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How Blockchain can Provide a Better Grocery Shopping Experience

Bank of Canada Test Shows Blockchain Can Settle Equities

Although supermarket grocery retailers provide value in the form of convenience and choice, the blockchain could make their value redundant.  

According to retail technology strategist Deborah Weinswig, the US grocery sector is expected to reach $1 trillion dollars by 2020. The estimate suggests that the majority of growth will come from online sources.

Unfortunately, in most countries, oligopolies run the supermarket industry.

Across the pond in the UK, the big four supermarkets control 50-80 percent of the grocery market. In Australia, the average markup for fresh food is 47 percent, according to the Sydney Morning Herald. In Canada, this is especially poignant after grocery store Loblaws was caught in a multi-year bread price-fixing scheme.

These price markups, inefficient supply chains, and price-fixing behavior lead to higher costs for the consumer. Blockchain technology has the ability to circumvent these issues and offer lower costs with more choices by directly connecting grocery manufacturers to consumers.

The problem with supermarket retailers

Despite the advantages of a supermarket, the Social Market Foundation, a UK independent public policy think tank launched a report on the concentration of UK consumer markets which indicated a strong dissatisfaction with the grocery oligopoly from the general public.

While there is some competition in the market, according to the UK’s Office of Fair Trading, there have been instances in 2002-2003, where price fixing has cost consumers around 270 million pounds.

Although price fixing is illegal, laws and punishments have not stopped supermarkets from creating monopolistic pricing schemes in the past.

Just recently in Canada, for instance, George Weston, owner of Loblaws, admitted to a fourteen-year-long coordinated bread pricing scheme. During the price fix, the consumer price index for bread, rolls, and buns during the 2000s increased 96 percent. While the company paid a $25 million fine, Phillippe Wojazer from Reuters commented that coordination in the grocery industry is fairly common.

Even without price-fixing behaviour, supermarkets require markups to profit from each item. According to Daily Finance, the average markup varies widely. The markup on canned goods is at 26 percent while bottled water can be as much as 1,000 percent. While it is an extremely low margin industry, supermarket retailers profit on average 2-6 percent. Given this, a mere 0.5 percent would be significant to every party from the supplier, manufacturer, and consumer.

Despite the value supermarkets provide, there are multiple issues that come along with it. Blockchain technology could deliver the same value without the additional issues.

From push to pull through blockchain

With the rapid development of blockchain technology, consumers will be able to buy everyday products at lower prices direct from manufacturers.

Blockchain technology can, therefore, shift the grocery industry from a push into a pull-based system. Supermarkets currently follow a ‘push-based’ approach where they ‘push’ the supply of products which consumers see and purchase. A ‘pull system,’ on the other hand, is where supply follows consumer demand.

In a decentralized ecosystem, every manufacturer controls their products, pricing, and listings. Manufacturers then receive aggregated customer requests. Afterwards, manufacturers deliver orders to smart distribution centers and couriers deliver orders to customers.

One such example is Moscow-based INS, a blockchain-based startup in the grocery world. They recently raised 60,000 Ether (USD 41.5 million) in a public token sale in 2017.

Cryptocurrency News Site The Merkle recently reported that INS has also attracted interested manufacturers like Unilever, Reckitt Benckiser, Valio, and MARS.

The elephant in the blockchain grocery store: scalability

Blockchains may have the potential to remove supermarkets as the middleman in the upcoming years. However, a blockchain based network is currently not scalable.

When it comes to grocery and supply chains, a lot of information needs to be transferred in a very short amount of time. The transfer of misinformation would create a poor customer experience, while significant delays can be problematic since groceries are highly perishable.

Blockchain in its current incarnation, though, wouldn’t stand up to the challenge; there are currently too many limitations in the technology. For instance, the energy requirements would be so great that this blockchain alternative would be highly inefficient and ineffective today.

Even though INS, for instance, plans to launch internationally in 2018, it may be a while until a full rollout occurs without a scalable blockchain.

In the meantime, large retailers like Walmart and Kroger are working with IBM and their blockchain network to strengthen food safety in the supply chain. They are testing blockchain technology to trace foodborne illnesses to their source. This process usually takes weeks with traditional record keeping but now takes seconds with blockchain technology. Walmart has already run two successful blockchain pilots with IBM: one tracing Chinese and pork and the other tracing Mexican Mangoes.

While it may take years before manufacturers sell direct to consumers, supermarkets are currently taking advantage of the benefits of blockchain technology. Whether or not blockchain will wholly disrupt supermarkets, though, is currently dependent on blockchain’s ability to scale and grow.

 

Image credit: Wikimedia Commons

 

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