Should Amazon’s Unconventional Grocery Plans Shake Up Supermarkets?
Amazon’s grocery ambitions have been a major talking point within the industry since the e-Commerce giant acquired Whole Foods two years ago. Most recently, there were reports in March 2019 that the company was planning dozens of its own branded U.S. grocery stores, beginning in Los Angeles. Although Amazon never officially confirmed these plans, a recent New York Times report provided insight into the experience these stores would potentially deliver to the consumer. Shoppers could order nonperishable items with an app, and while they shopped for fresh food, the other products would be brought down in time for checkout. The store also would include an area to pick up groceries ordered online and to manage packages for delivery drivers.
The RTP team discusses the feasibility of the proposed model, and whether Amazon can build out a significant grocery growth strategy through these mixed-format stores.
Adam Blair, Editor: I read with interest the New York Times report on Amazon’s original plans for grocery retail, developed prior to its industry-shaking acquisition of Whole Foods in July 2017. As is Amazon’s practice, executives write the final press release first and then reverse-engineer the project to (hopefully) deliver the desired result. Amazon imagined a mixed-use grocery store with “robust produce, fresh food and prepared meals sections.” Non-perishable items (paper goods, canned foods, cleaning products) would be kept in an area not open to customers; these could be ordered via an app, selected by store associates and brought to the customer by the time they completed their fresh foods shopping journey. There also would be pickup areas for online orders and a section to manage packages for delivery drivers. Well, if I were creating a supermarket from the ground up, this does sound like an efficient model. The problem is that real-world consumers have been trained to do their grocery shopping at stores that make all their products accessible. Another issue: traditional supermarkets make their highest margins in the so-called “perimeter departments” (deli, meat, seafood, floral, etc.). The theory is that customers come in for the paper towels and milk, but they also are tempted to splurge on a succulent salmon filet. If shoppers only needed to buy non-perishable necessities one week, why would they bother coming into the store at all? I’d never underestimate Amazon’s ability to change shoppers’ habits, but it doesn’t surprise me that Amazon went the acquisition route rather than trying to reinvent the supermarket wheel in this fashion.
Glenn Taylor, Senior Editor: If Amazon’s grocery ideas can get off the ground, as always it would be a good thing for consumers — if their produce and food is of high quality and their prices are low. But I can see this scenario playing out where Amazon opens only a few dozen stores across the U.S. One reason: the sheer growth of companies like Dollar General, which already sells the items Amazon would be keeping away from the consumer (namely non-perishables) at a low price. There’s a place for Amazon’s model somewhere, but by continuing to limit its store presence to cities (like most of its stores under the Go, Books and 4-star labels), Amazon gives the appearance of a retailer that only really wants to cater to on-the-go passersby or local shoppers who really don’t have time to shop. That’s fine if they want to achieve their continued goal of collecting shopper data, but you’re not always guaranteed to retain any of these shoppers if there are other food options in the vicinity. If the mobile order-ahead process turns out well, I think other grocers can stand to learn from it and implement their own version of the tech. When it comes down to it, it never hurts to innovate and try new shopping models when you have the pool of money Amazon does, but I don’t see a reason for grocers to really fret about this.
Bryan Wassel, Associate Editor: As someone who was covering the supermarket industry when Amazon purchased Whole Foods (and had been following the rumors for months before it actually happened), I have to be skeptical of these plans for a completely new format. The runup and immediate aftermath of that deal was full of big talk, also from anonymous sources, about how Amazon was about to turn the whole industry upside-down with its immense might. The actual result? Prices on a select few items dropped slightly. This was shortly after Lidl made landfall in the U.S., which caused a similar panic — this one about how domestic supermarkets couldn’t possibly compete with the brutally efficient practices of a true German discounter — that fizzled out in a similarly unremarkable manner. American-style grocery shopping isn’t the only way this industry can be run, as anyone who has ever traveled abroad can attest, but our habits are largely ossified. If anything can break the paradigm it’s Amazon, but it will be slow changes effected over years, not an immediate disruption of the dozens of supermarket chains across the country.