When I talk to retailers about artificial intelligence, their eyes glaze over, like I’m speaking a foreign language and very few people want to talk about it. But it’s coming, it’s unavoidable. AI is going to pervade almost every aspect of retail, big and small.
Here’s a case in point: The EPA estimates that a supermarket of 50,000 square feet, that’s a large store but not excessively so, uses about $200,000 worth of electricity and natural gas in the course of a year. According to the EPA, about half of that cost is in refrigeration and lighting. Most such large stores have freezers that consumers go into to pick out their frozen food. But they also have a freezer in the back of the store that consumers don’t see, where they keep their inventory. Now imagine this: the store hires a very smart young college graduate just to watch that freezer in the back. That employee’s job is only to stand and watch the freezer door to minimize the number of times it gets opened and manage the thermostat accordingly to reduce the electrical cost. Over time, the employee learns how to make adjustments so that the door openings lead to the least amount of additional energy used to keep products cold.
Now imagine that instead of hiring a person, software could do the job. The software would have to learn how a store operates and the climate and temperature of the store region. That’s the idea behind a company called COI Energy Services. In just a few hours, they can install and set up their software. Over a year’s time, they will save a supermarket of 50,000 square feet $60,000 on their electric and gas costs, that’s 40% of their total costs. That’s not theoretical, Publix Supermarkets, the fifth largest grocer in the country, uses the system and is rolling it out to all its stores.
If you’re Publix’s competitor with a store across the street from them, Publix can now afford to hire one more employee than you can because Publix is using AI to save $60,000 that you’re not saving. You could keep ignoring the potential of AI or you could do what Publix is doing and save the money. Only one choice is right but it means embracing a new and different kind of technology. It also means allowing technology to control certain things in the store, like the thermostat on the freezer, that has always been run by a person. That’s scary to many people; change is always scary.
You may say to yourself, controlling a freezer is one thing, what makes AI so important?
Here’s what: A company called ProQuo AI uses artificial intelligence to do one of the most high level judgment jobs in retail: brand management. Based on the 16 criteria in the image below,
the company chooses among 14 steps (image below) to improve the success of almost any brand’s performance.
When you combine the nuances of each of these criteria and steps, there are literally billions of possible decisions that are possible and they get adjusted too often for any human being to manage. Until now, decision-makers relied on their instincts or “gut” and while some people are gifted at brand management, most people aren’t. That’s why AI can help and competing against a brand managed with the help of artificial intelligence is more than anyone could handle. Everyone is going to have to do this.
How does the software work and why is artificial intelligence different from software you’re used to? The answer is called “machine learning.” Machine learning means is software is programmed to go out into the digital universe and constantly search for relevant information. It ingests and analyzes that information and the analysis is the difference between artificial intelligence and everything else. The software learns over time and improves its own decision-making. It takes in far more information than any human being can and all day and night it analyzes its previous judgments to make better decisions and recommendations.
For artificial intelligence to be effective, it’s not always necessary to turn decision-making entirely over to a computer although there are times when that makes sense. In the case of a freezer’s thermostat, it’s probably always better for the software to decide on the temperature than for a person to second-guess the machine. But in the case of brand management, having a computer make recommendations allows a person to consider what the computer says and let it be one more input. There are ways in which the computer can make better decisions but in the case of high-level decisions, it’s a useful tool. Over time we will learn whether the software can make better high-level decisions than humans. With enough time and enough data, my money’s on the software.
Most important, better decision-making at levels big and small is not a fad and it’s not a foreign language, it’s an opportunity. But in retail, no one wants to be first and no one wants to be last, everyone wants to be second. For artificial intelligence, the time to be second is now. Brands like Keurig and Harry’s are using ProQuo AI to help them manage their brands and a company like Publix keeps its freezers at the right temperature with AI technology.
According to a study done by business monitoring company Anodot, retailers who are employing AI right now use it more for non-customer facing applications, like detecting fraud. But they expect to migrate the use of AI to more consumer-facing applications like personalization and visual search.
It’s time for everyone else to leap over their hesitation and embrace what’s coming. If artificial intelligence is relevant to both brand management and the temperature of a freezer in a supermarket, then it will eventually be ubiquitous at every retailer.