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by EOS Intelligence EOS Intelligence No Comments

Commentary: OLA Finds Its Way on Aussie Roads

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With plans to expand globally, Ola Cabs, India’s leading ride-sharing service provider, marked its entry into the international market by announcing in January 2018 the launch of its services in the Australian territory. While the exact date of the service launch in Australia is not yet decided, as it is subject to regulatory approvals, the service provider has already started the ground work by inviting private hire vehicles to join them. The company is starting to collaborate with private hire vehicle owners in Sydney, Melbourne, and Perth, the three cities where Ola cabs will initially be available for rides, to be ready to roll out once the commercial operations commence.

Presently, the market for ride-sharing service providers in Australia includes players such as Uber, Taxify, and GoCatch, among others. With Uber, which has emerged as the leading player in Australia, already present in the market, Ola needs to have its strategy, policies, and priorities set just right to smoothly launch and successfully run its operations. However, the presence of Uber has worked, to some extent, in favor of Ola, as it paved the way for ride-sharing services in the country resulting in regulatory policies being already in place. This makes the market entry a bit easier for Ola as the company will not need to deal with several challenges that the early market entrants in such novelty markets as ride-sharing typically have to tackle.

However, competing against its largest rival, Uber, is not the only concern for Ola. To be successful in the Australian market, Ola also has to focus on smaller and newer competitors, and set its operational and pricing policies keeping in mind their strategies in the market. Taxify, an Estonia-based company that launched its operations in Australia in December 2017, is expected to closely compete with Ola, especially with its ride services being operational only in Sydney and Melbourne, two of the locations where Ola is launching its services as well. With two ride-sharing service providers launching its operations in similar locations within a span of few months, a price war between the two is expected to happen. Currently, Taxify offers rides to its commuters without any surge pricing, making the ride cheaper than Uber. If Ola plans a similar pricing structure, among other strategies to drive the business, the competition between the two operators will, most likely, heat up very soon.

With two ride-sharing service providers launching its operations in similar locations within a span of few months, a price war between the two is expected to happen.

In the Australian market, the ride-sharing services segment is still in its infancy stage of development and with only one player (in this case, Uber) currently dominating the scene, it makes sense for Ola to launch its operations here now, offering a new option for consumers to choose from. Entry of Ola, along with new players such as Taxify, may indicate a transitioning phase in the Australian ride-sharing market as the entry of new players has the potential to end Uber’s monopoly. Currently, with very little known about the operating dynamics, not much can be commented about the success of Ola in the Australian market. However, the unsaturated state of the local market clearly indicates that Ola has a good chance to thrive in Australia, as long as they get the pricing right and set their eyes on the long-term business growth rather than short-term gain through higher prices.

by EOS Intelligence EOS Intelligence No Comments

China Bike-Sharing Market Moving towards Consolidation

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Though several bike-sharing start-ups in China flourished in past two years, mainly due to backing from venture capital funding, many are finding it difficult to keep up the momentum as the investment dries up in absence of sustainable business profitability model. Small players in particular are struggling to comply with recently introduced regulatory standards for the industry. In our article titled ‘Bikes Are Back: China Gaining Pedal Power’, published in April 2017, we discussed the outlook for the bike-sharing app-based businesses in China, and now we are taking a look again into the current market dynamics in view of new regulatory framework that can reshape the competitive landscape.

The bike-sharing industry in China has noted a steep growth in a short span of time. As per estimate of Ministry of Transport, there were about 70 bike-sharing companies operating in China by July 2017 (as compared to 17 in January 2017). However, the market is skewed towards the duopoly of MoBike and Ofo. According to Sootoo (an online service platform providing analysis for internet and e-commerce industry in China), as of March 2017, MoBike and Ofo accounted for 56% and 30% market share, respectively. Other companies face cut-throat competition to carve up the remaining 14% of the market.

The summer of 2017 was particularly harsh on several small players unable to bear the heat of increasing competition and financial crunch. Chongqing-based Wukong, which shut down its operations in June 2017, is believed to be the first bike-sharing company to collapse. Subsequently, several other small companies, including 3vBike, Xiao Ming Bike, Cool Qi Bike Ding Ding Bike, Kala Bike, and Kuqi Bike, also wound up their businesses citing issues such as lack of investment, cash flow crisis, mismanagement, competition, losses due to theft and vandalism, etc.

Intense competition, especially among the second-tier companies, is driving the market towards consolidation. In October, Youon, a Shanghai-listed company operating in 220 cities and owing 800,000 bikes, acquired 100% stake in Hellobike (a Shanghai-based company with presence in 90 cities across China). In November 2017, Bluegogo, owning fleet of 700,000 bikes and 20 million registered users, announced that the company was facing financial troubles and hence the business was sold to another Chinese start-up, Green Bike-Transit. This acquisition trend is likely to continue, as the capital intensive and cash-burning bike-sharing businesses has come under the purview of strict regulatory framework.

In August 2017, Ministry of Transport and nine other ministries jointly issued the first set of guidelines with the aim to better regulate and standardize the emerging bike-sharing market in China. State governments developed their own standards and regulations based on the guidelines.

