Emerging Themes 14088491

‘Renaissance for Supermarkets?’

5/18/2012

NFC in Supermarket Industry – SRI LANKA

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Emerging Themes 14088491

27th March 2012, Colombo

Hewage Erandi Harshika Perera

TARGET AUDIENCE
Directors in Supermarket industry and Telecommunication industry, Bankers, Marketing Executives, Consultants

THE PURPOSE
To critically evaluate how near field communication is materializing the supermarket industry, to analyze consumers
behavior, main goals, and the influence factors on the choice of supermarkets, using strategic responses in respond the
change and predicting how marketing professionals will adapt new technology in terms of skills, attitudes and behaviors.

EXECUTIVE SUMMARY
The external environment is tremendously violent and dynamic. Take your eyes off it for a moment from the external
environment and you may find there has been a significant change in the competitive landscape. Supermarket industry is
more competitive and recorded significant growth in recent history.

Consumers seek value and the ‘convenience’ rather than the price factor. Therefore before purchase of a product
comparison is made between price and cost (monetary and non monetary). Considering the convenience, consumers are
ready to grab the new technology to accelerate the flow of life style. NFC enabled mobiles have many features except ‘m-
money’ which is drive customers to ‘hassle free shopping experience’ in the supermarkets.

As technology convergence brings the world closer together. In recent future wireless technology converting to
contactless technology and the new technological breakthroughs influence the way we interact with the world. The mobile
phone has already become a device that opens up the world to its users. The technology of Near Field Communication
(NFC) enables secure and fast connections between devices in usage of supermarket industry.

The electronic wallets and the NFC technology are ramping more and new customers globally. Supermarkets are moving
forward looking for new avenues in the digital platform to reach the consumers. The convenience of distributing
information of fast moving consumer goods and services, instant availability on smart devices and the opportunity to
establish direct interaction with users has given the traditional shopping experiences a second chance to put the focus on
fending off obsolesces by diversifying business and embracing new opportunities.

This discussion paper will illustrate a picture of the future of the supermarket from a technical phase, identifying the
consumers buying behavior while organization and marketers enhancing capabilities to produce sustainable growth to
‘reshape the supermarket industry’ with constant innovations. It reveals the potential of the NFC Technology and what it
would mean for the future of the supermarket industry. It will critically evaluate probable strategic responses from the
industry and will also recommend what would be expected from future marketers.

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BACKGROUND INFORMATION

Near Field communication is a wireless technology which is low-power radio frequency protocol and popular among
consumers by utilizing the key elements in existing values for contactless card technology.

The Mass collaboration of over 160 mobile device producers, service suppliers and research institute (NFC Forum,
2011a), the Near Field Communication (NFC) technology drive out as a reliable materialization.

The ability of NFC to ‘substitute’ credit/debit cards in addition to as literal money itself. Mobile Network Operators
(MNOs) and the Financial Service Provider (FSP) industry, two evenly solid industries which are pitch one another by
this emerged technology. The Supermarket industry which is the most popular retailer of FMCG will be addressed by this
new technology in near future in Sri Lanka in term of payment mode and information provider.

THE MATERIALIZATION OF NEAR FIELD COMMUNICATION AND COLLABORATION WITH

SUPERMARKET INDUSTRY
Supermarket Industry in Sri Lanka

World is becoming smaller and smaller with the ‘globalization’. External environment changing rapidly and several
markets are emerging with new changers and requirements. Supermarket industry is rapidly growing industry in Sri Lanka
and willing to accept the new technology to serve their stake holders in best manner.

Supermarkets are being operated in the country which can be categorized as supermarkets, hypermarkets and convenience
stores. Cargills Food City, Kings Super city, Sentra, Keells Super, EH Super Pola, Sunup are some of the supermarket
chains that have expanded operations. In addition there are hypermarkets such as park n' Shop, Arpico Super Centers and
Crystal. The Sathosa (corporative) chain is also set for growth in the coming months, with the new management in place
operates as convenience stores.

