Photo Credit: SAP

With plenty of eyes on what the future holds for the retail industry, SAP and Costco took the stage at the 2018 SAPPHIRE NOW and ASUG Annual Conference to share a story of success that could pave the way for other retailers to alter their future strategies by investing in emerging technologies.

Speaking from the keynote stage, Costco’s Jeff Lyons, SVP and Head of Fresh Foods, outlined the need for a strategy to modernize its bakery department using machine learning to increase productivity while reducing waste. Working with the SAP Leonardo team on a prototype study, the resulting project helped Costco save nearly $100 million dollars across the 30 pilot stores that have adopted the new strategy. And now, other retailers that use SAP Leonardo can take advantage of the Industry Innovation Kit for Retailers that SAP built based on this project.

Fresh Food Makes Happy Customers

The bottom-line savings Costco achieved are compounded by the related uptick in enhanced customer experience. Machine learning helped Costco better understand the ebbs and flows of its bakery business, so it could always have high-quality fresh baked goods on hand for customers while avoiding the trap of overstocking. Whether customers show up in stores to buy depends on factors ranging from the weather to when there’s a big game on that customers don’t want to miss. All of this data can be fed to the machine to predict these ebbs and flows.

As Lyons noted, the quality of Costco’s goods is a key competitive advantage. “When we’re more efficient than our competitors, we’re going to be able to keep our prices lower and we’ll always have fresh product in stock. When you go to Costco as a member, you don’t need to know why it tastes good, just that it tastes good. It’s our job to know why it tastes good, and part of that is always having fresh products on hand for you.”

This commitment to quality also shows up in other areas of Costco’s warehouse. Rotisserie chickens are not kept on hot trays longer than two hours, and pizza in the food court is similarly rotated out if it has been available for more than an hour. Machine learning helps Costco meet the demand to have product that is both fresh and available, while reducing the related waste created by constantly stocking and restocking.

Automated, Collaborative Pizza Robots

Lyons went on to describe a couple of other areas where technology and automation help the business stay efficient. Among these are automating a fourth pizza deck in the food court’s back of the house (a process that normally requires an employee to use a ladder to load it), as well as using collaborative robots to work alongside its staff. These robots automate some tasks normally done by employees (for example, kneading dough) to help avoid common human ailments such as carpal tunnel syndrome.

“We want to educate our employees along the way and share with them why we’re doing this,” said Lyons. “They get on board, and it’s a win-win because the employee is now engaged in the process.” This commitment to employee experience right alongside customer experience is one reason Costco is consistently rated one of the top places to work by industry analysts. It’s fair to say that happy employees are a key to happy customers, too.

No Plans for Automated Shopping

Despite the attention on the fully automated Amazon Go store, one area Lyons was quick to point out would not be a focus for Costco is automated shopping, an idea that is “not feasible with the size of Costco’s warehouses.” Yet it is still investing in home delivery in partnership with Instacart, though Costco is hopeful this will only be a small share of its business. After all, customers won’t be able to enjoy Costco’s pizza slices or hot dogs if they’re shopping from their sofas.

The Keys for SAP’s Retail Customers

Through this highly successful project, Costco demonstrated that real benefits can come from integrating emerging technologies within retail operations. SAP’s Matthew Laukaitis, SVP and GM of Consumer Industries, was quick to point out that the advice SAP gave Costco may not necessarily work for every retailer. Still, the Industry Innovation Kits within SAP Leonardo are designed to achieve specific business outcomes first, so other retail SAP customers now have the keys to a model they can use to test their own ideas.

If you’re looking for more stories like this to inspire your own customer experience initiatives, make sure to join us at the Customer Experience Innovation Forum, our newest event for retailers who want to learn new ways to use technology to delight their customers.