Frictionless — meaning the absence of friction or pain points impeding convenience — has infiltrated retail vernacular with a vengeance.
Retailers and technology companies alike have been racing to crack one of the biggest points of friction at retail — the checkout experience — since Amazon Go debuted its first cashierless store in 2016 and announced plans for 3,000 cashier-less stores by 2021.
Retailers across channels are coming at the issue of friction from all angles — scan-and-pay via mobile apps, self-checkout kiosks, order ahead, delivery and more.
At Amazon Go, Prime members download an app, enter their payment information and scan the app to enter the store. Then overhead cameras and shelf sensors determine what customers buy, allowing them to walk out and receive a receipt moments later on their phones.
Zippin, a San Francisco-based Amazon Go rival, which debuted an automated store in 2018, also uses a mobile app, artificial intelligence (AI), machine learning and shelf sensors, but fewer ceiling cameras than Amazon. Santa-Clara, Calif.-based AiFi introduced NanoStore, which spans 160 square feet and, compared to Amazon Go, uses fewer cameras and more AI for real-time customer tracking and receipts. Customers at NanoStore swipe a credit card or tap an app to enter, select items and walk out. Then there’s GoPuff, with no physical stores, but warehouses that deliver items direct to customers’ doors when they order from the mobile app.
C-STORES WEIGH APPROACHES
What’s certain is frictionless checkout is coming.
“The larger companies in our industry are testing and exploring. These payment systems aren’t a big part of our industry yet and may not be for years,” said Bill Kent, CEO of Midland, Texas-based Kent Cos., which operates 45 Kent Kwik stores in three states. “It’s so early in the game that our company’s approach will be to watch, study and see what sticks.”
Kent is skeptical that the need for frictionless checkout is imminent and questions whether Amazon will succeed in ramping up to 3,000 cashierless stores within two years. “I believe they will grow, but not to that size in that time frame.” While he called Amazon’s model “impressive,” he said he’s not convinced it’s the model of the future. “It will play a part, no doubt, but it’s not going to work everywhere.”
Kent noted Kent Kwik’s fuel supplier is pursuing various payment and frictionless systems that Kent Oil plans to adopt eventually. As a smaller operation, he said, “We’ll watch and let our fuel partner Chevron test and roll out what makes sense and then decide if the economics and acceptance warrant action.”
Kent added, “Technology will change, evolve and get more cost effective. Being first here is for the big boys.”
When frictionless checkout does arrive, Kent anticipates it will look more like a scan-and-pay via mobile app model rather than the Amazon model.
A number of c-stores — including Cruizers, Enmarket and Domino — are moving in exactly that direction, testing a frictionless checkout experience using the Skip app, which allows customers to scan the barcode on items they want to purchase and pay via the app before leaving the store.
Holmes Oil’s Cruizers convenience stores, with 27 locations in North Carolina, tested the app at its Raleigh, N.C., location before rolling it out chainwide on April 3 — making it the first c-store chain nationwide to offer a frictionless option at all store locations.
“During our test phase at our Raleigh location, we had zero issues when it came to customer interaction,” said Mike Wilson, director of operations for Holmes Oil Co. “We learned that our biggest problem came from missing promo items. Once we addressed that on the back end, things went rather smoothly.”
One of the major concerns the chain had in offering this type of frictionless system was how to control shrink.
“So far, two months into this, we have not seen any real increases in shrink,” Wilson said. “I believe that this is due to employees ensuring that they greet Skip customers by name and the fact the Skip has an audit function on the back end; as well as, when customers sign up, they must provide a form of payment, which eliminates anonymity.”
Cruizers selected Skip over other options because the hardware necessary to launch proved minimal. “It is also incredibly easy for the customer to use. Employee training is also simple,” said Wilson. While it’s still early, 60% of customers that tried Skip at Cruizers used it again on subsequent visits.
“C-stores must continue to leverage technology for many reasons, but in the short term it is due to labor shortages and customer convenience,” Wilson said. “It is imperative that we find ways to serve our customers in a speedy and convenient way. In areas that have low unemployment, finding qualified and customer-friendly employees can be a challenge. Frictionless technology can help with getting customers in and out quickly and providing a different kind of excellent experience.”
Wilson pointed out that there are more 27-year-olds in the U.S. than any other age, with ages 26 and 25 close behind.
“These are adults who do not know a world without internet, without smartphones and do not know a world without the immediate delivery of Amazon and other retailers,” said Wilson. “As the population continues to evolve, businesses must adapt to that ‘I want it now’ mentality and continue to figure out how to provide that to their customers. While I do not see an immediate future without cashiers in our business, I do see a future where c-stores must have that offer available or they will, in time, be phased out.”
Meanwhile, 7-Eleven is the first c-store chain to offer a frictionless checkout experience built in-house. In November 2018, it piloted the Scan & Pay feature of its mobile app at 14 c-stores in Dallas, allowing customers to use their smartphones to scan and pay for items while they shop.