Sri Lanka’s supermarket trade is expected to see an unprecedented growth within the next few years, backed by increasing
per capita income, an increase in the work force and the ‘changing consumption patterns’. The report compiled by
Bartleet Religare Securities says, the spread of supermarket trade in the country as of now stands at just 15% and with the
end of the war, the three leading supermarket chains in the country, namely Cargills, Keells and Arpico have started
expanding aggressively while investing heavily in to this segment.

Mobile subscription in local context

Mobile telecommunication is one of most competitive industry in the country. The mobile telecom industry of Sri Lanka
consists of 5 players, engaged in the provision of voice, data as well as a number of value added services. Over 80% of the
subscribers are prepaid. An oligopolistic market structure can be seen in the telecommunication industry in Sri Lanka.

During the past 10 years the industry has achieved rapid growth in mobile subscriber numbers. Starting from 2001, almost
a decade of intense competition resulted in price reductions of significant proportions according to the
Telecommunication Regulatory Commission of Sri Lanka (TRCSL, 2011). With the speed of the data connection and the
processing power of mobile phones, ‘new era of the mobile base technology and service convergence’ in near future
without any hesitation.

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NEW ERA OF NFC ENABLES MOBILE DEVICES IN SUPERMARKET INDUSTRY
Current context of Supermarkets provide vast number of services comparing to the normal retail outlets. Consumers are
enabled to done most of their shopping in one roof including banking. Mobile Network Operator has vast number of
features including Near Field communication which increase the ‘multi- functionality’.

M-Money Easy Ticketing Mobile

Banking
Voice
Mobile payments
Communication

Broadband Parking Smart tag and

Slots Information
Text
messaging MMS/3G Navigation

(Figure: 02) Source: Author

The availability of the mobile phones and the NFC technology is in a position to be couple and give many services of
‘convenience’. Being only a device of voice and data communication, mobile phones rapidly expansion with more and
more features gaining ‘easy life style’ to the stake holders.

MOBILE FINANCE SERVICE (MFS) IN SUPERMARKET INDUSTRY

The features and the convenience offers in the Mobile Finance Service
thought there are some services supporting mobile banking and M-
commerce. However, NFC enabled phones in a position to perform in
an ‘M- money’ form which can cease the cash and card to exist in
physical form which has perform in supermarket transactions.
(Jayasinghe M, 2012) NFC forum (2008) visualize that NFC will
convert the cash or card into applications installable in an NFC chip
through smart card emulator. This radical transformation will be the
future of financial service deliver not only in the Supermarkets but all
most all monetary transactions. To avoid the ‘strategic drift’,
supermarkets are concern about the new technologies which is
consumers preferred to adopt. (Figure 03)

According to the research conducted by Mobey Forum (Liisa, K., 2010 and Guaus, J. et al, 2011), there will be a bigger
impact from NFC to the financial services due to the use of mobile technology in financial services. For the each and
every transaction which are done in the super market they can pay through mobile. ‘Smart tag’ and Information are
available for the consumers and they can identify all the details of the products what they willing purchase including
expiry date, manufactured date, ingredient or content, whether it good the particular customer AND whether there any
allergy to the particular customer. Also information regarding available discounts, coupons and lucky draws can be
identified. The credits which are given to the empty bottles and plastics from the supermarkets also can be deducted
through mobile. (Supermarket NFC Pilot - Mobile payments & more, youtube)

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IMPACT OF NEAR FIELD COMMUNICATION ON SUPERMARKET INDUSTRY

As it discussed in industry back ground (refer annex 01), supermarket industry is now in the middle stage of its growth.
According to the report done by Bartleet Religare Securities, there is the spread of supermarket trade in the country as of
now stands at just 15%. This percentage included 516 supermarkets which can be categories under 205 supermarkets, 61
hypermarkets and 250 convenience centers.

