How Blockchain Technology Will Transform Grocery Retail

Here, we discuss the retail market, the ongoing crisis and a change in consumer preferences. Next, we explain the blockchain technology in a plain and easy to understand manner, and explore practical use cases for it within the retail industry and groceries, in particular.

Our scope is focused on the following areas: transactions and paperwork; supply chain and logistics; and shopping experience.

Grocery market

The market is experiencing an unprecedented change in the landscape. The drop in store visits and car traffic is receiving widespread attention and media coverage this year. Retailers are closing hundreds of stores and laying off tens of thousands of employees. The retail apocalypse has arrived.

With over 4,000 locations affected by the crisis, department stores are most gravely impacted. The rise of e-commerce drives their model to extinction. Food business is under fire as well. Its overstored landscape is undergoing a fundamental reshaping with Lidl sparking up a supermarket price war and Amazon expanding into the grocery space.

The whole food industry — from production and distribution, to retail interfaces and shopping experience — is at a major turning point.

Millennials have become one the largest living generations. Growing up in the digital age, they are now dominating online. For them, shopping for groceries in a physical store is more of a challenge. They are moving away from doing weekly shops to a grab-and-go model, have empty fridges and are actively embracing the so-called “restaurant renaissance”.

In addition, they want instant everything: from access to fresh food and locally sourced products, to packaged meals, take-outs and on-demand delivery services. Millennials expect to engage with grocers and retailers on their own terms and are hungry for information about products.

We are witnessing a tectonic shift in consumer buying habits and expectations, and grocery retail chains are doing their best to meet them.

Old-line mega-chains like Walmart, not to be left behind, are betting on smaller stores, creating in-store experiences and integrating e-commerce. In less than a year’s time, the company partnered with IBM, Tsinghua University and food giants such as Unilever, Nestle, and Doleto to adopt blockchain, a technology that is able to disintermediate the whole retail industry.

Let’s take a closer look at how it works, why grocery retailers have to pay attention to it, and how it is beneficial for producers and consumers.

Blockchain explained

To put it simple, blockchain is a digital ledger of information. By design, it is decentralised, distributed and resistant to modification. The ‘ledger’ is validated by a peer-to-peer network of participants allowed access to it. Once a record is verified, it cannot be altered and is visible to all parties.

The new ‘trust machine’ has started to gain interest in the grocery retail, one of the largest consumer markets in the world. Major companies and producers are excited about the blockchain technology as it allows for transparent supply chains, products’ traceability, decentralised auditing, cost reduction across the industry and more.

Applications & use cases

The following is a section describing 3 main areas for blockchain applications in retail and groceries, in particular.

1. Transactions and paperwork

In order to adapt and improve shopping experience, retail has embraced each and every payment method: from cards to digital wallets.

On the other hand, the current situation with intermediaries charging fees for transaction processing is rather complex — transaction cost structures vary from one payment method to another. Retailers are looking for ways to reduce the burden: from adopting services that offer lower fees to launching their own mobile payments systems together with store credit cards.

This type of strategy allows them to beef up margins and create closed ecosystems without any third-party payment services.

Blockchain-based payment systems disintermediate banks and card companies, minimise paperwork, guarantee payment information integrity, and thus lower the cost of Person-to-Merchants transactions. In addition to making the payment process less expensive, the blockchain technology allows to maintain transparent relationships and enhance trust building between both parties.

The idea of providing a decentralised, distributed and tokenised ledger requires industry-specific high-load systems. The well-known drawbacks, namely the onboarding and scalability issues of blockchain-based payments are related mainly to technical factors and can be mitigated by improving the entire cryptocurrency acquisition process, implementing effective ledgers and faster consensus algorithms.

Today, financial intermediaries rethink their business models and come up with new value propositions in order to meet the growing demand for decentralised payment gateways and infrastructure. In fact, over 20 banks from around the world are working together on integrating blockchain technology into SWIFT gpi, a cross-border payment service.

At the same time, there is an initiative underway to bring letter of credit transactions onto the blockchain. The R3, with over 15 participating banks, is building Corda, an open-source distributed ledger platform designed for commerce. For retailers, that will mean less paperwork and improved cross-border transactions experience.

All in all, the blockchain technology allows for not only the disintermediation of ‘transactional middleman’, but retail chains as well.

Thus, in this model, manufacturers get the ability to connect directly with consumers, significantly reduce the counterparty risks and pass the savings from transaction costs to both parties in the form of improved quality, cheaper prices, benefits, bonuses and loyalty.

2. Supply chain and logistics

With local producers struggling to get onto the shelves and major retailers dominating the market, the global supply chain stays inherently unbalanced in terms of bargaining power abuse. As mega-chains aim to reduce stock-outs and have their shelves full at all times, the situation results in significant inefficiencies such as increased food miles, scams and waste.

