I respect Kroger's initiative and desire to lead in a segment that will only grow over time, but I have a couple of genuine questions (that maybe some other readers can address). Two of the historical barriers to grocery e-commerce adoption have been the cost of delivering the last mile and shoppers' concerns over selecting perishables. While the shed will reduce picking costs, I don't see how it addresses either of these issues. Perhaps we need to look at it as just a piece of the puzzle (which is not how Webvan was built back in the early 2000s).
Having built category management processes, tools and platforms used across all FDM retailers and hundreds of categories, I find some of these comments naïve. There is not one simple answer for dynamic, complicated processes like assortment and space.
A model to optimize assortment and space allocation requires a "category view" of the decision hierarchy to determine the incrementality of an item. Decision hierarchies are of course different by shopper and evolve over time, so require deep category understanding that is difficult for a retailer to attain and keep fresh over hundreds of categories; a manufacturer can command that insight over their 5-25 categories.
The value lost in building a tool on a simplified or syndicated category view may be as great as the value lost because a manufacturer ensures they don't "lose" as a result of their efforts. The manufacturers successful in the long term are adept at customizing the recommendations to the retailer's unique shopper base and finding the triple win.
I would argue that the retailer would be foolish to "say no to big CPG brands" on shelf decisions, just as they'd be foolish to ignore the insights of validators or challenger brands or their control brand partners. Long gone are the days of handing the keys of the category to big CPG and hopping in the back seat, but it would be equally foolish to fall into the hubris that you can know all these categories' nuances as well those who are so deeply focused on them.
It is a hazy line between mascot and spokescharacter. Often a spokescharacter connects enough with the target audience that the brand lets it take on a mascot role. Especially in today's social media environment, having a spokescharacter (an animated one or an animal, rather than a human personality/spokesperson) that can be totally controlled by the brand is a real asset -- with no risk of Subway Jareds or Trivago Tims embarrassing the brand. And the controllable persona can play each digital channel just right.
For certain types of products, this high engagement "theatrical" exposure could be a compelling way to introduce the shopper to a brand that then can be bought online frequently ... I'm thinking high ring, high barrier-to-trial products with great influencer value. A well-choreographed story conveyed organically and authentically could create the jumpstart such a brand needs. But for most businesses, the cost per conversion would likely be prohibitive.
The question then is, how could other retailers like PetSmart, Lulu, Ulta and Whole Foods lift the concept to reinforce their equity/story?
While Millennials are the greatest source of growth in the pet industry (pet ownership indexes at 129 -- and growing), this doesn't feel like a play to them. Their proximity to Walmart stores and bias toward smaller/local purveyors will make them reticent to consider Walmart a viable source for care of their fur baby/best friend. And their comfort with the auto-ship options of Chewy and Amazon for food is reaching into other "predictable staple" health care products like flea/tick, heartworm, skin care, etc. So the best open window is convenient, value vet visits, and proximity is not Walmart's advantage there relative to PetSmart, Petco and the indies for Millennials.
That said, the strategy should play well as a strong value and one-stop shop benefit for Boomers and Gen Xers.
For those who say that many buyers are more concerned with how they look and feel in Lululemon gear than the experiential benefits, I'd argue that an even richer, experiential-based brand essence will make those non-hardcore shoppers feel even better about how they look and feel in those same clothes. And as long as they keep listening so well to their customers' needs and innovating with their product, I expect they'll be able to command the premium they do now.
My fear with the experiential avenue is their ability to innovate or at least nimbly adapt to the ever-changing fitness trends, combined with many fitness enthusiasts' fundamental need for variety in their workouts. I hope they can operate them like independent fitness venues/incubators to create that connection to the local customer. Though I guess they don't need 100 percent share of workout requirements for this to be successful.