Supermarkets and Hypermarkets are spread all over the urban and suburban areas mainly in Western province. For the
initial implementation Mobile payment method, target segment is the supermarket and hypermarkets which are located in
urban areas, because the density of mobile phone users is high in this area.

‘M-money’ which is a popular feature in Near Field Communication is a ‘substitute’ for the actual money and
credit/debit cards which is performing payment mode in supermarket industry. Hence with many features the NFC
enabled device offers an increased ‘multi-functionality’ it could be viewed as an efficient and an interactive substitute.
According to the force field analysis (refer: Annexture02), there is drive of higher growth in the industry. At the same
with the number of mobile phones in use in Sri Lanka far outweighing credit card usage (more than 18 million against
more than 800,000 according to TRCSL; 2011 and LBO; 2010).

Consumers of the supermarket industry seeking for ‘convenience’ and their needs have ‘augmented’ due to the influence
of “M-Money”. Therefore there is ‘positive impact’ to the supermarket market industry to address the mobile users to
make their payments through NFC enabled mobile phones. Some supermarkets in European countries have already
adapted to mobile payments through NFC technology as a substitute for actual money, credit/debit card or coupons.
(Supermarket NFC Pilot - Mobile payments & more, youtube). Thus if “M-money” penetrate to the supermarket industry
in Sri Lanka which include supermarkets, hypermarkets and convenience centers, financial providers such as banks which
are providing credit/debit facilities would face a massive decline in usage of credit/debit cards (figure 04) . On the other
hand plastic card suppliers for credit/debit card would be affected by a decrease in demand with decline of usage of
credit/debit card usage. At the same time credit/debit card will be replaced with the NFC chip readers enabled devices to
perform the mobile payment from NFC enabled mobiles.

Product Life Cycle analysis of Supermarket industry, credit/debit card and mobile usages

60
Decline of
maturity Credit/Debit
50 card industry
Consumer Density - %

Growth of decline
40 Supermarket growth
Industry

30
Growth of NFC
enables mobile Dev Life…
20 phones industry

10 Introduction
Development (Figure 04)

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11983 1.5 2
2000 2.5
2010 3 2050 3.52010 4 4.5
2050 5
Emerging Themes 14088491
INFLUENCES OF CONSUMER BUYING BEHAVIOR
Consumers have several types of buying behavior as per said by Kotler.P (1997). In context of the supermarket industry
classification can be made as to a “variety seeking buying behavior”. FMCG are very high involvement products since
consumers have to seek through information before purchase, variety meaning that the consumer has ‘diverse choice’ in
regard to the purchasing a products.

Consumers seek ‘value’ and the ‘convenience’ rather than the price factor. Therefore before purchase of a product
comparison is made between price and cost (monetary and non monetary). Considering the convenience, consumers are
ready to grab the new technology to accelerate the flow of life style. NFC enabled mobiles have many features except “m-
money’ (figure 02) which is drive customers to ‘hassle free shopping experience’. This hassle free shopping experience
is enriching by several ways. Thus there is no actual cash, secure from the thefts and there is no harassment of error
chargers or error payments. No inconvenience about change of money and receipts signing and queue are much shorter
due to self service payment counters. ‘Easy access’ of the product information instead of getting crew member assistance
will be much convincing. There is less chance to miss discounts and promotions and selection of products will be easier,
thus personal information embedded NFC chip can give notification according to the details. Parking slots can be reserve
and can pay through NFC enabled mobile phones.

RODGER’S DIFFUSION CURVE

Roger’s Diffusion Curve primarily discusses about the adoption rate of new technology and creates a set of assumptions
on people’s preference for the technological aspects of a product. The framework assists to determine the adoption rate
over time with the attitudes of the consumers of the social system towards the characteristics of innovation. These
characteristics include five sources.

