Five pain points grocers must address to survive in an Amazon/Whole Foods world

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Photo: RetailWire
Sep 05, 2017
Ken Lonyai

Grocery was renowned as a thin margin high volume category, struggling to leverage m/e-commerce profitably. Then Amazon.com acquired Whole Foods Market.

So, for competitors that want to stay viable by the end of the decade, transformation starts with five crucial elements they must implement immediately, no matter how challenging, no matter how costly, or else they will remain shark bait.

  1. End the checkout time suck: Nowadays, disrespecting a person’s time is reckless. Amazon Go did not pioneer ending the checkout line. Whole cart RFID checkout has existed since at least 2001. Grocers have had years to solve this had they shown the will and the leadership to find ways of working with suppliers to make it cost effective. It must happen now.
  2. Prevent out-of-stocks: Food shopping is made especially burdensome when one or two needed items on the shopping list are not on the shelves. Inventory/logistics models need to be revamped to keep shelves full — incontrovertibly with non-perishables — and prevent shoppers from heading to other stores.
  3. Cut SKUs: While carrying 40,000 or more different items may meet the demands of a wide swath of customers, resilience and profitability are more achievable by targeting a narrow band of customers with a reduced, highly relevant product mix and operating more like a vertical that serves that segment superbly. Being average to everyone is no longer an option.
  4. Rethink major brands, especially in CPG: Nowadays, peddling anything commoditized or commonplace is vexing. Diversifying and developing a trusted and possibly lower priced private label brand, while not easy, provides some insurance against price wars. Purveyors counting on loyalty and profits from past brand associations will be left hung out to dry when distribution models recalibrate.
  5. Innovate the last mile bi-directionally: BOPIS (buy online pickup in-store), BORIS (buy online return in-store), drive-through pickup, third party delivery, lockers, partnering, reduced free shipping thresholds, shuttle buses, mobile apps, etc. — whatever methodologies that get groceries into the arms of customers without them feeling friction or return remorse are table stakes now.

DISCUSSION QUESTIONS: Do you agree that traditional grocers must make big changes to compete effectively with Amazon‘s aggressive move into the food channel? Which points on the list do you see as most crucial? Would you add any other urgent transformative steps?

Braintrust
"Grocers are going to have to step it up all the way around. So are pet food companies."
"What, nothing about the staff? The human factor has to be the point of differentiation for traditional grocers."
"Be. In. Stock. There’s nothing more fundamental for digital or physical retailers."

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28 Comments on "Five pain points grocers must address to survive in an Amazon/Whole Foods world"

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Paula Rosenblum
BrainTrust

This is not rocket science. Amazon is no longer the über low price provider. I don’t expect Whole Foods to become that way, either. But what Amazon is really, really good at is being in stock. Grocers are going to have to step it up all the way around. So are pet food companies.

Lee Kent
BrainTrust

Couldn’t have said it better myself. Thanks Paula. Being in stock is numero uno! For my 2 cents.

Bob Phibbs
BrainTrust

Wow — if that picture doesn’t say it all about co-opting a brand. “Farm Fresh” for a product built halfway across the world in a factory. I think the jury is out on just how successful this marriage will be and what it shows grocers. National grocers have been aware of all of these things and have tried a range of changes from scan-as-you-go, to self-checkout to adding beer in their cafes. Becoming more like Amazon doesn’t help grocers beat them at their own game. Being better at their game using their reams of data is Amazon’s unique selling proposition.

Ian Percy
BrainTrust

You do have a knack for calling out BS when you see it Bob! I noticed that nonsense too and would have commented except I couldn’t figure out what the thing was. It did look freshly picked. 🙂 My favorite deception of all time is the phrase, “up to.” Maybe if we stopped trying to deceive consumers things would get a lot simpler … and perhaps even more profitable.

Dick Seesel
BrainTrust

Most of the spotlight on the Amazon/Whole Foods acquisition has focused on price cutting, but these were necessary to make Whole Foods more competitive. Look for more cuts to come to help Whole Foods overcome its “Whole Paycheck” brand reputation.

But longtime observers of Amazon know that the keys to its success are its assortments and its mastery of logistics. If I were a competitor, this is where I would focus my efforts before being run over by the Amazon juggernaut. Improving the efficiency of the shopping experience — whether through faster checkout, better execution of home delivery or higher in-stock rates — will go a long way toward dealing with the looming challenge.

