One of the reasons why I picked the future of the grocery delivery service industry to do my presentation on, is because I love grocery shopping.
When I was growing up we only had the 12 free channels you get if you don’t buy cable (I had a very deprived childhood). Besides PBS, if the channel-gods were with us, my siblings and I would stumble upon old reruns of the show Supermarket Sweep. The basic premise of this game show, which was originally shot in the 60s, was that three teams competed to accumulate the highest total value in groceries within a certain allotted time limit. When the time ran out, cashiers would ring up the items in each teams cart, and whoever grossed the highest value for their items won. This show entranced us.
After seeing our first episode, my siblings and I’s relationship with grocery shopping changed forever. We would always want to go shopping with our parents, and we would insist on playing our own version of Supermarket Sweep, in which my parent would divide up the grocery list among the three of us, and we would race off down the aisles to try and complete our list first (which I now realize must have been incredibly obnoxious for other shoppers). This love of grocery shopping has carried into my adult life; only I now compete against myself (kidding!).
Digitalizing Groceries: the End of an Era?
So when I first learned about grocery delivery service startups, I was worried this spelled the beginning of the end for grocery stores. I thought they would go the way of Blockbuster and Borders, falling to the wayside of consumers preference for immediate gratification and Amazon-influenced delivery. But, through my presentation research I found something quite different.
Adaptation Instead of Elimination
According to a joint study on the digital food consumer conducted by the Nielsen Company and the Food Marketing Institute, grocery stores that can quickly adapt to the change in consumer purchasing behavior will be well placed to lead the online grocery industry. Reading the recommendations from the study, gave me flashbacks to our third class on “Digital Transformation of the Enterprise,” and the article we read about achieving digital maturity. Essentially what the study advocated for was both entering the developing market by creating a long-term strategy that would integrate all the major players throughout each chains channel, as well as the short term strategy to focus on making the early adapters experience pleasant, to make sure they are repeat customers.
The study also talked about how physical stores should be adapted to support the rising e-commerce. Brick-and-mortar stores should be reconfigured to emphasize perishable goods like bread, fruit, vegetables, meats, and dairy, and decrease the amount of retail space that “center store items” (i.e. canned goods, condiments, packaged goods, etc.) occupy, as these sales will move increasingly online. This also means that stores will have to adapt the back of the store, to make it easier for fulfillment of online orders.
Supermarkets that create an easy, pleasant experience for customers, supported throughout their supply chains, will perhaps be the most well placed for the move to digital shopping. While startups like Instacart are appealing for the Silicon Valley set, I think that traditional stores and companies like Peapod that establish partnerships with supermarkets will actually be the winners in the race to providing successful digital groceries. Because Instacart is a platform that connects consumers with personal shoppers, and is not working exclusively with a specific grocer, they will always struggle with the price they have to charge customers. In the tight-margin game that groceries is in, without forming partnerships with the stores themselves, Instacart will only ever be able to have added costs for delivery. Peapod meanwhile, is working in conjunction with Stop & Shop, which means they together can look to cutting costs throughout the supply chain to optimize delivery, which will lead to cost cuts for the end consumer.
This is not happening yet—both Instacart and Peapod are expensive and charge a premium for their delivery services, but down the line I believe Peapods’ model will be more successful than Instacarts’.
Amazon Enters the Fray
Another argument for the survival of brick-and-mortar supermarkets is Amazon’s purchase of Whole Foods. When Amazon bets on consumer behavior, it’s probably a strong signal to the rest of the market that customers will still be physically shopping for their groceries in the future. Through my research, I saw two possible routes developing (which can also be combined) for where Amazon takes Whole Foods. I believe that it will use these storefronts as ready-made distribution centers to support their Amazonfresh delivery (as well as provide consumers with the associated goodwill that comes with the Whole Foods brand), and I think in the future they will possibly use the pre-made stores to roll-out their Amazon Go models.
Amazon Go is a physical store the offers a new grocery shopping user experience. The store has no checkout line—you use your Amazon Go app to enter the store, you pick out your items, which are automatically added to your virtual cart, and then you just leave the store. Amazon then bills your account. This system is still in beta mode in one Seattle location, and only available to Amazon employees. Buying Whole Foods is a great way to acquire physical stores, without having to put in the large investment you would need to create all of those from scratch.
So while it looks as if the industry will be going through a phase of changes, I will still be able to play Supermarket Sweep for the foreseeable future.