The Grocery Game Changer
Since 2006, the media and analysts have been saying “data is the new oil.” Coined by UK mathematician Clive Humbly and used widely over recent years, the phrase attempts to explain the complexities of how data is being used to generate revenue. In a 2006 blog, Michael Palmer says, “Data is just like crude. It’s valuable, but if unrefined, it cannot really be used. It has to be changed into gas, plastic, chemicals, etc. to create a valuable entity that drives profitable activity. So must data be broken down, analyzed for it to have value.”
We are using a commodity from the 18th century to understand a new kind of 21st-century business that, too, is transforming how we live our lives and do our work. But data is not the new oil. It’s far more important than that. It will drive the future of nearly every business and will force radical changes in traditional engines of the economy like agriculture.
The New Data Companies
Out of the top 10 most valuable companies in the world, as measured by market capitalization, six are data-driven. Their use of data and its ability to connect people and transform businesses goes far beyond just data being oil. In 2017, Apple, Alphabet (the parent company of Google), Microsoft, Amazon, Facebook, and Alibaba all expanded to have more than 1 billion users of their services. For these companies to keep growing, they are moving out of the digital economy and into the traditional economy, which puts them on a collision course with agriculture.
In June 2017, the business world was caught off guard when Amazon announced it was buying the lifestyle grocery chain Whole Foods for $13.7 billion. Over the last few years, Amazon has been exploring and prototyping new approaches to selling food. Its Amazon Fresh service delivers groceries to people’s homes. In 2016, it opened convenience stores in Washington state and New York City. In these stores, customers with an Amazon account simply picked up items and walked out. There was no need for a cashier because the person’s online account was charged. This meant a store that traditionally employed 89 people ran with 10 employees.
Earlier in 2017, Amazon invited executives from companies like General Mills and Mondelez to its fulfillment center in Washington to talk with their worldwide consumer chiefs. Reporting on the meeting, Bloomberg speculated that Amazon wanted to explore using its distribution system and user base to allow the consumer companies to bypass traditional stores like Walmart, Costco, and Target. Amazon is not alone in its expansion into the traditional economy.
With a single app downloaded to a smartphone, companies like Uber and Lyft have reordered the taxi industry in cities all over the world. When these services come into town, jobs and lives are transformed overnight.
What will happen when these companies use their massive user bases to begin to purchase produce, dairy, and meat? Ride-sharing services don’t own the cars from which they extract value, but they do have control over their pricing and use. The power has been disaggregated from the owners of the cars (the direct producers of the service), and now it lies with the companies that can bring their large user base to purchase those goods and services.
a supply-chain shift
“First you need to think about it as a supply-chain shift,” explains Greg Lindsay, senior fellow of the Atlantic Council’s Foresight, Strategy, and Risks Initiative and a visiting scholar at New York University’s Rudin Center for Transportation Policy & Management. “These digital companies use their vast trove of consumers and fulfillment optimization to transform markets. They may not even set pricing directly, but their efficiencies could drive the costs down, thus lowering prices. They could provide a marketplace that allows many more farmers and agriculture businesses to use their delivery systems.”
Lindsey’s perspective was expanded by economist Paul Thomas, who over his career served as the chief economist for Continental Airlines and the Intel Corporation. “When we talk about these companies, we need to remember we’re just talking about data and data analytics. It’s not necessarily bad. These digital companies bring less friction to the buying and selling process,” he says. “They typically don’t practice vertical integration or economies of scale. They bring about economies of scope. They bring together and deliver multiple products and services to consumers. They will change the shopping experience.”
As these data-driven companies move into agriculture, organizations and businesses will change. Those who remain flexible will succeed. One way to prepare is to ask yourself who is your current customer and, more importantly, who do you want your customer to be in the future? How can these companies help you reach them directly?
Another promising effect could come from the immense amount of data that companies have about their users and customers. They know their habits and preferences as well as their shopping histories and interests. With GPS and an app, some even know the physical location of a consumer every moment of his or her life. All of this data, when used correctly, could help farmers have a better idea of what to plant or raise and what they could expect to be paid for it.
“Imagine if these companies used their data analytics to predictively model what food consumers would be interested in six months from now,” says Lindsey. “What if you could be given seasonal planting options based on predictive demand as well as desired profit. It’s all in the data.”
This kind of predictive modeling could open up niche markets to food producers and give them the ability to get those goods directly to consumers.
“We’re pretty excited about the possibilities,” says Kip Tom, managing member of Tom Farms and president of CereServ, Inc. “We’re seeing our business getting more and more connected and figuring out ways to use the data. Who knows, our data might even be useful to people who aren’t even in our business.”
Over the next five to 10 years, the data companies’ push into agriculture is fairly certain, just as technology and connectivity on farms, ranches, and dairies is now becoming commonplace.
Those who will most benefit from these disruptions will be the people who choose to manage that change; the people who imagine a wider array of future customers; and the people who understand how predictive data analytics, algorithms, and machine learning could benefit their specific organization.
“There are a lot of things outside of a farmer’s control,” says Teddy Bekele, vice president of ag technology at WinField United, the seed and crop-protection products business of Land O’Lakes, Inc.
His team has collaborated with companies like Google, Microsoft, and Amazon to simplify farm operations using data management and machine learning.
“Data and algorithms can put a little more control back into a farmer’s hands. I know many are skeptical of these changes, but it’s important to remain open-minded,” Bekele says.
“Our ability to innovate is not limited by the access to technology,” Tom says. “It is only limited by our ability to dream.”