Ben Ball
BrainTrust

Amazon is going to be the source of the retail equivalent of the “3G effect” for CPG manufacturers (3G Capital’s penchant for zero-based budgeting and drastic cost reductions when they acquire a company). But for retailers it won’t be so much “costs” in the traditional sense of people, departments and spending. Instead it is going to be inefficiencies and merchandising sacred cows. Maintaining the traditional checkout process in the name of “reducing shrink” and “impulse sales” is a good example — the equivalent of putting the milk in the back of the store to force shoppers on a fill-in trip to walk past the produce, bakery and deli in hopes of an impulse purchase there. Retailing will have to transition from a focus on serving consumers effectively to a focus on serving them efficiently.

Tom Dougherty
BrainTrust

This will be mainly a defensive strategy. Everything Amazon does in grocery needs to be duplicated at traditional grocers. And they need to encourage current shoppers to use these services BEFORE they try Amazon. Will they do this? Nah.

Max Goldberg
BrainTrust

In order to remain relevant, retailers need to restlessly innovate. The ideas presented in the article all will help in that regard. Perhaps the most prescient point is to respect a consumer’s time. This should include checkout as well as where products are placed in store, the number of SKUs carried for any product category and the availability of staff to assist consumers. The one finite thing we all have is time. Retailers need to help consumers maximize every minute.

Sterling Hawkins
BrainTrust

Agreed on all fronts here, Max! Innovation is basically required, but in a very specific way — to improve the customer experience. Adding on half-baked technologies and processes simply doesn’t work. Creating an experience, augmented by technology, to better serve the customer is key to success.

Neil Saunders
BrainTrust

The U.S. grocery market is entering challenging times. Amazon’s part of this, but not the only ingredient. So too are the expansion of deep discounters, Walmart’s resurgence, disloyalty to brands, the growth of online and subscription ordering, and changing shopping habits. The sum of these things equals margin compression.

Grocers need to become both more efficient and better at securing shopper loyalty. It is not easy to square this circle, though the list provides a start point. To it, I would add: very clear price architectures and tiered ranges; flexible format stores; better use of customer data for personalization; possible consolidation through acquisition and the development of deep, dedicated e-commerce sites for specialist products like wine or pet food.

The U.K., which is a much more challenging grocery market than the U.S., provides both warnings and inspiration for U.S. grocers.

Peter Luff
BrainTrust
It is interesting you pick up on the UK. Sainsbury’s has in the last year purchased the catalogue retailer Argos. Argos are absolutely in the same space as Amazon’s traditional business, but rather than online it used to be you went into the stores and the warehouse was out the back. They were under threat and have quickly realised that bricks and mortar and distribution capabilities are an asset which can out perform Amazon, as their web site says “We deliver right across mainland UK and Northern Ireland. Between 7am and 10pm. 7 days a week.” (Yep, even on Sundays). “For smaller items we can also deliver to the Scottish Islands, Isles of Scilly and the Isle of Man. Want same day delivery? With our awesome Fast Track Delivery service, if you buy before 6pm, we’ll deliver by 10pm. Who else can do that?… “We have literally hundreds of stores. So if you’d rather collect your order, there’s bound to be an Argos near you. “Buying an item online? Is it marked with our Fast Track logo… Fab – you can beat the queues in-store and collect from our special Fast Track counter.” I imagine Sainsbury’s can then take the… Read more »
Neil Saunders
BrainTrust

Thanks, Peter — that’s certainly interesting.

Strategically, it made sense for Sainsbury’s to buy Argos as it was always the weakest of the big three supermarkets on non-food and it was running out of core growth opportunities in grocery thanks to market saturation and tough competition. It’s also margin enhancing as non-food profits are so much higher — and Sainsbury’s can extract some cost savings from Argos.

I think you are right about linking Argos and non-food to Sainsbury’s stores. It now has over 50 Argos branches in its shops and this is helping to drive footfall for core grocery offer as customers come to stores to pick up their Argos orders.

The interesting thing now, of course, is how all of the UK grocers are looking at wholesale firms as acquisition targets. Again, it’s because growth in their core market is extremely limited with profits under pressure.

Interesting times, for sure!