Some of these regulations are in favor of bike-sharing companies. For instance, central government directed state authorities to step up their efforts in providing protection to bike-sharing companies against vandalism, theft, and illegal parking issues. The users are required to register with the bike-sharing operators using their real name. This will allow the security forces to easily identify and penalize the offenders. This may bring some respite to small players such as 3Vbike, a Beijing-based company with a fleet of over 1,000 bikes, which shut down its operations in July 2017 after most of its bikes were stolen. Moreover, local authorities need to work with bike-sharing operators to develop dedicated parking spaces near high-demand locations such as shopping areas, office blocks, public transportation stations, etc. This is likely to ease up chaos and nuisance caused by illegal parking.

On the other hand, some of the regulations call for bike-sharing companies to bear additional expenses. As per the new regulations, all bike-sharing operators are required to provide accident insurance to their users, a practice which was earlier followed only by the market leader, MoBike. The companies are also required to set-up support mechanisms to manage customer complaints. In the guidelines, central government also advised state governments to develop local standards for regular maintenance of bikes. Accordingly, the government of Shanghai and Tianjin instructed bike-sharing operators to appoint one maintenance personnel per 200 bikes and the bikes need to be discarded after three years in operation. Such standards are certainly necessary to enhance user experience and safety, but it will put additional strain on already financially-stressed companies.

As per the new guidelines, companies are encouraged not to charge security deposits at all. If security deposit is collected, the company must clearly distinguish security deposit fund from other funds and ensure timely refund of the deposits. The bike-sharing companies typically charge CNY 99 – CNY 299 (~US$15 – US$45) as one-time refundable security deposit and then a rental fee of CNY 0.5 – CNY 1 (US$0.08 – US$0.15) is charged for every half-hour to one-hour ride. Since the firms need to refrain from using the deposits, and given that the rental fees are likely to remain significantly low due to intense competition, the companies might struggle to manage day-to-day operations. Investor money will dry out eventually, hence the companies are in dire need of developing new revenue streams. Besides in-app advertising, companies are also exploring the use of their bikes as an advertising space. For instance, Ofo customized number of bikes with Minions characters to generate revenue from advertising the release of ‘Despicable Me 3’ movie in China.

The new guidelines also allow the local authorities to limit the number of bikes to check over-supply and traffic congestion. Following the announcement of this new guideline, Beijing, Shanghai, Guangzhou, Wuhan, Shenzhen, and eight other cities reportedly banned deployment of additional bikes. As a result, the prime markets are now off-limits for new entrants.

china bike sharing

EOS Perspective

App-based bike-sharing start-ups have revived the biking culture in China. By July 2017, the bike-sharing companies, claiming 130 million registered users in total, flooded the streets of China with 16 million bikes. The bike-sharing boom is certainly more than a fad, however, a shift in market composition is expected in the near future.

The new regulations have paved the way for development of higher industry standards aimed at better user experience and safety. However, compliance with these regulations is likely to put an additional financial burden on small players. Moreover, small players are finding it difficult to challenge the duopoly of MoBike and Ofo (together accounting for 86% of the market share as of March 2017). The consolidation among second-tier companies might ease the competition, however, this might not be enough to level with the market leaders. To survive the competition, small companies will need to either innovate or capitalize on niche markets and opportunities. Most of the companies operating in the market today have similar service model. Technological innovation or distinguished service model can enable the company to stand out from their competition. Furthermore, with rising level of competition and market saturation in major cities, small companies need to shift focus on underserved third and fourth-tier cities. For instance, in May 2017, Shanghai-based Mingbike announced its plan to gradually move out of Shanghai and Beijing in a strategy shift towards smaller cities. In these smaller cities, the companies can also explore niche business opportunities such as gaining exclusive contract for operating around local attractions.

Speculation about the merger of two dominant players MoBike and Ofo surfaced in October 2017. The two bike-sharing giants are under investor pressure to consolidate and put an end to the competitive pricing war. For now, both the companies have clearly stated that they are not interested in merger at this point. However, industry experts are hopeful of a merger in the future given the history of the investors – Tencent (backing MoBike) and Alibaba (backing Ofo), who separately invested in taxi-haling rival companies that eventually merged to become a single dominant player in China. Didi Chuxing, a taxi-hailing service company, was formed with merger of Tencent backed Didi Dache and Alibaba backed Kuaidi Dache in 2015. In 2016, Uber merged its China operations with Didi Chuxing, while retaining a minority stake. Travis Kalanick, co-founder of Uber, acknowledged that both the companies were making huge investments in China but unable to retrieve profits and the merger was aimed to build a sustainable and profitable business in China. Bike-sharing industry in China is also at a similar juncture. Since both MoBike and Ofo have not achieved profitability yet and they largely depend on investments, they might give in to the interest of the investors. Hence, one can expect that the bike-sharing industry in China might eventually move towards monopoly.

by EOS Intelligence EOS Intelligence No Comments

Infographic: Four Digital Trends in Aviation that Will Fly High in 2018

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Emerging technologies are sprawling over the aviation sector making travel seamless, convenient, automated, and personalized. Airports and airlines are adopting technologies that simplify the passengers’ travel experience by digitalizing baggage and boarding processes, making wayfinding in busy airports efficient, and making check-ins more rapid, among many others. Digitalization is not only helping to deliver greater customer satisfaction, but also minimizing costs, increasing revenue, and improving efficiency – for instance, within six months of chatbot usage, Aeromexcio was able to reduce average customer service resolution time via chat to two minutes from 16 minutes.