“With our large scale of 67,000 global stores, 9,100 here in the U.S., we have a unique opportunity to redefine convenience,” said Gurmeet Singh, 7-Eleven executive vice president and chief digital, information and marketing officer for 7-Eleven. “The challenge I gave to my team was, ‘How do we disrupt this? How do we make our shopping even more convenient and delightful? How can we enable our customers to skip the line, every time?’”
7-Eleven focused on building an end-to-end experience for customers by integrating its Scan & Pay feature with its 7-Rewards loyalty program, which is already integrated with in-store technology.
“We tested Scan & Pay at the store located at our headquarters for three months prior to launching,” Singh said. “Employees and local customers could test out the new feature and provide feedback, which was invaluable. We continue to test and learn this new shopping experience and have plans to roll out into other markets in 2019 based on our learnings.”
Customers must be within the geo-fenced area near one of the pilot stores for the Scan & Pay feature to appear. As they shop, customers scan items with a barcode using the guides on their phone. When customers are ready to check out, they do it right in the app using Apple Pay, Google Pay, Samsung Pay, or a traditional debit or credit card. Scan & Pay stations with clear shopping bags are located inside the store.
7-Eleven’s goal is to “become a customer-obsessed, digitally-enabled company,” said Singh. “With consumers’ expectations of what convenience means to them — continuously moving the bar higher — we cannot afford to wait. We need to innovate new experiences for our customers, and that’s exactly what we are doing.”
7-Eleven is also making its shopping experience more frictionless using its 7NOW app that offers delivery and order ahead. “We believe consumers are looking for faster checkout options, and with the rise of new payment methods, the Scan & Pay brings it all together,” Singh said.
On Aug. 31, 2018, Standard Cognition, a technology company, opened a functional c-store in San Francisco called Standard Store (originally Standard Market).
Standard Store allows the company to demo how its technology works in a c-store environment and gain real-world insights into perfecting the experience. A drugstore chain in Japan called Yakuodo recently rolled out the technology. A U.S.-based retailer and a Japan-based c-store chain are also set to add the technology this year, said Michael Suswal, chief operating officer and co-founder of Standard Cognition Autonomous Checkout, with offices in San Francisco and Tokyo.
Standard Store is open three afternoons per week, and in the off hours the store uses data to improve its operations. Hours will be expanding to more typical c-store hours—at least 9 a.m. to 5 p.m. — later this year. Standard Store offers typical c-store fare, including food, snacks, drinks and household goods.
One benefit of Standard Store is the range of ways customers can experience the store.
Customers can download the Standard technology app, enter the store and check-in via the app. “There is no gate that prevents you from entering,” Suswal said. “When you’re done shopping, you just leave, and you get automatically charged.”
The other option is to shop without an app. Behind the scenes, the system recognizes the customer and assigns them an anonymous number behind the scenes. “Then, as you shop through the store, the system will know what shopper 12 has selected,” Suswal said.
When the customer is finished shopping, they stand in front of a kiosk. “This kiosk is unlike anything else out there,” said Suswal. “They don’t scan anything or tap any buttons. They just stand in front of it, and it automatically displays everything they bought that day. When they want to leave, they can pay with cash, credit card or Apple Pay — right at the machine.”
“Cash is a big piece for us,” he added. “We take cash, and also, we use no biometric data. We use cameras on the ceiling. There’s nothing else. There are no shelf sensors.”
While Standard Store services customers, Standard Cognition is not looking to compete with c-store retailers, but to gain insights on how to continue growing its technology. “Retail, it turns out, is really hard,” Suswal said.
The kiosk exists for several reasons. One, no retailer is yet prepared to eliminate cash as an option. Some cities have even moved to ban cashless stores, but “cities banning cashless stores doesn’t move the needle nearly as much as people’s desire to pay with cash, at least for now,” he noted.
Other customers may not want to download an app. What’s more, alcohol and tobacco regulations differ between retailers and regions. The kiosk offers flexibility in how to handle verification, whether it’s with notifying staff when someone is buying certain items or having an employee near the kiosk to verify age.
Suswal said there are five things every autonomous checkout solution needs to address in order to be a valid market entrant: Privacy, scalability, experience, flexibility and analytics.
One key consideration is maintenance costs. “If you expect a 2% to 4% hardware failure rate across your hardware systems, and you only have 20-40 cameras, then you’re doing, maybe, one to two service requests a year,” Suswal said. “Whereas if you have a few thousand shelf sensors, like Amazon Go does … ” then maintenance costs skyrocket.
The flexibility to offer spur-of-the-moment sales can be challenging when working with shelf sensors, he pointed out. “Shelf sensors would all need to be reprogrammed to adapt to that. We didn’t want that. That’s why we went with the overhead camera systems.”
The AI platform uses cameras to monitor what people do; sorted three-second video snippets allow managers to doublecheck discrepancies.
FIRST THINGS FIRST
Crone Consulting LLC’s proprietary research predicts that in five years, one-third of all retailers will be cashless — up from 17% today and 10% of brick-and-mortar stores.
But before c-stores jump into autonomous checkout, Richard Crone, CEO of Crone Consulting, noted there are incremental steps all players should master first. “That starts with order ahead, or buy online and pick up in store,” Crone said.