Art Suriano
BrainTrust
I think there are two ways to look at this. First, many consumers have never shopped Whole Foods and they never will, primarily because we still have many other choices. The possibility that the Amazon purchase of Whole Foods will be the end of grocery as we know it is not something I think will happen. However, the article makes good points regardless of the Amazon purchase. Because of the publicity, the Whole Foods takeover will and should make other grocers take notice. For example, the checkout lines today are the worst and after spending considerable time filling up the basket, the last thing the customer wants to do is waste more time on long lines. The simplest solution is to add more registers but, instead, we added self-checkout. Conceptually this is an excellent idea, but there have been many problems with the automated checkout machines not working properly. The area is often too small and there usually aren’t enough self-checkout registers available. Out-of-stock, I agree, is another issue grocers need to pay better attention to. It’s amazing that many grocers today have the same problem with their “shop at home” service. What the Amazon/Whole Foods takeover won’t do is… Read more »
Ian Percy
BrainTrust

I’m sure I’m missing something in this supposed food war. When did buying food become so complicated?

Yes I agree there are far too many SKUs and that’s driven by trying to accommodate any and all customer desires. So the choices need to be simplified based on what is actually being bought. And yes, a store needs to have the inventory to meet demands. Checkout needs to be reasonably expedient. But for goodness’ sake, hasn’t it been that way since the beginning of time?

Sure a few prices at Whole Foods went down — a dollar here, 79 cents there. But it wasn’t worth the drive. Let Whole Foods import the high-altitude Himalayan llama cheese and when I want some I’ll go there.

What used to be an eagerly anticipated family adventure is now filled with angst, demands hours of price checking, guarding your family against chemical ingestion, surrendering your privacy to Big Data and on and on.

Nothing is more fundamental than air, water and food and we’re working hard to mess up all three.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Grocery retail as the last mile of distribution for manufactured food is at risk of a better informed public. The strength of online food retail lies in its making product and useful information readily available. This allows e-tailers to activity assess the level of consumer interest in this and to shift their advertising model to native advertising, which offers the look of unbiased information in a promotional envelope. Physical retailers have to tell their story, sell their story and engage customers in it.

Brandon Boston
Guest

Cutting SKUs is the most crucial factor brought to light in this article. Target your SKUs to your audience. Use the data gathered on sales today to influence your product offering tomorrow. Fewer SKUs means more agility.

Additionally, providing another level of experience is crucial. Restaurant concepts, grab-and-go, bar dining and personal shopping are the standard today. How can grocery leverage and improve these in the future?

Phil Chang
BrainTrust

I actually think that the only challenge grocers face is the ability to change faster. Right now they’re all built for business with Fortune 500 companies and optimized for logistics. Grocers (and retailers in general) need to cut processing time and get faster at recognizing consumer insights so they can move faster.

All the tactics that Amazon is employing — that’s all they are, tactics — are insight driven. NOT sales dollars and margin numbers alone, but actual consumer and psychographic data. The article covers some of the things consumers have been pining for — faster check out, or the ability to order online and pickup in store.

Retailers need to put consumers at the center of their decision tree and innovate!

Richard J. George, Ph.D.
BrainTrust

I believe the Amazon/Whole Foods relationship will finally force traditional retailers to make necessary changes to stay competitive. Brick-and-mortar food retailers have struggled to compete with the noted online advantages of Amazon. However, this resulted in a bit of complacency since Amazon did not have a significant physical retail presence in the market until the Whole Foods acquisition.

Now that Amazon has become a viable brick-and-mortar competitor, the focus of traditional retailers needs to be “think like a brand and act like a retailer.” The elements noted in the article are a great place to start. However, traditional retailers needs to take a complete inventory of their strengths and weaknesses vis a vis the competitive array and determine how they will positively differentiate their brand, namely banner. Some ways come to mind. Become the equivalent of the neighborhood store of years ago by working with schools, churches, local businesses, etc. Emphasize local products from farm fresh to other supermarket products sourced locally. In essence; out-fresh, out-local and out-service other markets and the brand will become more valuable and more recognized.

Ron Margulis
BrainTrust

What, nothing about the staff? The human factor has to be the point of differentiation for traditional grocers. The technology at Amazon and other e-commerce retailers hasn’t gotten to the point where their bots are as good as a human can be for a full range of services (yet!). Until they can empathize with a mother having a bad day with her kids, help a father get all the things on his list without meandering throughout the store and help carry out orders to the car, e-commerce sites are the one playing catch-up.

Ian Percy
BrainTrust

Now there you go, Ron, bringing humans into the discussion about food! Come on … surrender to the movement from the artisan to the artificial. Artificial intelligence, artificial food, artificial service and customer relationships. (I wish I could have given you several thumbs-up.)