Logistics and supply chain management is the next most promising area of blockchain in retail. From farm to fork, blockchain technology provides integrity, authenticity and security for the pedigree data as items move through the supply chain. These records are time-stamped and tamper-proof. In addition, they are independently verifiable by all members and parties allowed access to the data.

A blockchain-based logistics and supply chain management system offers control over how, where and when the product is produced, transported, stored, delivered and presented to the end consumer.

By design, blockchain-based approach enables trust to be built quickly and disputes to be resolved in a transparent manner.

Apart from IBM collaborating with food industry leaders, Microsoft and Mojix are set to streamline inventory management using blockchain-based smart contracts. They have integrated this feature into existing location-based inventory management system operating in near real-time and closed deals with Merrill Lynch and BHB Billiton. Microsoft and Mojix are now exploring how the blockchain technology could benefit retail.

Today, the industry needs all of the help it can get: from supply chain traceability and tracking the whereabouts of inventory at every stage, to product safety monitoring and more. Blockchain is here to help retailers improve the quality of groceries and reduce fraud, but more importantly, it allows farmers to trade directly with end buyers, provide them with lower prices and enhanced shopping experience.

3. Shopping experience

Blockchain will add to the education of consumers who care more about margins than authenticity.

Imagine a situation where you discover the story behind a product by using the information added onto the blockchain on each and every part of the product’s journey through the retail supply chain. An app lets you see where it was grown, understand how many food miles it has travelled and more.

This is a totally new shopping experience that would have been hard to imagine until the blockchain technology was introduced to the public. By design, it offers an unprecedented combination of security, transparency and trust building mechanisms. Native ads and almost any other type of advertising just can’t compete with stories built into products by design.

Apart from tracing the seafood, from boat to plate, the ‘journey’ information provides the ability to execute recalls in a precise and timely manner. With all the information at hand, retailers can identify and remove items plus investigate potential cases of fraud, damage or improper storage conditions.

There are more companies starting up initiatives that are aimed at digitisation of the store and shopping experience as a whole. Cisco and a consortium of 17 companies have founded the Trusted IoT Alliance that is to develop open source blockchain protocol for sensors and software within retail.

Blockchain-based solutions will deliver additional services and value to the customer relationship. In particular, the technology can be applied to not only ‘product storytelling’ and tracking but identity verification, delivery, returns and complaint management. Whether shopping in-store or online, features like ‘smart contracts’ will guarantee that money moves hands only when a product has been delivered. A software protocol automates the order completion process and offers complaint mechanism to handle disputes.

Once the product is purchased, ownership data and item condition can be recorded in blockchain. This way you get proof of ownership and improved loyalty programs based on smart incentive mechanisms.

A blockchain-based loyalty platform allows for networked loyalty programs and integration with partners via open protocols. While it leverages both user experience and brand equity, consumers get the option to transfer and trade loyalty points from different brands, and earn points even by viewing and clicking ads. In practice, it lets shoppers choose between various options and exchange grocery discount points for any other loyalty tokens or fiat money.

Key points and findings

Here is a list of 10 key facts about the market transformation:

  1. Over 4,000 retail stores are affected by the ‘retail apocalypse’
  2. Retailers are looking for ways to rethink transaction cost structure
  3. Food business is under fire, it is undergoing a fundamental reshaping
  4. Still the grocery retail stays unbalanced in terms of bargaining power
  5. The situation results in increased food miles, scams and waste…
  6. …and local producers struggling to get onto the store shelves
  7. Millennials are dominating online, they want instant everything
  8. They care about margins, authenticity and shopping experience
  9. Old-line mega-chains are integrating e-commerce solutions…
  10. …and collaborating with giants like IBM, Microsoft, and Cisco

And another 5 on the blockchain applications in retail and groceries:

  1. Blockchain-based payment systems disintermediate banks, card companies and other financial intermediaries. It means less paperwork, improved cross-border transactions experience and reduced costs.
  2. Blockchain provides integrity and security for the supply chain data. By design, the story behind a product becomes verifiable and transparent.
  3. It allows for streamlining inventory management using blockchain-based smart contracts together with investigations of potential cases of fraud.
  4. Blockchain-based identity verification, returns and complaint management will transform the shopping experience.
  5. Blockchain allows manufacturers to trade directly with end buyers and offer loyalty programs with the option to transfer loyalty points.

We at INS are working on the initiative to challenge the notion of grocery retail value chain. With a scalable blockchain-based platform for shoppers and suppliers, we will create an opportunity for tens of thousands of suppliers to compete for customers’ attention, sell best-quality groceries and provide a trustworthy grocery shopping experience at significantly lower prices.

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