“We’re a long ways off from just dropping autonomous checkout into the c-store format and being off and running; because what challenges them are the exceptions,” he said.
Exceptions include tobacco and alcohol, which require age verifications. Loose produce and prepared foodservice also trigger exceptions for the technology, which early versions of autonomous checkout haven’t yet overcome. There are also theft concerns with customers scanning one item but bagging another and subsequent customer profiling issues.
“Amazon Go has changed the merchandising mix to eliminate the exceptions, meaning they simplified their SKUs and storage-keeping units, and what they stock the shelves with don’t have any exceptions,” Crone noted. Amazon has also invented a new restaurant category. “We call it premium prepared and grocery,” Crone said.
Before c-stores focus on autonomous checkout, Crone urges stores to master order ahead/pick up in-store via their own — not a third party’s — five-star-rated app.
“That way they can use the exceptions — bulk produce, fresh prepared foods — as a competitive advantage and buy some time before incurring the capital expenditure of re-engineering their entire in-store merchandising model for autonomous checkout,” he said.
And it addresses the main need for frictionless checkout, Crone noted, which is convenience and speed.
“If c-stores jump straight to autonomous checkout, then they’re missing that whole segment that leads up to it with the added risk that the mixed (payment) format and the exceptions will kill it,” Crone said. “That’s not a risk worth taking until you’ve perfected your order-ahead capability.”
What’s more, Amazon Go struggles to keep shelves stocked fast enough with 5-10 employees, compared to c-stores that are often manned by just one person.
Order ahead is the fastest growing checkout in quick-service restaurant, fast fine and fast casual, and Target, Walmart and Kroger are doubling down on order-ahead capabilities, Crone said.
“Check in is the new checkout,” he added. To do frictionless, customers must check in, authenticate themselves and register a payment. It reverses the model. “What challenges c-stores with this different model is it’s not a simple hardware upgrade or equipment switch out. It’s a merchandising strategy that you have to address before you even start this,” he said.
Once a c-store chain has perfected order ahead, Crone recommended next integrating it with the store experience and perfecting cross-selling inside the app. Then create an AI-driven predictive analytics model that helps customers with their shopping lists and knows, if they ordered a specific item, what they may need next.
THE DATA BUSINESS
Gray Taylor, executive director for Conexxus (formerly PCATS), pointed out that, going forward, every business is going to be in the data business, and “first-mover data-master cultures” are going to dominate over the next five years. But digitization is the easy part — transforming to a digital culture is more challenging.
“Wawa is a digital culture,” Taylor said. “They operate on numbers. They don’t operate by the seat of their pants or gut feel. If you take every top performer in the industry, they already have a good start on a digital culture.”
Taylor noted order ahead/pickup in-store is challenging for c-store retailers, many of which “can’t tell you how many bottles of ketchup they have in their store,” a “perpetual problem” with remote ordering.
“There really needs to be a transformation of the platform, which is usually a second step in digitization,” he said. “You’ve got to get your store system to where you know down to the item what you have in each store. Otherwise, mobile or online sales could create a demand c-stores can’t meet.
“C-stores have to change tires while the race is on. It’s going to get harder to change those tires as we go on because the race is going to get faster,” he said.
Mobile self-checkout may be easier for retailers because they don’t need to know what’s in the store, Taylor said. C-stores can transition perhaps more easily from in-app loyalty programs to also doing in-app checkout.
It’s worth noting that friction, Taylor said, is different to each customer. Customers who like mobile checkout don’t want to wait in line. Others like kiosk checkout so they can pay with cash or card. How a customer wants to pay might also change day to day.
Taylor expects the exceptions involving age restrictions to work themselves out. “The technology is capable today to be more accurate on age verification than it is with somebody holding up a driver’s license,” he said.
Frictionless checkout also presents an opportunity for c-store retailers to open smaller stores in urban, higher-rent areas for lower labor costs, feature highly-targeted merchandise and do cost-based retail — setting prices based on product and operating costs. “It’s a heck of a lot easier to maintain that than to maintain a store with 3,500 SKUs and 5,000 square feet,” Taylor said.
“Wawa is the only chain even attempting to do cost-based retailing accounting. I will argue that all of the digital disrupters coming after us, and being successful, they are doing cost-based retail. They have been from the get-go,” he said.
Taylor recommended that c-stores pick high performers within each area — accounting, operations, merchandising and so on — and invest in training them on how big data and AI work. “Get them to become the boots-on-the ground experts who then lead the team into a digital future.”
Retailers should start investing now, to build sufficient investment capital so they can move with new innovation when the time is right.
The c-store industry has seen five great years of profitability, and savvy retailers will take a long-term view, putting those profits toward revising their culture and technology to start competing with digital disrupters and experimenting with new business models, Taylor advised.
If a recession or economic downturn occurs as expected within three years, it’s going to be harder to compete with Amazon and its 2,000-plus automated stores. Wise c-store operators are reinvesting now.
“So in three years they’re not reactive because they’ve been proactive,” Taylor said. “I would have a very significant plan in place to reach the digitization sooner rather than later.”