Innovation in the UK Retail Sector - Nesta

Innovation in the UK Retail Sector
software system, developed in-house. Given the determinedly local scale of the operation, Somerset Local Food Direct offers a
remarkable range of goods, amounting to well over a 1,000 SKUs including fresh locally produced meats, vegetables, dairy
produce, eggs, breads, preserves and snacks. Such a range caters for a large proportion of the weekly requirements of customers
which in tunrn generates additional customer loyalty. As a result, the average order value is healthy, with some customers ordering
up to £80 worth of food at a time. This is important to the economics of the operation, as, even with a delivery charge of £3,
small orders are unlikely to be economic to fulfil. This coupled with recommendations from satisfied customers has helped the
delivery model of the retailer, which now operates on the basis of ‘delivery clusters’, where several drops are close together and
thus make the delivery operation more efficient (www.localfooddirect.co.uk).
Vignette 4.8: Smiley’s Delicatessen, Farm Shop and Café
Context: Offer-related innovation in a small rural retailer
Example: Smiley’s is not a standard village shop but a hybrid retail concept balancing the range of lines stocked and the different
needs of teashop/café and the retail side. The shop’s range is tailored to the modern reality that most people buy their cans and
packets at the large supermarkets and the role of local shops is to provide short life products bought between the weekly or
fortnightly visits to large food stores. The shop has a large serve-over dairy and delicatessen section, with fresh produce, much of
it local, a limited range of groceries (for the “I forgot to buy it at the supermarket” customer) together with a wide range of
confectionery including loose sweets in jars for the nostalgic. Fresh produce is displayed with some flair in wicker baskets and in
artistic piles. Friendly customer service is a key part of the offer together with a willingness to listen to customers’ requests for
items not already stocked.
However, the most interesting aspect of the shop is the mix of retail and café. The café section is totally integrated with the shop
but delineated by a pillar and a change in floor tile colour. This has a French theme and feel. With 26 covers, the café provides
informal eating with the possibility of evening service as well at weekends or other times. Lunch has proved very popular, in
particular on Sundays. The challenge is to produce a menu that is interesting whilst being not too difficult to produce without a
dedicated chef on the premises, that is “homemade” without eliciting the response, “Well, I could do it just as well at home”.
Catering provides much higher gross profit margins than retail but there are higher costs as well, in terms of time required to
prepare and serve the food, wastage, space, etc. Hence managing the balance between the two halves of a business like this is
crucial - being able to cope with the inevitable peaks in customer demands.
Theories of retailing might suggest that the demand from the village itself is too small to sustain the shop or cafe on its own.
However, there is also significant passing trade on the A road that passes through Sandford, the shop having a large forecourt for
parking (The Rural Shops Alliance 2007).
Vignette 4.9: Boots and Tesco: customer-centric supply chain innovation
Context: Supply chain innovation
Examples: In 2005 Boots launched the first phase of its Store-Friendly Supply Chain (SFSC) programme taking a more
customer-centric perspective to the way it organise its supply chain. The aim is to improve stock availability and free up staff time
in store to serve customers instead of unpacking and sorting merchandise. Boots claims that as a result of SFSC, over 80% of
items are arriving at stores ready to go straight onto shelves, a huge saving in time and energy for busy store managers and their
teams. (Boots Annual Report 2006)
Tesco is improving the efficiency of its in-store operations and on-shelf availability by innovating in what the industry experts
refer to the ‘last 50 yards’. In shelf-replenishment terms this means increased use of new design merchandising units, easier to
refill freezer units with drop down fronts, shelf-ready packaging (SRP) and trials of in-store applications of RFID.
Vignette 4.10: The Mid Counties Co-op: payment systems innovation
Context: Retail applications of biometric technology
Example: The Mid Counties Co-op has introduced a finger-touch payment system, enabling customers to pay for their shopping
by scanning their fingerprint at the checkout. The biometric payment system developed by a consortium of a technology firm in
San Francisco, Fujitsu and Pay By Touch has been tested by the Mid Counties Co-op in three of its stores in the Oxfordshire
area. Customers using the ‘Pay By Touch’ can set up an account at the store or over the internet. Once their fingerprint has been
identified at the checkout the customer's bank account is automatically debited. The retailer’s own research suggests that ‘Pay by
Touch’ has the capacity to be up to 20% than using ‘chip and PIN’.
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