile are firmly under the control of manufacturers and retailers, and in some cases involving distributors, especially in more fragmented sales channels. Manufacturers have bridged their supply chain and demand activation through building more sophisticated route to market systems to perform better in store and reach more, especially smaller, outlets by optimizing outsourcing vs. insourcing of different functions. This includes improving efficiencies in more commoditized sales activities, e.g. merchandising and shelf filling. The prevalent paradigm is that the route to market and supply chain need to gain more and more efficiency to liberate resources to be reinvested downstream, to develop customers. To better serve the specific needs of shoppers more refined sales channel segmentations have been continuously introduced. But, with an increasing diffusion of needs, offerings and channels, the classical model based on strict last mile supply chain criteria, such as very specific ordering and delivery' dates, and minimum order quantities, is reaching its limits. This is even more so as shoppers and consumers expect manufacturers and retailers to provide personalized last yard service. Shoppers look for hyper-convenience better adapted to their needs, the last yard becoming an inevitable part of the product or service sold, and a much higher level of personalization in terms of SKUs, amounts, destination, and timing will be a differential part in the emerging competitive space of hyper-convenience. It is also contrary to the classical goal setting of efficiency-based routes to market and supply chains with strict service parameters.

The new emerging ecosystem is connecting new players with customers outside the direct control of retailers and manufacturers. New players and solutions give sales channels and points of purchase the opportunity to break out of the chains of rigorous order and delivery systems, and frees shoppers from lengthy pre-planned shopping trips with pre-defined offer ranges. Manufacturers are starting to integrate omni-ordering systems, e.g. any system (salesperson, tele-sales, e-order, apps, etc.), anytime (not rigorous, fixed order taking and delivery windows), not only to improve the service, but also to drastically reduce the lost order ratio. Coca-Cola has invested in the start-up Bringg that has developed the MyCoke Express app to take foil advantage of the gig economy' and thereby reducing delivery lead times from three to five days to same or next day deliveries.⁵⁵ Hereby, points of purchase can order quickly, view possible suppliers, their prices and ratings, and have a quick delivery using crowd service solutions. Through such apps, manufacturers can also have a direct relationship with points of purchase further down the long tail, that they normally would not visit, that individually may not be that valuable, but aggregated are crucial to the business. With merchandising apps, like Traxx, Snapshop, Yoobic, Fieldagent etc., outlets can become part of the activation system for manufacturers. In addition, as third parties consolidate and become more professional adding data exchange and analysis to their services, the classical last mile under the managed lead of manufacturers is developing into collaborative route to market systems, with new players and the redefinition of roles.

A key challenge to manufacturers and retailers is how to solve consumers’ and shoppers’ expectations for solutions to their hyper-convenience needs, and to fillfill the promise of the last yard. The conundrum is that consumers and shoppers expect last yard service, but are not ready to pay for it. A 2016 McKinsey study revealed that 70 percent of shoppers want to pay the cheapest piice possible, 28 percent would pay extra for same day delivery, 5 percent would pay extra for more reliable and timed delivery, and 2 percent would be ready to pay more for instant delivery. However, if they had to pay more than three Euros, they would prefer to pick up the products, e.g. at lockers. As a logical consequence the McKinsey study from 2016 sees big changes in how last yard service will be attained by 2025. If same day/instant delivery is 20-25 percent by then to meet customer convenience expectations, manufacturers and retailers will have to solve the service-cost conundrum. This would imply a new and already emerging service model dominated by X2C (anything to consumer) solutions, like autonomous ground vehicles with lockers, drones, droids, but also semi-autonomous ground vehicles, crowd-service and traditional solutions.⁵⁶

As the competitive space moves into hyper-convenience, reinventing the last mile and winning the last yard through a more personalized service becomes a key challenge. This moves the route to market and supply chain into downstream territory. Companies, especially in the tech business, have developed cross-functional supply chain control towers. Dell is an example that manages more than 600 parts depots across the globe, and dispatches technicians to customers, if needed, through real-time supply chain systems to ensure quick responses to customer needs. With supply chain control towers, companies hope to gain agility and introduce dynamic decision-making through cross-functional supply chain management with different suppliers and players. Supply chain control towers could be a step toward fourth-party logistics management, also involving and managing different third-party logistics. Many of these concepts are centered on efficiencies and relatively well-defined roles of suppliers and players. Last yard domination and leadership in the emerging ecosystems are becoming key competitive differentiators as downstream and customer management activities in the competitive space of hyper-convenience and personalization. In this context, key questions are what should be insourced and what could be outsourced, and how to better integrate route to market, supply chain, route to purchase and marketing to develop real-time solutions. As shown by Amazon, Walmart and Coca-Cola, who are insourcing and shaping their ecosystem, the route to market and supply chain are increasingly becoming a source of competitive advantage and a key dimension of the definition of the service offer to customers and shoppers.

The need for ecosystem-oriented shopper marketing

Technology and digitalization are changing the name of the game. A new shopping ecosystem is emerging with new players like tech giants, food aggregators and apps that are changing the classical triangle of shoppers, manufacturers and retailers, as well as the traditional way of brand activation. The new emerging shopping ecosystem puts into question the traditional strategies of manufacturers to fend off attacks on their brands, especially from retail brands. Manufacturers need to flank their traditional strategies to fight off retail brand attacks with approaches to ecosystem management and new activation strategies, more centered on recommendation.

In a report on collaboration in the connected economy 74 percent of managers stated that the future success of companies depends on their abilities in ecosystem management, and that a clear internal cross-functional collaboration approach is needed.⁵⁷ The idea of

Connecting routes to purchase and market 153 value networks, instead of value chains, as generators of value through complex dynamic exchanges between enterprises, customers, suppliers, strategic partners and the conununity was introduced as early as 2000.⁵⁸ Competition is not between companies in specific industries, but between ecosystems.⁵⁹ In this reality, companies need to function like orchestrators to deliver new experiences. The need to organize and manage the ecosystem, define the strategy and identify potential participants is an emerging art.⁶⁰ However, as such, an ecosystem is innovative by nature. It is not possible to plan and foresee it entirely. Ecosystems could be regarded as micro-economies where the value of the entire micro-system is the overarching goal, meaning companies need to be open to innovation and new players, as well as understand when to cooperate, invest or acquire players for the best of the ecosystem.⁶¹ It ultimately means a redefinition of the industry, new forms of cross-functional collaboration, with new functions emerging.⁶²