NFC
User
s

(Source: lab space)

Relative Advantage: This explains how well the potential adopters will perceive the innovation to be in comparison to
the current product or service. Ex: it is accuracy of the information, convenience, speeds of transaction, safety & usability.
Compatibility: This is consistence of values, experiences of the innovation and considering the needs of potential
customers. Ex: Developing & launching NFC chips/SIMs for the smart phones.
Complexity: This reveals ability to understand and use the innovation. Ex: ‘m-money’ and mobile payments
Trial: Ease of potential adopters to experiment the product to learn and understand. Ex: Release NFC enabled chips for
Mobitel connection users thus the Sri Lanka Telecom Mobitel, the country's largest mobile services provider, has signed a
partnership agreement with Sony Corporation for the introduction of a range of NFC-based services.
Observability: This is an evidence of the contribution of the innovation to others. Introduction of NFC enabled mobile
phones has both technological & finance-related aspects. Since mobile payments has being developed for digital
platforms, early adopters are important to introduce the devices, where as active mobile consumers are concerned about
introducing new services in the mobile industry.

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CHANGING COMPETITIVE LANDSCAPE IN SUPERMARKET INDUSTRY
An interview carried out by Mr. Milinda Jayasinghe (Head of IT – Institute of Bankers Sri Lanka) revealed important
findings. He elaborated that credit payment were cards were declining in market share due to debit card in the first quarter
of 2009. Recently it is illustrate some declines in both card payments due the mobile transactions.

Bowman’s Strategy Clock

The Bowman’s Strategy Clock developed by Cliff Bowman & David Faulkner (1996) explains the competiveness among
companies in a market place. Supermarket Industry can identify the position of the competitive advantages in mobile
payment method by considering the different combinations of Price & Perceived Value. These octal base strategic
positions will guide to analyze and evaluate the current strategies conducted and decide if modifications to improve the
overall competitive position. A supermarket can maintain a hybrid position while offering NFC enabled mobile payments,
cash payment and credit/debit payments. Reasonable advertising packages should be introduced & offered to advertisers
while building trust & loyalty.

Differentiation

High Focused
Hybrid 4
Differentiatio
Perceived value to the consumer

3 5 n

6
Low price Risky, high Margins
2

7 Monopoly pricing
Low price/low
1
added value 8
Loss of market share
Low
Low Price High

Suitable categories of consumer demographic data and important target groups can be explore by the continuous research
of the organization. Special demonstrations and data enrich media campaigns and other relevant information should
circulating among social media networks to attract the initial audiences to discover preferences of potential future
customers and to gain ideas for the further development of mobile payments in supermarket industry. ‘Unique and
imperative competencies’ such as brands, image, technological advances, exceptional customer service, internal
awareness and empowerment, enhanced infrastructure and competitive pay walls should be perceived and sourced
effectively. Established brands & strong reputation of the organization will support to attract more stake holders.

FUTURE OF THE SUPERMARKET INDUSTRY

Supermarket industry growing rapidly and the supermarket trade in Sri Lanka are expected to grow 20% per annum in the
years to come owing to increasing purchasing power of the consumers (invest Sri Lanka, 2010). Hence if this trend
continues for the next 10 years there is a high probability that supermarkets could overtake general retail trade brining
adverse implications upon the profitability of the general retailers.
Further there is a change in competitive landscape of the supermarket industry. When considered porter’s five forces
(Appendix 3) it is evident that in the future intensity of rivalry amongst firms will increase as existing firms would fight
for market space. Moreover, through the emergence of new technology and increased functionality of new payment
modes there certainly would be a high threat of new entrants.
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On the other hand, this will be benefited supermarket industry itself and consumers in several ways. In the Supermarket,
there is less maintenance cost of cashboxes, cashier machines and credit/debit card machines and less number of
cashiering staff required. Also there is less rush in queues, because there is no counting cash or signatures in the receipts.
This will include less advertising cost, due to smart tags which carries all information regarding promotions. Good
customer service can be provided due to database of customer identification which can develop through details in NFC
chip in mobile phone user.