Some of the key technologies to flourish in aviation in 2018 include biometrics, artificial intelligence-powered chatbots, robotics, and Internet of Things. With emerging technologies set to redefine the travel experience, it is essential that the airports and airlines take action now to ascertain they are well-placed to tap the opportunity.

digital trends in aviation

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Note: Mexico-based airline:Volaris; Germany-based airline:Lufthansa; Netherlands-based airline:KLM; UK-based airline:Virgin Atlantic; USA-based airlines:Delta, JetBlue; Taiwan-based airline:EVA Air; New Zealand-based airline:Air New Zealand

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Sharing Economy: Africa Finds Its Share in the Market

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The concept of sharing economy has become a global phenomenon and after capturing several markets across Northern America, Europe, and Asia, it is now finding its way in Africa. The pre-existing sharing culture in several African countries makes this business concept gain good momentum across the continent. In addition to global companies, such as Uber and Airbnb, which have witnessed exponential growth in their limited years of business in this region, there are a host of home-grown players that are offering niche and country-specific services in this space. At the same time, sharing economy business does face a great deal of challenges in Africa’s complex markets. Safety concerns as well as limited availability and use of technology are two of the largest roadblocks for a thriving sharing economy business model. Although companies seem to find their way around these issues on their corporate drawing boards, the challenges are more intense and impactful in reality. Therefore, while the concept of sharing economy is likely to boom in the continent, it remains to be seen which companies manage to best adapt to local dynamics and thrive, and which players will fail in navigating the complexity of the regional markets.

Sharing economy businesses have been growing at an accelerating rate globally with leaders such as Airbnb and Uber taking over their traditional hospitality and travel competitors and becoming the largest players in the tourism and passenger transport sectors, respectively. After gaining huge market in several mature economies, the asset-light collaborative economic model is now making its presence felt in Africa. With vast youth population and a growing middle class, several markets in the African continent offer a huge growth potential for companies operating the sharing economy model. In 2016, Airbnb alone witnessed a 95% rise in the number of house listings in the continent, which increased from about 39,500 in 2015 to 77,000 in 2016. Moreover, the number of users of its online platform reached 765,000 in 2016, witnessing a 143% y-o-y rise, and is expected to further expand to reach 1.5 million registered users by the end of 2017. Similarly, Uber, which entered Africa in 2013 through Johannesburg, has expanded into 15 cities across eight African countries in a span of just four years and has over 60,000 partnering drivers across the continent.

This remarkable growth is underpinned by a burgeoning middle class that is looking for (and increasingly can afford) convenient and reasonable solutions. Moreover, the sharing economy concept helps Africans bridge service gaps created by inadequate resources and infrastructure present in the continent. For instance, with increasing number of tourists and a limited number of high-end and mid-tier hotels or resorts, companies such as Airbnb are in a perfect position to fill such a demand-supply gap without much investment. In addition, sharing economy companies also help ease the unemployment and underemployment issues faced across several countries in Africa. The sharing economy model helps channelize a work stream for people who are unemployed or work in the informal sector, and provide them with a formalized platform where they can sell and market their services. Sharing economy is largely dominated by workers aged 18-34, which is also the age group largely affected by unemployment in Africa.

However, the key reason for the sharing economy model to have eased so well into the African lifestyle is the pre-existence of a sharing culture, which has been prevalent informally here for many years. Unlike in many developed regions, the concept of sharing economy is not new to Africa and the main task for global players entering this market was to formalize it through tech-based platforms. Therefore, despite being one of the least developed regions globally, Africa comes as a good fit to the sharing economy model. As per a survey conducted by AC Neilson in 2014, 68% of respondents in the Middle East and Africa region are willing to share their personal property for payment, while 71% are likely to rent products from others. These numbers are much higher in Africa than in Europe and North America, wherein only 54% and 52%, respectively, are willing to share their possessions for pay and even fewer (44% and 43%, respectively) are interested in renting others’ products.

While global companies are at a strong position to capitalize on this opportunity, there are a host of local players across the African subcontinent that are also looking for a share in the pie. Although these companies have come up across Africa, they are somewhat clustered in the more developed regions of South Africa, Kenya, Nigeria, and Uganda.

sharing economy africa

South Africa

Being one of the most developed economies in the subcontinent, South Africa has openly embraced the global sharing economy phenomenon and has been the entry point into the continent for several leading international players such as Uber, Airbnb, and Fon. Uber has received great acceptance in South Africa with the first 12-month growth rates in Cape Town and Johannesburg superseding the growth experienced in other cities globally, such as San Francisco, London, or Paris (during their first year of operations). Uber provided 1 million rides in 2014, which was its first year of operation in South Africa, rising to 2 million rides by the first half of 2015. The company has also created more than 2,000 jobs in the country where unemployment levels are as high as 30%. Likewise, Airbnb boasts of similar growth in the country. In 2016, about 394,000 guests used Airbnb listings for their stay in South Africa, in comparison to 38,000 guests in 2014. During that year, Airbnb’s users generated US$186 million (ZAR2.4 billion) worth of economic activity in the country, of which about US$148 million (ZAR1.9 billion) was attributed to Cape Town, Johannesburg, and Durban. Fon, an unused bandwidth sharing company, also enjoyed success in the South African market and more than doubled its community hotspots from 21,000 (at the time of its launch in 2014) to 52,000 community-generated hotspots in 2015. Taxify is another global player in the ride sharing space. Launched in 2015, Taxify is an Estonian company offering similar services as Uber. The company has managed to acquire 10% of South Africa’s ride sharing market by offering 15% lower fares compared with Uber, while providing a higher driver payout (Uber takes a 20-25% cut from drivers while Taxify takes a 15% cut).

