Does blockchain have a home in retail?

Some technologists have dubbed blockchain a solution looking for a problem. Retailers are starting to explore the potential of blockchain to solve a series of supply chain challenges and they also envisage applications in areas such as payments, customer loyalty schemes and data and analytics.

Blockchain models largely fall under two broad categories. Public blockchain, like the ones that are used in Bitcoin or Ethereum are “permissionless” – meaning anyone can join the network and participate. A permissioned or private blockchain restricts who can participate and thus every party is a “known party”; like what we’d typically see in business transactions.

The key traits of (public and permissionless) blockchain that has caught attention is its ability to bring “trust”, amongst unknown parties with the absence of a single arbiter. Which in turn requires a “distributed consensus” model that enables unprecedented security and visibility. All this is well and good in the most common public use of blockchain – cryptocurrency – however in retail business transactions, where we are preoccupied by the physical movement of goods and services amongst mostly “known parties”, things need to behave a bit differently.

Enter a “permissioned (or private) blockchain”. By pre-determining and restricting participation, amongst known parties and governing who can do what, some of the underlying performance and extraordinary computing required to power the likes of bitcoin, is largely now streamlined for use in the business world. In retail, with our ever growing complexity in supply chain networks, the need to surface and prove provenance, proving authenticity of goods, monetizing customer loyalty and trust etc. can all benefit from blockchain’s radically new and efficient way of doing things.

Blockchain’s way of doing things, via distributing consensus, brings visibility and the underlying security that prevent tampering, reinforces trust, which can all be put to good use in the business world, including retail.  Above all, it is the need to rebuild customer trust that underpins the blockchain initiatives of many retailers. Scandals such as tainted food products have damaged consumers’ faith in retail. Blockchain could be a way to rebuild the relationship.

Scrutinising the supply chain

The appeal of blockchain from a trust perspective is the very nature of distributed ledger technology (DLT). The chain is agreed and authenticated by distributed consensus, rather than a central authority; everyone involved must agree on changes to the ledger before they can be accepted – no single party has to be relied upon.

In a supply chain context, this provides an opportunity to track goods through each link in the chain, from the raw materials used in production to the product on the store’s shelf. Blockchain offers a means to construct an immutable record of this process – and consumers know they can depend on this record because it is verified and agreed by multiple parties, rather than only the retailer.

For example, when the retailer makes claims about the provenance of a product or how it was produced, customers can see evidence of this for themselves. Equally, by encoding blockchain technologies into products, via internet of things-linked sensors, for example, retailers can prove they are offering genuine items rather than counterfeits.

Elsewhere in the supply chain, other blockchain applications are exciting. The huge and expensive bureaucracy of supply chains, with endless paperwork for transportation, shipping and customers, could be completely replaced by blockchain applications. Blockchain provides a means to improve health and safety, enabling retailers to trace the potential source of a food-borne illness in seconds. And it will provide an increasingly rich source of supply chain data, generating actionable insight for further gains.

Not just a good idea

It’s important to recognise that these ideas aren’t simply theoretical. Many retailers are already working with key partners to turn theory into practice.

One good example is the consortium formed of AB InBev, Accenture, APL, Kuehne + Nagel and a European customs organization. It has successfully tested a blockchain tool that eliminates the need for printed shipping documents, potentially reducing freight and logistics costs by hundreds of millions of dollars a year.

This particular blockchain solution tackles a problem that has dogged the marketplace for many years: that the shipment of goods in industries such as retail, consumer goods and automotive typically requires more than 20 different documents. These documents are often paper-based and ask for information that in up to 70% of cases has already been supplied, but without them the goods simply won’t move from exporter to importer. The result is high costs, slow fulfilment and financial settlement, and poor visibility of the process for all parties.

The consortium’s solution is a new system where documents no longer have to be exchanged physically or even digitally. Instead, all relevant data is shared and distributed using blockchain technology. In testing, benefits included a much quicker flow of transport documentation, an 80% reduction in data entry, simplified data amendments throughout the shipping process, streamlined cargo checking, and a reduced risk of customs compliance penalties for customers.

This isn’t the only practical application of blockchain about which retailers are excited. Elsewhere, the British business Provenance offers a blockchain tool enabling retailers to build a verifiable story for consumers about how their products reached the store, while Alibaba has launched an initiative to use blockchain to combat food fraud.

Overcoming the challenges to seize the prize

There are still hurdles to get past. Retailers and their partners – including many small start-up technology businesses – will need to agree common standards. The sector will have to work out how to build blockchain solutions that are accessible to a broad audience, including customers, rather than remaining the preserve of IT. And very often they will need regulatory approval to move from testing to full-scale adoption.

Blockchain and Internet of Things (IoT) will have to increasingly be used together to ensure the “chain of custody” concerns around provenance, authenticity and trust. Chain of custody is an easier way to enforce and track for digital goods (like cryptocurrency), but physical goods need a “digital place marker”, that are self-powered, always connected and tamper-proof in order to guarantee chain of custody. The good news is that these technologies exist today and are viable, waiting for retailers who are prepared to innovate and gain significant first mover advantages.

The promise of blockchain is very real. Greater transparency, reduced fraud and improved safety can all help restore consumer confidence. Increased efficiency will reduce costs. New application in areas such as payments and customer loyalty offer further potential. Blockchain will help retailers achieve a more valuable data dividend.

Leading retailers are already beginning to seize some of these prizes, focusing on specific problems and how emerging distributed ledger technologies could help. In retail, at least, blockchain seems to be finding its calling.