While I too admire Amazon's propensity to find new ways to leverage their assets and push the retail envelope, I share Nikki and Doug's concern about relevance of the curation to specific shopper purchase occasions. I don't often say, "I need a couple of highly-rated items, so I'm going to run out to the 4-Star store, honey." They can certainly satisfy gifting occasions, and should do well over the next couple of months of holiday shopping. They will capture novelty/tourism shopping trips, but that won't make 4-Star a scalable enterprise. And treasure hunt stores do better when they have a few common traffic drivers to get shoppers in the store. If management can find that thread of continuity across the assortment and give people reason to visit frequently, this could be a home run. If not, it'll be another nice case study of Amazon testing the limits of its mission of "offering our customers the lowest possible prices, the best available selection and the utmost convenience."
I don't know enough about how the technology works (though I understand it's not RFID) but I suspect there will be a whole different set of challenges associated with rolling out to a stock-up grocery occasion vs. a c-store quick trip. When items are inspected, rejected and returned to the shelf, do they need to be placed in just the right slot? it's more of an issue with the full grocery trip in which items are often selected then rejected two aisles later when a better offer or alternative presents itself. And I need to bag my items some way to get them in the car and then house on the stock-up or fill-in trip.
These are minor issues relative to the giant leap forward this represents, but still some bridges to cross before applying it to a grocery type of environment/occasion.
While I share the sentiments of most commenters and will miss the shopping (and professional interest) experience of Whole Foods of the last couple decades, this really can't be much of a surprise to anyone. Why would Amazon be interested in Whole Foods' mission of offering a unique assortment of natural/organic/local products to a now leveling-off consumer segment? Does Amazon care about being an arbiter of organic and healthy? Is that really a big growth play in Amazon terms?
The value of Whole Foods to Amazon is more about the footprint and the 365 private label. That's where Whole Foods can help Amazon grow. Squeezing some margin out of the ongoing operations to fuel deeper penetration into grocery e-commerce actually makes sense for the broader Amazon/Whole Foods enterprise. Just not for the John Mackey/Walter Robb vision.
What makes a good hardware store a preferred destination is 1.) excellent service/counsel/problem solving and 2.) a long assortment of just the right part/tool to solve the problem.
I can't imagine Kroger/Ace staffing a home repair expert in grocery stores, nor dedicating sufficient space to having just the right washer and nut to solve my problem. If they're just upgrading their selection of flashlights, smoke detectors and multi-purpose tools, I'm not sure Ace adds that much to the equation.
For decades we've witnessed the balance of power shift from the manufacturer to the retailer, driven by consolidation, private label development and retail marketing prowess, among other dynamics. The shrinking of center store has long been a concern for big CPG as retailers have sought to differentiate their stores with the perimeter departments that are less dependent on the brand power of manufacturers.
But now we're witnessing the power shift from the retailer to the consumer/shopper, who wants to and can control when to shop, what assortment to consider, what price to pay and how it reaches the home. This consumer also seeks unique challenger brands that convey his/her personality, priorities and ethic, further squeezing the big brands.
Organizing by some definition of "health" is not the solution. We know that what counts as "healthy" varies from shopper to shopper and year to year, unless the retailer is only catering to a small niche.
For larger grocery retailers, one fork in the road is whether center store should be merely an easy-to-shop, efficient means of stocking up on staples or an interesting retail-tainment treasure hunt that encourages browsing and reinforces a certain store image. Either way, the perishable perimeter will remain the retailer's primary driver of traffic and differentiation.
I have a hard time seeing Amazon win a price game with Whole Foods. Even if they subsidized down to parity vs. traditional grocery, Amazon's strategic advantages won't be highly leverageable to a Whole Foods price war: logistics of the last mile are much trickier with 4-5 temperature states, and scale can't quickly expand supply of organic products. Current shoppers will gladly take the savings, and few other shoppers will convert to Whole Foods for parity pricing on even superior products (especially if it's a selective price advantage).
Amazon will wring other value from Whole Foods's brand equity, footprint/retail presence, private label assortment, etc. but winning on price will not be key. They did get our attention, though.