Grocery Chains are Afraid of Amazon—But This Guy Isn’t

135shares Share on Facebook Share on LinkedIn   The Onion jokes that Jeff Bezos’s advice to anyone starting a business is to “remember that someday I will crush you.” We nervously laugh because it feels a little too close to reality. When Amazon announced it was acquiring Whole Foods, the entire grocery industry quaked. Amazon […]

 

The Onion jokes that Jeff Bezos’s advice to anyone starting a business is to “remember that someday I will crush you.” We nervously laugh because it feels a little too close to reality.

Bezos meme

When Amazon announced it was acquiring Whole Foods, the entire grocery industry quaked.

Amazon is the company you don’t want to list as a competitor.

If you’re curious about where all their money comes from – check out this great infographic: How Does Amazon Make Money?

Historically speaking, Amazon has entered markets and dominated—think books, electronics, public cloud services, and lately, voice-assistant devices. Not to mention making major inroads into streaming—movies, TV shows, music.

Amazon doesn’t even need to be profitable on food—or anything. While valued at more than $500 billion, Amazon has only made about $5 billion in profits since going public, they don’t pay a dividend, and they haven’t bought back any shares since 2012. When their stock is a dollar less a share than Wall Street expected, no one is concerned because we have been trained to consider Amazon’s long-term profitability rather than short-term. How do you compete with that?

Impact Around the Globe—and Across the Street

This isn’t just a competition for online sales—this is a fight for local jobs. Grocery stores are often a large employer for those in the town where the store is located. According to one study, in 2013 supermarkets had an average of 72 full-time equivalent employees per store. And in 2016 there were 38,441 supermarkets. But, according to Inmar, 25% of traditional grocers will close over the next five years. This means 9,610 store closures and 691,938 local jobs lost.

Many grocery chains are employee owned. According to research done by GrocerKey, between retailers like Publix, Hy-Vee, Brookshire Brothers, Houchens Industries, Woodman’s Markets, Harps Food Stores, NFI, Price Chopper, and Winco, employee-owned grocery chains have 2,404 locations and roughly $50 billion in aggregate revenue.

The impact of these retailers can’t be overlooked. Woodman’s has close to $2 billion in annual sales despite having only 16 locations, according to grocery.com.

UK retailer Waitrose has 35 department stores and 272 supermarkets that generate more than £8 billion annually, and the owners—or “partners,” as CEO John Lewis calls them—are the company’s 76,500 permanent staff. Waitrose is highly successful, and a recent survey of 60 business executives and financial data from 250 companies found that “…employee owned businesses typically outperform those companies in which employees do not have an ownership stake or the right to participate in decision-making.”

Amazon itself is known for providing stock options to its key hires and operating within an extremely flat structure, which allows employees more autonomy in bigger decisions.

Many of the most successful grocery chains in the U.S. follow this same model. These retailers won’t just roll over; they fully understand their importance to their communities and their employees. Consumers have strong loyalties to their local and regional grocery chains, which have had broad brand awareness in their respective geographies for years. Consumer loyalty to these brands has in fact been built up over entire generations.

As much as consumers may want to shop local, though, there’s been a strong demand for buying groceries from home for a long time—it’s not a new phenomenon, according to Bill Bishop of Brick Meets Click. The grocery industry has been slow to respond to change, he says, and if it wasn’t Amazon buying Whole Foods, it would be another company putting pressure on the grocery business.

Brittain Ladd, a global strategy and supply chain consultant based in Seattle, says this: “The challenge for standalone grocery retailers is that their value proposition to customers is ‘we sell groceries.’ Amazon and Walmart can say ‘we sell groceries and have an endless aisle of millions of other products we provide as well’.” He outlines what we can expect to see from Amazon in more detail in an article he posted the morning the news broke about            Amazon’s purchase of Whole Foods.

A Food Fight for the Ages

But at least one guy isn’t afraid. Jeremy Neren has been working to help grocery stores fight against Amazon even before the online giant’s latest threat.

GrocerKey was founded in 2014 when Jeremy saw that brick-and-mortar store sales were flat while online grocery sales were increasing 22% annually. The problem was that so many of those brick-and-mortar stores, who provided a vital service to their communities, did not have a system for eCommerce or a digital presence to account for the 51% of in-store transactions influenced by digital. And yet, industry reports Jeremy saw estimated that more than 10,000 stores said they planned to begin implementing an online system within the next three years. The challenge was clear to him, however: few of these stores were equipped with the skills or knowledge of how to actually do that.

Jeremy saw this need as a major growth opportunity and founded his company to help these stores transition successfully. GrocerKey applies modern technology and the combined know-how of a team of industry veterans to help local grocery retailers not only implement updated technology to bring them into the eCommerce age, but also to do it in a sustainable and savvy way that will help them see a notable difference in their profits.

