Woolworths, the fresh tech people

Woolworths’ Head of Digital Payments, Paul Monnington announced an Australian first: support for checkout-free shopping. The ambitious rollout, starting with a trial store in Double Bay, Sydney, introduces a variation on Amazon’s shop and go technology.
From launch, select shoppers at the trial store will be able to complete a check out in the aisles using their mobile phones and the new Woolworths Scan&Go app.
The aim for Woolworths is to test the consumer experience and ascertain how comfortable shoppers are with the idea of skipping the checkout line and purchasing directly from the shelf. This second point is especially important to them as initial customer research revealed some customers felt uncomfortable walking out of the store without going through the checkout process.
Woolworths’ research found some customers felt uncomfortable walking out seemingly without paying — Sydney Morning Herald
Why would Woolworths embark down this route?

Having read a somewhat misleading editorial line, my first reaction to this project was “why over-invest on such a basic consumer problem?”
To solve the problem of having left a wallet at home, Woolworths could simply have extended their existing loyalty app to support a stored credit card.
The stored card could then be read out at the checkout and the payment would be done and the problem of shopping sans wallet solved.
Woolworths already supports payments from ApplePay and Google Pay, and with the growing trend of digital wallets, adding their own wallet solution would have been an easy way to solve that customer frustration.
However, Woolworths had a far deeper problem statement that they were solving for (and this is why it's important to read the article) and their plan was to build towards a solution that not only eliminates the need to carry a wallet but also to eliminate the need for the checkout process, period!
Woolworths sees two major potential benefits for customers: using the app to track how much they have spent as they shop to stay within budget, and being able to exit the store more quickly by not having to unpack and scan their items at a checkout — Sydney Morning Herald
The rise of Shop and Go tech
Amazon is no stranger to disrupting established commerce channels. Whether it was their online storefront that disrupted the traditional bricks and mortar bookstore or the kindle that changed the way that people consume print content, Amazon knows how to create extreme value for their customers through engaging user experiences.
Now they have started disrupting another vertical: supermarkets.
Debuting to the public in Seattle in 2018, Amazon Go updated the way that consumers shop in the physical world by removing the need to go through the checkout process or even pay for their goods during checkout. Instead, sophisticated video sensors, movement tracking, and AI technology captures purchases made by a shopper and then charges the total to their Amazon account automatically as they leave the store.
Standard Cognition has also developed their own tracking technology to enable shop and go purchases, targeting existing bricks and mortar retailers who are looking to maintain the same competitive advantages as Amazon.
I wrote about testing ideas early on with minimal investment, and Woolworths’ innovation unit WooliesX has executed in a similar fashion. Rather than fully developing a totally frictionless shopping experience, they have gone for a hybrid model instead.
Shoppers download an app that stores their loyalty card and credit card on file. Once set up, they can scan product barcodes on the shelves, put the items directly into their shopping bags, then make payment at a touch off point (similar to using an Opal card for public transport) or via a human checkout operator before walking out the door with their groceries.
This is a quick way to determine whether further investment into the more sophisticated AI technology is warranted. It will also give Woolworths the opportunity to research some other parts of the experience, such as the perception around the risk of increased stock loss, whether customers will be comfortable shopping in this manner, or the impact to their operating costs.
The advance of digital wallets
Digital wallets have become a huge part of the modern shopper's arsenal, providing them with the ability to store their cards in a centralized location and to autofill the billing sections of e-commerce websites. To power this convenience, companies along the entire payments chain are getting in on the action.
At the issuer level, Visa and Mastercard have wallet solutions that integrate into online shopping experiences, PayPal and Venmo bridge the deficiencies in the US peer to peer transfer market, and ApplePay and Google Pay are leveraging the powerful user experience offered by the smartphone.
Starbucks sounds like an unlikely contender in the digital wallet space. However, they have found extreme success by combining three key elements into their offering: value-add services such as order ahead, credit card processing, and capture of purchase data. From here Starbucks can simultaneously offer a great user experience whilst building really detailed customer profiles and creating higher LTV (lifetime value).
Like Starbucks, Woolworths has an opportunity to leverage the power of the digital wallet to create really detailed profiles of their customers. Granted, they are already amassing data from the loyalty cards in use today, however, adding payment options provides two benefits:
- Shopper activity can be tracked even if they don’t swipe their loyalty card or choose not to use a loyalty card.
- Woolworths can understand the financial picture of their shoppers better. Are they using a platinum American Express? A debit card? A low-value rewards card?
Woolworths could also cross-compare their payment data with other brands in their stable to discover what other products customers are buying and from which stores. Sounds somewhat Orwellian, however, Target US demonstrated the business value of this approach using purchase data to target customers with hyper-specific advertising.
Tying it all together
In Australia, the continuing duopoly between supermarket powerhouses Coles and Woolworths has led to a quest for compelling competitive differentiators.
Historically, these differentiators have been driven by price, with both supermarkets locked in pricing wars. This initially created a race to the bottom as each supermarket started introducing house brands in key consumables such as milk, canned produce, and toiletries.
With challenger brands such as ALDI or Costco expanding their footprint in Australia, simply competing on price alone is no longer viable.
Whilst Costco’s membership strategy is yet to be exploited by the likes of Coles or Woolworths, it is proving to be a drawcard for shoppers that are looking to reduce the cost of living and access a wide range of products. This strategy has also lead to strong customer retention for the brand.
To counter ALDI’s focus on fresh produce, Coles flipped their strategy and started directing their marketing efforts around fresh produce and catering to consumers who are frustrated with too much choice in a particular product range.
The problem with pricing strategies is that they don’t foster strong customer retention. With more Australians facing pressure on their cost of living, their brand loyalty is going to stray as they search for the best price on their groceries.
For Woolworths, this innovation provides a competitive advantage over their rivals. Not only will the novelty of a frictionless shopping help acquire new customers, but the refined customer experience along with the confluence of data and technology will help retain customers.
The Economist boldly announced that data is the new oil and businesses in all industries are rushing to find ways to exploit the data that they are collecting about their users.
Combine the frictionless shopping experience with the data acquisition of the digital wallet? If executed well, Woolworths will have a commanding lead over their competition.
Welcome to the future of shopping.