These international players are challenged by several local companies, which, despite being much smaller in size, are competing on both price as well as local expertise. In the ride sharing market, there are several smaller domestic players, such as Zebra Cabs, Find a Lift, and Jozibear. Similarly, in the accommodation sharing market, acting as a direct competitor to Airbnb is South Africa’s local, Afristay (formerly known as Accommodation Direct). The company has applied a country-specific approach and has succeeded in providing more varied and cheaper options as compared with Airbnb in South Africa. Having a single country focus, Afristay has close to 20,000 listings across 2,000 locations in South Africa. Airbnb on the other hand has 35,000 listings in the country.

Another emerging space of sharing economy concept adoption in South Africa has been seen in the medical sector, wherein players, such as Medici and Hello Doctor, are connecting patients with medical practitioners. Hello Doctor currently services around 400,000 patients in South Africa. Medici, which launched in May 2017 has partnered with the Hello Doctor and aims at connecting rural and less developed regions to remote access medical advice and consultations.

Kenya

Owing to a burgeoning middle class as well as an increasing access to education and the Internet, Kenya is a strong market for the digital sharing economy. Airbnb witnessed significant growth in Kenya, increasing its listings in the country from 1,400 in 2015 to 4,000 in 2016. The number of guests choosing to stay in an Airbnb accommodation have also expanded three-fold during the same period. Uber has received a similar response in the country, completing 1 million rides in its first 15 months of operations (beginning 2016), and having 1,000 drivers registered with them in the beginning of 2016. However, a local Kenyan company, Little Cabs, which is owned and operated by the country’s leading telecommunication players, Safaricom in partnership with Craft Silicon, a local software firm, is a stiff competition to Uber. The company, which began operations in July 2016, managed to acquire 2,500 drivers and 90,000 active accounts by the end of the year, owing to more attractive pricing and driver-payout in comparison to Uber. Moreover, it offers several services, which have not been introduced by Uber in Kenya yet. Having the backing of the leading mobile network operator, Little Cabs is attracting customers by offering them discounted mobile recharge along with trips, free Wi-Fi for passengers, and the option to process payments using M-Pesa – Safaricom’s mobile money service, which has two-third share in mobile market in the country. However, despite a smaller fleet size and less attractive services, Uber continues to be the market leader in Kenya for now, with a revenue share of about 30% (in comparison to Little Cabs, which has a revenue share of about 10%) primarily due its global brand value and first mover advantage.

Another newcomer to the sharing economy market in the country is Lynk, which aims at connecting service providers across about 60 categories to customers in Kenya. These include services such as plumbing, beauty works, tuition, or party planning. Having started operations in 2015, the company identified and recruited about 400 workers across 60+ service categories, who provided 800+ services to paying customers within its first year of operation.

All of that being said, the sharing economy concept has not had that easy of a ride in the continent and has faced one too many challenges on its way up. The main issue challenging the success of this concept has been the limited use of smartphones, which are inherent to this business model. While the use of smartphones in today’s time is taken for granted in most economies across the globe, this is not the case in Africa. In many cases, these service providers (especially drivers) are using smartphones for the very first time in their lives. Although the youth population is expanding in the continent, elevating the demand and use of smartphones, the numbers still remain extremely low – both at the consumers’ as well as service providers’ end. In 2015, only 24% of Africans used Internet on their mobiles and e-commerce penetration was mere 2%. This makes it imminent for companies looking to excel in the sharing economy space to provide training and workshops to help service providers adapt to and embrace the smartphone technology. Companies aiming to build a stronger position in the market over their existing competitors should also look at providing cost effective and easily accessible financing for the purchase of smartphones for service providers interested in registering in their sharing apps. In the African scenario, such a move would incentivize service providers to join the company’s sharing platform, potentially choosing it over other competitors present in the market, while the company would be able to expand its supply-end of the business by growing the registered service providers’ base.

The other issue that is key to operating in Africa is safety. Since the entire concept of sharing economy is based on trust, ensuring safety becomes a very important aspect in this line of work. Considering the high number of cases of theft and vandalism as well as weak regulatory system, African customers’ trust in service providers in their region is naturally lower than the western market customers’ trust in their local service providers. This impedes the service use growth and forms one of the largest barriers for sharing economy to reach its full potential in the continent.

In the transportation segment of the sharing economy market, the issue of safety is increasingly addressed by several players. To ensure safety of passengers, drivers undergo a rigorous background check that includes a multi-level verification. Companies also undertake innovative approaches to ensure only verified drivers work under the company logo in attempt to improve safety. In one such case, Uber introduced a ‘selfie protection’ feature, in Kenya, wherein a driver is required to take a selfie in the Uber app once in a while, before accepting a ride request from a customer. In case the photo does not match the one registered with the account, the account is blocked. In a market such as Africa, while safety precautions are a necessity, if marketed correctly, they can also be a differentiating and marketing factor. Along with general information and ratings, companies can also show driver’s verification details and training credentials on their app before a consumer selects a ride. In case of other services, they can also include details of the certifications undertaken by the service provider.

In addition to this, the limited use of plastic money – which is the main form of payment in sharing economy-based businesses globally – is another speedbump in the operation of such a business model in Africa. While several ridesharing companies are tackling this issue by introducing cash payments, it remains a limiting factor for companies whose services nature leaves a limited scope for introducing cash payments option, e.g. Airbnb.

