Should Retail Tech be Outsourced?

Every now and again, inspiration strikes from the most random interaction. I was walking down the street, and was slowed down by a pile of boxes in front of one of the local Indian restaurants (we live in a neighborhood sometimes known as “Curry Hill”), waiting to be unloaded into the basement storeroom. I happened to glance down, and saw a case of peeled garlic, and it just got me thinking about how labor costs are driving our business, and the inevitability of more and more outsourced and automated processes.

To be specific, until that moment, I thought of peeled garlic as a luxury good, something that people of my ilk were willing to pay extra for to make their lives a little easier. But here was peeled garlic being delivered to a relatively downscale restaurant (I recommend the $10.95 all-you-can-eat lunch special), which presumably pays its labor minimum wage or less. I don’t know how much peeled garlic costs in bulk, and I don’t know how much the Indian restaurant pays its employees (except that it’s as little as possible), but the reality that this restaurant would choose to buy peeled garlic rather than simply having the low person on the totem pole in the kitchen spend the afternoon peeling whole garlic really dimensionalized for me just how inexpensive it must now be to peel garlic in a central location.

That got me thinking about food retailers and the ongoing tension between the desire to “do it ourselves in-house” and the economic imperative to outsource and automate virtually everything. The reality that outsourcing specific tasks can save significant money while improving quality is now self-evident. The days of the bored stock clerk washing the windows of the store are long gone, since stock clerks no longer have any extra time, and they take far longer to do a lousy job than outsourced professional window washers do to create sparkling windows. Similarly, the activity of counting and recounting inventory has been relegated to the trash heap by advanced POS and CAO systems.

The reality is, however, that labor is still the second-largest cost center in the store (after cost of goods sold), and as such, the cost-cutters are continuing to look at new, better ways to automate and outsource. We’ve all heard about – and many have experimented with – a variety of automated checkout approaches, from self-check stations to completely automated RFID-driven checkout processes. And while there’s great promise in some of these approaches, none of them have yet delivered the hoped-for huge savings. But that doesn’t mean automated checkout can’t or won’t work, it just means that automated checkout doesn’t work yet. I have no doubt that eventually some combination of evolving and maturing technologies and smart process innovation will solve the riddle of automating checkout – it’s just a matter of time for the ideas and the technology to mature.

And it’s not just the checkout process that’s ripe for additional outsourcing and automation. Just think about how quickly the produce aisle has evolved from an area with piles and bundles of bulk food straight from the field into the section it is today, with more than half of the salad sold now coming pre-washed in bags or boxes, with a rise in brand names across the category and with a variety of semi-prepared products like shelled peas, cut watermelon and pineapple, and, yes, peeled garlic.

What does this all mean for people who just want to run their stores? Well, first, it means that outsourcing and automation are creating all sorts of new and altered products that retailers need to consider, test and then sell, if consumers really want them. Technology is fine, but if the technology creates something few people want, it’s not worth bothering with. I’ll toast this thought with clear, sparkling glasses of Zima and Crystal Pepsi – both of which seem to have returned to the scene. Grocers need to keep up on all of this product innovation, but they need to let consumers decide which innovations are really valuable.

Second, but perhaps most important, grocers need to be constantly thinking about what sorts of innovation and outsourcing can improve their stores without making the stores soulless machines. I don’t think any consumers object to a window washer creating cleaner windows faster, but I do know that the third time you ask someone working in the store where something is, and they tell you that they have no idea because they work for Coke or Acosta or a demo company, the consumer starts to lose faith in the store. The challenge is yours: Rejecting new technologies and outsourcing is a quick way to irrelevance with your consumers, but accepting every new idea and approach can be just as damaging. The hard work is to look at all of these changes individually and decide which ones actually make your store a better place to shop.