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Big Changes Roil Grocery Industry

Shopping at a Whole Foods store recently, I asked the cashier if I could get a discount for being a member of Amazon Prime. He laughed, but that might end up happening sooner rather than later, following Amazon’s acquisition of the high-end grocery chain.

Over a short span it has become obvious that this is not your father’s grocery industry anymore – or even your son’s and daughter’s, for that matter. We are experiencing nothing less than a complete revolution in how people buy and receive the food they eat.

A driving force fueling this revolution is the perceived need for greater supply chain efficiency. In recent years corporate leaders’ awareness of the singular role logistics plays in securing a competitive edge in a transformed market.

Led by a handful of global retail giants, this revolution is feeding off ecommerce trends that have already reshaped the dry goods retail business and are gaining a stronger influence on grocery supply chain management.

Following Amazon’s Whole Foods announcement, it was reported that the ecommerce behemoth can be expected to completely revamp the grocers’ warehouse and distribution system using the tools and experience it has acquired over the years, including its proprietary Warehouse Management Systems and warehouse robots.

In announcing the $1.3 billion acquisition, Amazon said Whole Foods Market will continue to operate stores under its brand and source goods and services from the same vendors and partners around the world. CEO John Mackey will remain in charge.

That statement may be aimed at government regulators and skittish shareholders, but it’s clear that this deal promises to become the largest single disruptor of the grocery business since the invention of sliced bread.

Right now, the only major competitor for the Amazon-Whole Foods combination is Walmart, which also is aggressively expanding home delivery services.

Immediately following Amazon’s announcement came the news that grocery ecommerce innovator Blue Apron’s much-anticipated IPO experienced a disappointing debut. Investors reluctance drove the stock price down to lower-than-expected levels when they finally had a chance to purchase it.

Part of that reluctance can be tracked to the fact that Blue Apron could find it nearly impossible to compete with Amazon-Whole Foods in the home meal delivery space.

Currently Blue Apron offers consumers an ingredient-and-recipe subscription mail service which delivers boxed meal kits to subscribers’ homes once a week via the U.S. Postal Service. In March, the company announced its revenue was up 133% from the same period last year.

Amazon already operates its own fulfillment business and sells some non-perishable food items online through its regular ecommerce marketplace. Perishable and other items also are sold through its growing Amazon Fresh program.

Access to the Whole Foods “365” line of private label items – introduced to attract cost-conscious consumers who view Whole Foods as overpriced – is expected to strengthen Amazon’s product mix.

The Whole Foods network of stores and warehouses also is seen bolstering both Amazon’s expanding range of customer pickup options and home delivery needs.

Lowering last-mile costs is crucial for the future success of all ecommerce marketers. Rates for package delivery prices have steadily risen over the last few years, and the recent announcement by UPS of seasonal, on-demand pricing just adds to the pressure on companies like Amazon.

When it comes to the traditional supermarket segment, Bill Bishop, chief architect and co-founder of the brickmeetsclick retail grocery consulting firm, says they will need to serve emerging market segments being targeted by new players.

These growing customer segments range from what Bishop calls “Savings Superfans” who insist on hard discounts, to “Service Seekers” who are willing to pay more for innovative services and specialized products, like organic foods.

Other competitors to the traditional supermarket include convenience stores like Wawa where more young people are choosing to buy food, as well as Trader Joe’s and Aldi, owned by the same parent company but targeting different market segments.

A new competitor from Germany – Lidl – seeks to attract both Trader Joe’s lifestyle consumers and Aldi’s hard discount seekers.

“All retailers and suppliers will need to become more agile and nimble,” Bishop warns. “Everyone will need to use their data to build stronger relationships with customers and to develop planning systems that allow them to respond more quickly.”

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