Regulatory barriers and outburst of traditional competitors is another challenge, however these issues are common for players across markets globally, though in various intensity. We have talked about it in more detail in our article in October 2016, Sharing Economy Needs Regulator Support. Companies such as Uber have had to face several regulatory roadblocks, the latest of that being a July 2017 lawsuit ruling recognizing Uber drivers as employees (instead of the company-preferred ‘driver partners’) as per South Africa’s labor laws. While the company does have plans to work around this ruling as it currently only applies to the seven drivers who filed the lawsuit, such issues have the potential to disrupt the companies’ smooth operations in the country. There have also been severe protests from traditional taxi companies and Uber has faced several safety-related problems with Uber drivers being attacked and cars being burnt in Kenya, as well as cases of smashed windscreens at railway stations in South Africa. To counter this, the company has posted security guards outside railway stations in Johannesburg for the security of the drivers.

EOS Perspective

While the concept of sharing economy seems to fit perfectly in the African lives, it does require the companies to follow a very localized approach accounting for specific regional dynamics in order to blend with the countries’ local fabric. While this gives an advantage to the local companies that better understand customer needs, it becomes difficult for them to match the scale of global leaders who have hefty marketing budgets.

Although sharing economy has largely captured the travel and passenger transport, with medical, education, and several other vocational services also seeing new businesses entering with sharing economy model, it is the crowd financing segment that might see the next boom in Africa. African region houses several dynamically emerging economies, with huge hunger for capital, and digital crowd funding platforms can help SMEs connect with potential investors, and help African start-ups with seed capital. In addition to basic investment, these platforms can also offer mentoring opportunities to small start-ups. While there already are a couple of companies, such as VC4Africa, that are operating in this space, crowd financing as a sharing economy business still has great potential to be tapped in Africa, especially beyond the Tier 1 cities of Johannesburg and Cape Town, where ideas are in abundance but there is lack investment and support.

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Originally published on EMIA on 21st December 2017.

by EOS Intelligence EOS Intelligence No Comments

Turbocharging Trumps Supercharging in the Battle for Engine Downsizing

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Naturally aspirated engines have dominated the automotive landscape for decades. However, growing emphasis on the need to improve air quality in recent years has placed significant pressure on global vehicle manufacturers to improve fuel efficiency and ultimately reduce CO2 emissions. Not only have OEMs been subject to growing pressure from consumer groups and environmental activists, but there has also been a stronger push by…

The article was published as part of Automotive World’s Special report: Turbocharging and supercharging.

Click to read the full article

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Five Technology Trends to Reshape Retail in 2017

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Today, retail and technology have become inseparable, driven by the need to digitalize services to offer convenience to shoppers and elevate their shopping experience. Retailers are slowly shifting focus towards being phygital, and to digitalization of in-store experience, supported by disruptive technologies (social, mobile, cloud, and analytics) continuously transforming the face of retail sector.

Besides enticing customers and creating a unique shopping experience, digital retail integration is increasingly simplifying supply chain management, payment systems, and tracking of inventory and sales data, among others. Some retailers are using technology to get insights into hard-to-capture customer behavior data, which is then used to take effective measures to improve sales.

Clearly, technology has become an indispensable means to empower the retail sector and will continue to do it in 2017 with innovations such as Internet of Things (IoT), smart mirrors, big data analytics, chatbots, robotics, etc., sweeping every possible domain of retail.

By the end of 2017, insights captured using big data analytics will be increasingly used by retailers to devise business strategies, which is likely to help them to stay abreast of retail trends. Big data analytics are expected to play a key role in predicting sales and trends, conducting consumer sentiment/behavior analysis, forecasting demand, achieving price optimization, and devising customized promotions.

Interactive mirror, a smart mirror that helps to virtually try-on clothes, is an interesting digital retail innovation, which is likely to gain more popularity in 2017. Interactive mirrors’ application can be customized according to the needs of individual retailers. For example, companies such as Ralph Lauren (a US-based retailer) are using these mirrors to show consumers how a particular outfit will look during different times of the day by changing the lighting of the fitting room along with providing suggestions on accessories, which are displayed on the mirror, to encourage more purchase. Companies such as Lululemon (a Canadian athletic apparel retailer) are using interactive mirrors to suggest places to exercise and provide information on healthy living. These mirrors are not only a means to attract shoppers by offering unrivaled shopping experience, but can also be used to gather consumer behavior data. With the help of interactive mirrors, Rebecca Minkoff (a US-based luxury retailer of handbags, accessories, footwear, and apparel) store was able learn that a leather jacket was tried on 70 times in a week but never purchased. Most shoppers asked for different sizes using the interactive mirror, indicating that there was a fit issue.

Chatbots, another invention to continue gaining traction throughout 2017, act like a virtual concierge service, guiding customers through the shopping process, providing detailed information on product and stock level, and allowing shoppers to place an order and track it in real time. Chatbots are also a great tool for retailers to get insights on shoppers’ tastes and preferences – for instance, all first-time shoppers on Sephora’s (a French cosmetics manufacturer) chatbot are required to take a short quiz that helps the bot know about personal preferences of a user – this information is used to recommend products. The bot also provides reviews on certain products.

In 2017, IoT is likely to become an integral technology for the retail sector to build smart stores. IoT’s significance is expected to grow in retail with about 70% of retailers in the USA ready to adopt the technology in 2017, according to a survey conducted by Zebra Technologies. IoT will be the key to interconnect in-store smart devices and sensors with Internet, which will enable better data-driven business decisions and ease of operation.