Camille P. Schuster, PhD.
BrainTrust

There is nothing on this list that does not pertain to operating effectively in the marketplace. This what retailers need to do to compete well it is not caused by the Amazon/Whole Foods relationship.

gordon arnold
Guest

These are all good points that have been forewarned for decades. Too many of us will retort that changes have been implemented and success is averted for any number of empty reasons. This discussion unintentionally feeds the need to pontificate over ratings instead of addressing the costly issue at hand. Failure to address the strategic purpose and mission of a service provider with continuing improvements that directly address store customers, present and potential, is and will remain toxic to the business.

When any improvement is built to address the needs of today’s customers, there will always demand further advance resulting from market change and climate. Tasking owns the pressure of time and accuracy like no other aspect of the business. Doing the right things wrong or like we did in the old days will irrevocably kill the business without exception in this 21st century market.

John Karolefski
BrainTrust

The obvious key is to make shoppers want to come to the grocery store. Ideas: Increase sampling; have live music on weekends (two- or three-piece band will do); have more events (Giant Eagle’s Market District has Food and Wine Fridays that make grocery shopping fun); have guest chefs for cooking demos; open a restaurant and/or bar as part of the supermarket.

Shoppers can’t enjoy any of those things while ordering groceries online. Are these events an investment for grocers? Yes, but what’s the alternative? Business as usual?

James Tenser
BrainTrust

Be. In. Stock.

There’s nothing more fundamental for digital or physical retailers. On-Shelf Availability has been the great white whale for the supermarket industry for decades and complacency about poor performance has left the door wide open for innovative competitors. Luckily for the established players, store level inventory optimization is not that easily realized. We can expect Amazon to invent a solution for Whole Foods, but that leaves only a narrow window for the rest to get ahead of the curve.

Kate Munro
Guest

The retail industry has been moving toward a fusion of digital and physical for years now, but the Amazon/Whole Foods acquisition caught retailers and grocers by surprise. In order to compete, retailers need to evolve and adapt by focusing on speed, convenience and differentiating their products from the competition. Amazon is so far ahead in the digital, convenience-oriented world that consumers have grown accustomed to, it’s hard for grocers and other retailers keep up and move their business forward. Improving delivery and convenience, with home delivery, and online shopping is one way forward for grocers and other retailers. Private label products that compete with big name brands and provide high margins is another bright spot for the grocery industry.

Shep Hyken
BrainTrust

Traditional grocers are going to have to break tradition if they expect to compete with Amazon — or any competition for that matter. First and foremost, the retailer must work to remove all friction tied to the customer experience. Checkout lines (the first on the list), is a perfect example of potential friction. Remove that, and anything else that gets in the way of a smooth, clean, fast, easy and convenient experience. Think “low or no friction.”

Ricardo Belmar
BrainTrust
Other than redefining what kinds of crops grow in a farm (who knew Echo devices could be fresh off the farm … maybe you just have to ask Alexa to plant the seeds!) this is ultimately about one thing — convenience. Amazon has built their brand on consumer convenience (not always due to price) by mastering the idea of being customer-first to the extreme. Whether it’s due to a fast, pain-free checkout experience, time-saving delivery services, or just ensuring the product you want is in stock — grocery retailers need to realize the time has come to put their customers first and optimize the business around serving those needs. This is actually something independent grocers and small chains understand far better than the big brands and raising an interesting point left out in the article — store associates, aka the human factor. This is where smaller grocers since and larger grocers need to take note. Amazon Whole Foods will force them to differentiate sooner rather than later and at a much faster pace. As pointed out in the article, for the past decade the most innovation we’ve seen from the majority of grocers is self-checkout. That’s no longer enough. There’s… Read more »
Alex Levashov
Guest

For me seems that advices #2 and #3 a bit contradict each other.

Say we have a family with a shopping list of 30 items. Out of that 30 items, 2-3 are what you may call “unpopular,” not bought in mass on average. If we start aggressively reducing SKUs, these items will not be presented in the store. Problem is that every family probably has a different set of these unpopular SKUs.

But if they are important, your customer has to go elsewhere (possibly to Amazon).

And once they start to do it regularly, inevitably they notice that something else is better to buy from the competitor, so it goes on and on. Eventually you risk becoming a 2nd choice or lose a customer.

Therefore I think that if one of the reasons why customers are buying from a retailer is wide product range, I would be very careful with shrinking SKUs.

I am not an expert in grocery retail, so beg your pardon if I miss something.

wpDiscuz
Braintrust
"Grocers are going to have to step it up all the way around. So are pet food companies."
"What, nothing about the staff? The human factor has to be the point of differentiation for traditional grocers."
"Be. In. Stock. There’s nothing more fundamental for digital or physical retailers."

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