Brick Meets Click’s Bishop says grocery retailers need to focus on giving the consumer what they want, and this is exactly where GrocerKey has stepped in. They are helping consumers, he says, especially those who care about local and continue to support their local chains, while also getting a more convenient and efficient shopping process.

As Ladd explained, Amazon will slowly amass more and more business for itself—Amazon customers who shopped elsewhere will now have incentive to shop at Whole Foods, and Whole Foods customers who were not Amazon Prime members will now have incentive to become a Prime member. GrocerKey’s technology gives other grocery retailers a fighting chance to compete against Amazon’s enticements.

In 2015, GrocerKey launched eCommerce for Woodman’s Markets and, in just the first few months, saw a 65-75% jump in new customers and an average order size roughly five times that of in-store customers. Better yet, the chain achieved eCommerce profitability in less than a year. And to augment the in-store experience, GrocerKey went on to implement the ShopWoodmans mobile app, which allows shoppers to browse their specific store’s current assortment of products, see what the daily sale items are, clip digital coupons, and build a shopping list. The app is also optimized to allow shoppers to view the locations of the items on their list and help them plan out their path in the store ahead of time — to make that weekly grocery run or quick stop after work even quicker.

The fight has already been going on overseas, leaving the U.S. solidly behind in the arena of grocery eCommerce. As of 2016, South Korea led the way with online sales accounting for 16.6% of the fast moving consumer goods (FMCG) market. Other leaders include Japan at 7.2%, the United Kingdom at 6.9%, France at 5.3%, Taiwan at 5.2%, and the United States way down the list at 1.4%.

Part of the lag from the U.S. can be explained by the overwhelming presence of Amazon. Customers have become more accustomed to smaller, one-off type purchases, whereas consumers in other countries are used to loading up their cart with everything on their list in one shot. Food retailers were actually some of the first to introduce online shopping in some European markets, driving growth and familiarizing customers with an online, weekly stock-up trip. And the research shows that the average purchase in grocery eCommerce is higher than the average in-store purchase.

Conclusion

What do you think? Who are you rooting for and why? I have shares in Amazon, and I’d love to see them go up, but I also love rooting for the “little guy.” I want to see my hometown succeed and know that I will continue to have options about where I can choose to do my grocery shopping!

Showing 10 comments
  • Bill Widmer

    I say that as long as there are people on Earth, Amazon will always have competition. And it will keep them on their toes, too – people are resourceful. Especially people with nothing to lose.

    Personally, I love Amazon and never shop mom and pop. It’s just too damn convenient. But that doesn’t mean I want mom and pops to go away!

    • William Harris

      I get ya. I love our local mom and pops though – small town makes that easy to get to know people and have a relationship, which goes a long way.

  • Chris Westra

    William, I think it times to start picking sides with your wallet. Smaller, Hyper-local, sustainable, community with social and planetary values should be at the top of the list. While Amazon claims a long term strategy, its executive mandate and business model tells another story. Where is the environmental disclosure? Sustainability initiatives are for the most part from years past. Where is social responsibility. Collaboration? 2018 – Bezos: I don’t give a F__K about the environmental and others as long we conquer the world (sound familiar?).
    Best Regards,
    Chris

    • William Harris

      I’m mostly with you. I try to shop local as much as possible. We have a nice little town that’s very good about that. But, sometimes the convenience of Amazon Prime is enticing.

  • Brittain Ladd

    This is a very informative and enjoyable article to read. The grocery business will become even more important to Amazon over the next 10 years as they expand their ecosystem of stores and online capabilities. Make no mistake, groceries and food are very strategic to Amazon.

    • William Harris

      Yeah, thanks for your insights on this one. 10 years is an eternity in ecommerce – so it will be really interesting to see how much the online grocery market has changed by then. I’m sure my kids will think it’s funny that people used to go to the store to buy groceries.

  • Graeme Thickins

    Awesome piece, Will! I think established grocery brands are starting to get very smart about going digital. And GrocerKey is showing them how to do that. Bricks and mortar shopping will never go away, and people are remarkably loyal to their local grocery store. But shoppers at those stores will be increasing their frequency of online shopping on the occasions when they need to – staying loyal to their favorite stores, who will have easy-to-navigate online shopping apps, with mobile app convenience, of course.

    • William Harris

      Yep – the ball is in the court of grocery stores now. I WANT to stick with them – so they need to figure out how to make it work in the 21st.

  • Jeremy Neren

    Great write up on on critical details that are often overlooked (even by those within the grocery industry)! The implications of disruption in the grocery industry are far more significant than many realize, this article does a great job of shining a light on these issues. I’m honored that you included me!

    • William Harris

      Thanks, Jeremy – I had no idea about any of this until we chatted about it over coffee. Thanks for giving me a glimpse into your world (groceries) and my world (ecommerce) merging – and what that means for businesses and communities.

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