For the past couple of years, big box retailers such as Staples, Walgreens, Amazon, and Gap have been using robots for warehousing and logistics operations, but 2017 is expected to witness an increasing implementation of robotics for customer facing in-store operations as well. While use of robotics for distribution center operations will still hold importance, the launch of Amazon Go stores, Amazon’s robot-powered supermarkets, Lowe’s customer-assistance robots, etc., will increase foothold of robotics in front-end tasks such as customer assistance (we wrote about Amazon’s latest efforts to digitalize the grocery market it in our publication Amazon: Prepared to Digitalize Grocery Business in the USA? in April 2017). In the coming 5-10 years, robots can be expected to become an integral part of the complete retail value chain including both front-end and back-end operations.

Five Technology Trends

EOS Perspective

In the medium term, in-store shopping is not going to fade away due to competition from online retail, but instead it is likely to witness an upgrade with retailers enthusiastically integrating technology into physical stores. The key focus of all retailers in 2017 will be to enhance personalized customer interaction, offer innovative in-store experience that rivals the convenience of online shopping, and use the gathered insights on customer shopping patterns to conduct effective predictive analysis. To achieve these objectives, retailers are likely to use technologies such as big data, IoT, and robotics, and employ interesting innovations such as chatbots and smart mirrors to offer seamless services to attract customers as well as use these innovations to capture valuable insights on consumer behavior.

Over the years, technology has tremendously contributed to the success of retail sector – starting from browsing, point-of-sale, shipping, checkout, supply chain, to payments, and so much more. This will not change in 2017, as technology will continue to digitalize retail, with top retailers prioritizing technology to improve sales.

*key sector of operation for each retailer included in the infographic

  • General merchandise: Amazon, Tesco, Macy’s, Kohl’s, and Kroger
  • Footwear: Nike
  • Fashion (apparel, fragrance, cosmetics, sunglasses, handbags, shoes, etc.): Burberry, Rebecca Minkoff, Nordstrom, Sephora, Van Heusen, H&M, and Ralph Lauren
  • Electronics: Anker
  • Online retailer: eBay, Ocado
  • Food: Godiva
  • Home Improvement/appliance: Lowe’s
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Bikes Are Back: China Gaining Pedal Power

Once a symbol of China’s culture, bikes use slumped with the country’s economic and urban development. The country’s streets have seen a mass influx of cars and China became the largest automobile market in the world. Commuting by bikes started to be perceived as a symbol of belonging to a lower class, while owning a car represented a higher economic and social status of an individual. However, this trend seems to be changing again, along with commuters’ view on using bike as a mode of urban transportation. With sharing economy on the rise, mobile app-based bike sharing starts to appeal especially to younger Chinese, who perceive biking across the country’s cities cool. Given the congested roads and poor air quality, the government is ready to embrace such greener bike renting services that offer eco-friendly alternative to cars and have the potential to reverse the way people commute thereby reshape the dynamics of the cities in China.

Previously known as the ‘kingdom of bicycles’, bikes were China’s major mode of transportation from 1980 to 2000. However, over time, the economic boom led to a high demand for cars making two wheelers go out of fashion. In 1980, around 63% of people in China used bicycles for their commute. By 2000, the rate dropped to 38% and as of 2016, it was below 12%. In 1995, there were estimated 670 million bikes in China, a figure which fell to 370 million in 2013. But now, the new bike sharing apps are likely to help promote the reversal of this trend in China, a country which has been making efforts to promote cars in the last two decades.

While the country already witnessed the emergence of innovative bike sharing apps over the last few years, bicycle sharing is still set to become a vital focus area for several China’s start-ups in 2017. This new bike-sharing service borrows from the known public bike concept present both in China and in several cities across the world, but unlike the government-run bike rental programs (also present in various cities in China), these bike sharing start-ups offer bikes equipped with GPS. GPS lets the user know which bike is in the user’s vicinity and allows to hold the bike for up to 15 minutes until the user arrives at the location where the bike is parked. The bike is unlocked by scanning a QR code and the GPS device is charged by pedaling the bike.

Popularity of such apps is fueled by the rising demand for means to commute on short distance, currently an underserved area of public transportation. For instance, in Beijing and Shanghai, white-collar workers depend primarily on public transportation for their daily commute, which leads to an increased demand for means to commute from their home or their workplace to the nearest subway or bus station. Bike rental caters to this demand without any complicated procedure or heavy deposit required (since these apps offer bikes with minimal and refundable deposit). In addition, the bike rental concept is becoming a hit with college and school students who cannot afford or try to avoid the responsibility of owning an asset, and also consider biking around the city cool.

Furthermore, the bike rental industry resonates with the growing awareness of an urgent need to address the issue of dramatically deteriorating air quality in most Chinese cities by offering eco-friendly substitute to cars, thereby fighting China’s increasing traffic and air pollution problem.

As of January 2017, there were around 17 companies operating in this new bike rental sector of sharing economy market, out of which MoBike and Ofo are the leading players attracting investment from foreign companies. In January 2017, MoBike raised US$ 215 million from a range of investors including Warburg Pincus, Tencent Holdings, and Ctrip.com International. In February 2017, the company raised additional funding from Singapore-based investment company Temasek Holdings and investment group Hillhouse Capital. The start-up also announced it raised an undisclosed amount from Taiwan-based electronics contract manufacturing company, Foxconn, in January 2017 with a view to increase its fleet size to reach 10 million new bikes every year. The association also aims to cut down the overall production cost and reduce the distribution cost of placing bikes internationally by setting up production houses in strategic locations.

