Blog | Dec 16, 2021

The Benefits of Establishing Collaborative Ecosystems in Retail

The Benefits of Establishing Collaborative Ecosystems in Retail

Digital technologies are enabling the development of collaborative ventures between unlikely parties. These connections extend beyond ecosystems and across industry sectors, and it’s fascinating. The open banking movement in financial services, for example, is enabling institutions to provide a wider range of services by using application programming interfaces (APIs) to link third-party systems into their own.

The travel and transportation industry is another example of ecosystems emerging to support the complete consumer experience, from booking a flight and hotel to buying insurance and reserving a hire car.

This so-called platform economy is thriving everywhere, from tech giants like Apple and Microsoft to aggregators offering food deliveries or curated lists of wines and spirits.

Retail networks

In many ways, the retail sector has operated as an ecosystem for decades, encompassing manufacturers, third-party logistics companies, consumer brands and service providers. The practice of sharing standardized data via barcodes and SKUs across such networks has been fundamental to the success of the modern industry.

Enabling stakeholders to interact with each other to create and exchange value for the customer’s benefit is an advantage of operating collaborative ecosystems. Participants can work cooperatively to extend existing business capabilities, create new business models, offer new products and services, and satisfy evolving customer needs.

This interactivity became even more important during the pandemic, when weaknesses in traditional retail business models were severely exposed. Retailers have been forced to evaluate structural changes in their operating models in order to respond to new customer requirements and, in some cases, to survive post-crisis.

As the Retail Industry Leaders Association (RILA) writes, the adoption of technology has played a key role in this transformation: “The retail industry has seen more innovation in the past year than at no other point in the prior decade. When faced with lockdowns, an array of new health-and-safety regulations, and volatile consumer demand, the best retailers proved resilient and agile.”

Going forward, ecosystems will deliver the innovation that retailers need to meet customer needs, adds RILA, “By developing an ecosystem, traditional retailers have the potential to transform and leapfrog the competition, counter challenges from digital rivals, and engage with customers in new ways. Even if retailers aren’t positioned to establish their own ecosystem, they will have to figure out how to compete, participate or coexist.”

Customer expectations will continue to be the single most impactful driver of retailer value creation. Gartner expects a number of pandemic-heightened customer behavior changes to persist beyond the crisis. Engaging in a collaborative ecosystem through partnerships with other retailers, technology platforms, marketplaces, or other innovative partners will enable retailers with the necessary resiliency to succeed.

Gartner has further observed that the retailers able to address these customer needs were already well into their digital journeys; they had made strategic investments at scale to support the required business processes well before the crisis.

However, development through in-house technology investments is not the only business approach to address this market need. Innovative and collaborative ecosystem partnerships can offer an alternative means to extend business capabilities.

An ecosystem in action

US-based retailers Kroger and Walgreens demonstrate one example of an innovative collaborative ecosystem partnership that combines the respective strengths of both organizations. Through the partnership model, Kroger has been able to service its grocery and distribution network into Walgreens’ existing footprint with minimal capital and store investments. It also allowed the company to realize economies of scale and drive procurement efficiencies in categories such as health, personal care and beauty.

For Walgreens, the partnership enabled rapid food and grocery additions to its portfolio, thereby expanding assortment and foot traffic. The partnership has positioned both retailers to capitalize on the COVID-19-induced demand surge, offer products through curbside and drive-through delivery, and meet rapid customer demand.

First steps toward collaboration

In our experience with retailers, the best way to approach collaboration is to identify new retail ecosystem partnerships that could be employed to meet market and business requirements as an alternative to making widescale technology replacements.

This could include ecosystem participation through strategic collaborations, marketplaces, last-mile delivery platforms, or technology collaboration hubs with other retailers or technology providers. Retailers could also assess the competitive and partner landscape on an ongoing basis, so they have a continuous, updated view of developments.

Ecosystems may not be a completely new concept for retailers, but they represent the future for the sector. As McKinsey concludes, we are now moving to a new dimension beyond earlier efforts to establish collaborative ventures: “In the emerging world of Ecosystem 2.0, data [is] the holy grail, the breakdown of sector borders is a given, and successful players try to lock in control points to expand horizontally and vertically across the grid. Every company needs to be watching this trend closely, since the players that first master the new architecture are likely to capture sizable benefits.”

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