These effects come in favor for consumers as consumers would certainly exert high ‘consumer dominion’ due to
increased bargaining power associated with increased substitutes at affordable prices. Concluding that the ‘profitability
within this sector will decline.’ .In my opinion, supermarket industry will have unbelievable change, thus consumers are
ready to grab the new technology for ensure the ‘hassle free life style’. The ‘collaboration’ of NFC mobile payment and
supermarket industry will have far to go by increasing the ‘usability’ of NFC payment mode throughout the buying
process of consumers.

Item Locations
and directions

Temperature
5⁰C

Manufacture’s name

Manufactured Date Good

morning
Expiry Date Mr. Sam

Ingredients
NFC phone enable
Amount Cholesterol customer service officer
Can I pay to identifies customer by
Amount of Protein by my his name
mobile?
Possible allergies

Self Checkout

Welcome
Mr. Sam

Temperature -
2⁰C
Payments
made through
NFC enable
Smart Shelves Imported Country
phone
Amount of Alcohols
‘m-money’

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EVOLVING ROLES OF MARKETERS
According to the ‘We’re all marketers’ (Mckinsy Quartery (July, 2011) for the past decade, marketers have been adjusting
to a new era of ‘deep customer engagement’. Referring the joint study conduct by Association of National Advertisers &
BtoB Magazine (2008), the role of marketing has become much more ‘strategic’ over the recent years as marketers have
been more involved in driving innovation & new business development at their organizations.

Marketers are natural choice of spearheads to respond the technology & changing customer needs and behaviors. These
forces are transforming marketing functions to product development, corporate affairs, and manufacturing and distribution
models. A survey by The Chartered Institute of Marketing revealed some interesting opinions among front-line marketers:
77% of marketers feel technology has made marketing in general more effective, but 69% warn that it is leading
marketers in directions that customers will perceive as intrusive.(Brave new world: Technology and marketing, July
2006).

The future growth of supermarket industry will be dependent upon new technologies such as NFC. Being a ‘budding
technologist’ and sharpen ones ‘IT skills’ will go a long way towards shaping the marketer to cater to future business
needs in supermarket industry. The development of the technology is creating wide range of ‘potential new priorities’ of
super marketers and also across the entire FMCG industry. These marketers should play an active role in shaping the
company’s public profile helping to ‘manage complexity’ and ‘building new competencies’ in and out of the marketing
department. With the increased emphasis on market orientation in tomorrow’s world, the marketers should be ready to
‘drive innovation’ and ‘creativity’ within their organization. Marketers need to adopt ‘value based approaches to
marketing’ (Doyle, P., 2008) rather than the more traditional feature/cost based approach.

The ‘m – money’ and the NFC technology are ramping more and new customers globally. ‘Ethical and responsible
marketing’ will be a key facet of a future marketer. With many children being early adopters of new technology such as
NFC, it will be up to the future marketers to determine whether and how they should promote their use (CIM, 2011). An
awareness of the ‘Triple Bottom Line’ and its implications to the business is always welcome of marketers (CIM, 2007).

SUMMARY
The supermarket industry is certainly undergoing transformation. Consumers are keen on convenience and the hassle free
shopping experience with rich of knowledge about what they buy for the healthy and easy life style. The discussion paper
explored and critically evaluated the impact NFC would have on the supermarket industry, its impact of the industry itself,
customers buying behavior and marketing professionals involved in term of buying procedure in the supermarket.

We are already on a journey to high technology which is converted to wireless technology to contactless technology and
the demand on contactless technology will increase rapidly over the next few years. The much potential for future
research exists still unexplored. Understanding and anticipating emerging themes is a necessary skill for current and future
marketers, to ensure that their organizations do not become strategically irrelevant. In the future the way consumers
behave is certainly going to differ therefore marketers should have a good understanding consumer psychology and use it
as an important skill.

The author anticipates that this discussion paper stimulate many a future research that will grow and enhance business
knowledge and the profession of marketing in near future.

Word Count: 2735

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