MoBike’s competitor, Ofo, has also been in the limelight for attracting investments from tech players. China’s leading ride-hailing start-up, Didi Chuxing, investment group DST Global, and a private equity firm CITIC are some of the investors in Ofo, which has raised a total of US$ 450 million as of 2017.

App-based bike rental industry has become one of the hottest sectors in China, leading to various domestic and international investors eager to cash in, funding new start-ups operating in this market. The start-ups compete majorly on price and the range of services offered with regards to finding and unlocking bikes, and aim to increase their presence throughout China and abroad. Despite the increasing investment, these start-ups are facing challenges which might hinder the growth of the industry. At present, no industry-specific regulations have been laid out for the bike renting services, including framework of rules and criteria qualifying companies as bike-renting operators, monitoring their activities, or setting up bike maintenance requirements, which can in turn affect user safety. In addition, start-ups face the constant fear of theft and vandalism of their fleet, which can lead to considerable expenses. For instance, in March 2017, around 4,000 bikes were found to be illegally parked in public areas in Shanghai and were confiscated by local authorities. Most of the bikes were owned by MoBike which is now required to pay a management fee and hopes to get 3,500 bikes returned.

Further, the ‘park anywhere’ policy followed by most operators is a double-edged sword, mostly due to users’ negligence with regards parking the bikes. While the policy increases the chances of bikes being found in immediate vicinity, a fact appreciated by the users, it also agrees to bikes being parked in remote areas. As a result, cities in China witness bikes being piled up along freeways and private buildings, and also obstructing pedestrians on the sidewalk.

EOS Perspective

Internet-based bike renting business is booming at an unprecedented rate and adding new momentum to the push to build up the country’s green transportation system. Investors are ogling opportunities presented by the growing platform which leverages on millions of young and tech savvy users. The bike rental start-up battle has just started and the competition is helpful in boosting the size of the industry. Start-ups such as MoBike and Ofo are thriving in the short run by offering new services which let the commuter rent a bike with the help of a mobile phone. However, the increasing investment is not enough for long-term viability and external support in the form of regulations and parking rules is required.

In order to grow, bike rental operators have to resolve issues such as bike theft, vandalism, and disorderly parking. For instance, to avoid bike theft, MoBike has hired staff patrols to keep a check on the bikes. However, this generates additional costs and is only partially able to address the issue of bike theft, as these patrols are unable to monitor all bikes at any point of time. In addition, MoBike introduced a credit score system for users to avoid damage to the bikes, by increasing the user’s responsibility for equipment. Under this system, penalty points are taken in case of any vandalism. Once a user’s score falls below a certain level, the rental fee is increased.

Bike rental companies also need to work on their business model for long-term viability. Despite booming in the short run by offering new and innovative services, these companies will need to overcome a major challenge around the profitability model – tackling it either through in-app advertising, government subsidies, or expanding to other ancillary services. It seems that long-term growth based exclusively on rental fees might be limited as soon as streets in key cities become saturated with this kind of service. Further, the industry is yet to solve problems such as the limited number of bikes a city can handle, as the road space and bike-dedicated lanes might not expand fast enough in most Chinese cities. Unless these companies come up with a long-term plan for sustainability, the future of the industry is hard to predict.

Amazon: Prepared to Digitalize Grocery Business
by EOS Intelligence EOS Intelligence No Comments

Amazon: Prepared to Digitalize Grocery Business in the USA?

For the past several years, Amazon has been battling to break into the grocery retail market. After several experiments, Amazon has now embraced technology to differentiate its offerings and improve customer experience – a bold tech-fueled strategy to establish itself in the grocery market in the USA. Its latest innovations have shaken the traditional retail store concept and brought in revolutionary ideas of checkout-aisle free convenience stores, robot-controlled outlets, and voice-enabled online shopping.

Amazon is set to soon open its technology-powered brick and mortar stores in the USA, an idea that it once shunned, due to the strong belief that it could win over customers only through online channel. These stores have the potential to offer seamless store experience.

Amazon Go – Grocery store of the future

The company unveiled check-out free, Amazon Go store that ensures hassle-free and smooth shopping experience by eliminating the need to wait in queues to bill items – which was one of the key grievances of time-pressed customers. Launched in December 2016 in Seattle, the store is still in private beta mode and accessed only by Amazon employees. The public launch date is scheduled for early 2017.

The store operates on ‘just walk out technology’ that allows shoppers with Amazon Prime accounts to tap their phones on a turnstile while entering the store, and from then onwards, the technology tracks the selected items and adds them to a virtual cart, which is billed and sent to customer’s Amazon account.

The ‘just walk out technology’ has been developed using recent innovations such as computer vision, sensor fusion, deep learning, and artificial intelligence, among others. Products have embedded tracking devices – functioning through high-tech object recognition and inventory management systems – which pair with customers’ phones to charge their Amazon accounts. The weight sensitive shelves alert Amazon regarding restocking requirements.

Amazon has not yet commented on the number of stores it intends to open.

Robot-powered supermarket – Soon to be reality

A robot-operated supermarket is no longer just a figment of imagination with Amazon working towards opening such outlets soon. The supermarket is likely to be an extended colossal version of Amazon Go stores – the idea is to build two story, about 10,000-40,000 square foot store, stocked with over 4,000 items.

