How Microsoft is Becoming a Retail Change Agent

Though it slipped beneath some radars during CES 2019, the full implications of a Microsoft announcement reemerged a week later at the National Retail Federation (NRF2019) conference in New York. In the original press release, Microsoft and Kroger announced Retail as a Service (RaaS) solutions they’ll develop together which the pair believes “will redefine” the retail customer experience. The companies demonstrated the new solutions at NRF2019. Plus, Rodney McMullen, Kroger’s chairman and CEO, discussed the effort during his conference keynote.

Is this a big deal? Given the size of the companies involved, maybe so. But it also highlights the current state of consumer sales and how mainstream retailers, with the help of knowledgeable technology partners, are proactively streamlining operations and transforming their customers’ in-store experiences. This also reflects on and has implications for online retail so it’s well worth further consideration.

A RaaS by any other name

What exactly is the solution Kroger/Microsoft have in mind? Leveraging Kroger’s homegrown technologies and the Microsoft Azure cloud platform, the new RaaS product is based on Kroger enablement software “built by retailers for retailers.” An initial effort will transform two pilot stores in Monroe, Ohio and Redmond, Washington, near each company’s headquarters. Eventually, the pair will jointly market a commercial RaaS solution to other retailers.

The pilot stores will feature shopping technologies, including the latest generation of Kroger’s EDGE (Enhanced Display for Grocery Environment) Shelf, a system that uses digital displays, instead of traditional paper tags, to list prices, promotions and nutritional/dietary information. Microsoft Azure will be used to store and process the data generated in stores and via Kroger’s app.

In addition, with the help of Microsoft Azure AI, EDGE Shelf will connect with Kroger’s Scan, Bag, Go, providing individual customers a guided experience designed to simplify shopping and checkout. By means of video analytics, personalized offers and advertisements based on customers’ demographics can be presented to them while they shop.

For store associates, a pick-to-light productivity solution can reduce the time it takes to fulfill orders for curbside pickup. Microsoft Azure-powered video analytics will also help store associates quickly identify and address out-of-stock items to ensure customers can successfully locate products. Kroger also plans to generate new revenue by selling digital advertising space on EDGE Shelf displays to consumer packaged goods (CPGs) brands.

The taste for retail tech is evolving

Does the Kroger/Microsoft partnership really deliver or portend anything new? Yes, indeed. Though Kroger has previously deployed its EDGE Shelf technologies in some of its nearly 2,800 outlets, integrating those displays with data from its shopping app and analyzing/delivering with Microsoft’s help is new. Standardizing on Microsoft Azure is another new cloud-enabled wrinkle that should benefit both companies with both short- and long-term payoffs.

Why is that the case? Mainly because perceptions about how IT is used in retail and the positions of related vendors appears to be changing significantly. For the past decade, Amazon has typically been considered the digitized retail horse to beat due to the company’s online sales dominance. That was amplified by the misfires and slow starts that plagued traditional retailers’ online efforts.

Additionally, many saw Amazon’s 2017 acquisition of Whole Foods as a coup that would lead the company to become a substantial threat to brick-and-mortar grocers. However, while the deal provided Amazon intriguing opportunities, including helping its online grocery sales, some analysts suggest that traditional grocers who offer delivery and/or in-store pick-up on orders placed online are doing far better than Amazon.

Consider also that while Whole Foods owns some great locations and maintains a firm position with high income clientele, the company is ranked ninth among Top-Ten global supermarket chains with $15.4B in 2018 revenues, far behind #1 supermarket chain Kroger’s 2018 revenues of $105.1B. Finally, though Amazon’s AWS organization offers cloud-based services designed for retailers and has racked up some interesting wins, most of its clients are specialty firms, like Brooks Brothers and Eataly.

How will that stack up against Kroger and Microsoft’s enterprise-class solutions “built by retailers for retailers”? That’s impossible to say for certain, but it’s likely that the solutions will mainly be considered with interest by medium to large-sized brick-and-mortar retailers and chains. Plus, companies that have seen their business transformed due to competitive pressure from Amazon should find the offerings compelling. Those groups together could help Kroger/Microsoft become the platform of choice for bricks-to-clicks retail transformation.

Final analysis

How big a deal is this? It has huge potential. Consider that after a bit over two decades of steady growth, ecommerce accounts for just about 10 percent of overall retail sales in the U.S. Owning a bit over half of online retail has helped Amazon become a juggernaut within the tech industry and other markets. But when the company’s results are compared to the greater retail market results, Amazon’s 5%+ of the whole shows how much upside technological transformation of retail players and processes could achieve.

It’s also worth noting that Microsoft is doing nothing like resting on its laurels. Under CEO Satya Nadella’s leadership, the company has become a major force in cloud computing, up to and including taking on and besting AWS in some markets—an achievement many would have scoffed at 2-3 years ago. It is also actively pushing into broader markets and vertical industries.

Plus, following its Kroger partnership strategy/solutions and the NRF2019 demoes, Microsoft announced a new seven-year strategic partnership with the Walgreens Boots Alliance (WBA) which is designed to develop new health care delivery models, technology and retail innovations. Along with rolling out Microsoft 365 to WBA’s 380,000+ global employees (in 11,500+ stores in 11 countries), Microsoft will also become WBA’s strategic cloud provider, with plans to migrate the majority of the company’s IT infrastructure onto Microsoft Azure.

Taken together, these announcements show Microsoft shooting to become the change agent for digitized large-scale retailers by designing, developing and delivering transformational solutions. If these efforts proceed as the company and its partners intend, the future of bricks and clicks consumer sales is likely to be quite different than many in the industry have long assumed.