Shopping experience will be facilitated with robots that will pick up items from shelves and bag them in the first floor to deliver it customers waiting downstairs. Items will be charged automatically to customer’s account, replicating the Amazon Go’s check-out and billing concept.

Customers will have option of in-store shopping or to order online and pick-up items from the store later – offering both facilities is Amazon’s strategy to attract more customers.

The stores will be able to function with as few as six staff members to a maximum of 10 workers per location during any shift, against the industry average of 90 employees required to run a supermarket. The stores will only require a manager to sign up people for the Amazon Fresh service, a worker to restock shelves, two employees stationed at drive-through windows for customers collecting their groceries, and another two employees to help robots bag groceries, which would be sent down through conveyors.

Eventually, Amazon aims to introduce robot-run stores globally.

Alexa – Powering the age of hands-free shopping

In March 2017, Amazon successfully launched yet another innovative solution, Alexa, which is an artificial intelligence-powered voice assistant that facilitates shopping on Prime Now for its members (currently, limited to the USA). It ensures seamless, hands-free, and convenient shopping experience, as the user only has to give a voice command as ‘Alexa, order from Prime Now’ and the job is done.

Alexa is extremely versatile and a multi-tasker, it can search for items, re-order or track orders, add items to cart, and give product recommendations. Besides being a powerful shopping tool, it can also read kindle books, control selected smart home products, play music from Amazon’s own services, etc.

Voice-enabled shopping service is available through Amazon devices such Echo, Fire tablet, and Fire TV, and it has been integrated with Amazon’s Shopping app for iOS platform.

EOS Perspective

Will Amazon’s innovations threaten other players in the market?

Other retailers feel the pressure to upgrade services to keep up with Amazon’s enhanced shopping experience. Kroger launched ClickList (an online grocery ordering service, where the customer needs to visit the store to pick up the items) across 500 stores and is using technology to analyze shopping habits of customers to generate relevant coupons for them.

In January 2017, Walmart launched Scan and Go app for Android users (already available for iPhone customers), to compete with Amazon. The app scans barcodes of items, customers can pay through the app, and show receipt at the gate before exiting the store. The prototype is still in testing phase and is likely to roll out by the end of 2017.

Amazon’s technology will not be easy to replicate nor will a lot of retailers have the capacity to implement technological innovation of such a massive scale, hence, Amazon is certainly likely to have an edge over its competitors when its stores open for public. Amazon’s competitors in the grocery business definitely feel threatened and have started to revamp strategies and use technology to reach more customers, however, the scale of their innovations still remains miniscule in comparison with Amazon.

Why is Amazon pushing for innovation?

After a decade of Amazon’s food retail experiments, with limited success through online channel, the company decided to launch physical stores. But cracking through the US$ 800 billion grocery market in the USA, already dominated with players such as Target, Walmart, Kroger, etc., is not so simple. Consequently, Amazon strategized to carve a niche for itself by differentiating its offerings, using technology to provide flawless, quick, and smooth shopping experience for customers. The move is expected to accelerate its penetration into the grocery business.

Amazon’s core business model is based on behavior modification, which revolves around attracting consumers to e-commerce website, and now also to physical stores, converting the customers into Prime members, and eventually driving them to spend more across categories.

All of Amazon’s new inventions, including Alexa, Amazon Go, and robot-powered outlets, will push consumers to eventually become Prime members, as holding a Prime membership is the basic requirement to be able to access these services. Prime members, besides paying an annual subscription fee, are likely to shop and spend four times more than the non-Prime members, which makes Amazon’s retail business profitable – in 2016, revenue from Amazon Prime and other subscription services such as e-books and videos stood at US$ 6.4 billion, growing by about 40% annually.

The other benefit of automation for Amazon includes minimizing labor cost, which accounts for lion’s share in a supermarket’s operating cost. Further, the robot-controlled supermarket’s design is likely to slash real-estate costs by reducing the need for aisles that typically occupy large areas of traditional supermarkets. Using robots on the first floor will also allow Amazon to stock more products in space smaller than in conventional stores. The store prototype is expected to yield profit margins above 20% against the industry average of 1.7%.

Further, Amazon envisions to open 2,000 stores in the USA over the next 10 years against the current 2,800 stores of Kroger, USA’s largest traditional supermarket chain. This indicates that, if these store openings are successful and if the profit margins are achieved as expected, Amazon could potentially be a real threat to conventional retailers over time.

Will these innovations be truly disruptive or have limited impact on grocery retail segment?

The path to building futuristic concepts and prototypes will definitely not be a cake walk for Amazon. It might face adversities such as increased chances of theft due to the store formats of Amazon Go and robot-driven supermarkets. Selling random weight items (fresh fruit and vegetables, sliced meats, etc.) can be difficult to incorporate in Amazon Go’s automatic checkout system.

Lastly, success of these stores will depend on their location and sales volume generated – opening stores in downtown areas might be difficult at the beginning because high rentals may not be covered by the sales achieved.

Certainly, the technology-driven stores are not a mass market option for Amazon today nor is the success of these prototypes guaranteed. Also, as grocery retail operates on wafer thin margins, lasting innovation is rare in this segment.

Amazon’s bold technological innovations might not be big enough to disrupt the industry yet. However, considering Amazon’s steady financials and relentless efforts towards automation, it is likely that the company could forge ways to make grocery retail more profitable and efficient in the future.

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