Archive for the 'food retailing' Category

About that “whole paycheck” perception…

Some of my earlier comments about the Amazon-Whole Foods deal touch on the expected benefits of better e-commerce execution and predictive data science. But let’s not forget that Whole Foods has a price perception problem that Amazon needs to fix. Here’s a recent comment from RetailWire:

I teach a college-level class in retail management. When I surveyed the class about where they shopped, most answered Aldi, or Trader Joe’s, or Metro Market (the Milwaukee brand of Kroger-owned Mariano’s). None of them shops at Whole Foods even though the store is in the neighborhood where most of them live.

There is no doubt that Whole Foods’ “premium price” reputation has kept many shoppers away, as they face more competition in the “organic” arena. I believe the first round of price cuts is just the start, and it simply moved some overpriced key items to the “market price.” Expect more of this from Amazon in the future, but also expect Amazon to build Whole Foods’ base on its potential e-commerce and home delivery upsides.

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Amazon pushes Whole Foods toward centralization

There has been plenty of comment — most of it critical — about Amazon’s intention to centralize its merchandising of the Whole Foods stores. Most of the critics are concerned that the lack of local brand advocacy will turn Whole Foods into something very different. Here’s my RetailWire comment on that topic, followed by a comment about what Kroger is doing in response:

Centralized buying will bring economies of scale that allow Whole Foods to compete more effectively on price and on execution. But competitors (Kroger, I believe, is one example) are already opening the door to local vendors in response to the Whole Foods move.

Let’s not forget, however, that Amazon is the master of data science when it comes to retail management. Just because they are tightening the screws on the buying process doesn’t mean that they will ignore local preferences. In fact, they are likely to do a better job of allocating space and replenishing goods to meet individual stores’ tastes than Whole Foods ever dreamed of.

And now my comment about Kroger’s announcement that it is encouraging more local vendors:

Whether this was a pre-existing strategy or a reaction to the Whole Foods “centralization” news, it’s a good idea especially for grocers with national scale to pay attention to local preferences. As I said last week, however, don’t assume that Amazon will ignore this issue just because it is trying to find cost savings in the Whole Foods model in order to compete.

Amazon is the leader in using data science to determine consumer preferences, and I expect this to extend to their assortment planning in individual Whole Foods stores. If Kroger intends to compete, it will want to support its “local” initiative with great execution of in-stock levels.

 

More on combating the Amazon grocery juggernaut

Another timely discussion at RetailWire about the best ways for grocers to fight the Amazon-Whole Foods tie-up. To me, it’s not just about price competition but a lot more:

Most of the spotlight on the Amazon/Whole Foods acquisition has focused on price cutting, but these were necessary to make WF 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.

“Whole Paycheck” no more

As soon as Amazon closed the deal on its Whole Foods acquisition, it dropped prices on several best-selling staples (with more to come). This sent a shudder through the rest of the grocery industry, especially with Amazon’s history of losing money to gain market share. I argue (on RetailWire) that Amazon had to move fast to overcome Whole Foods’ perception as an overpriced place to buy groceries:

I did a fast price check at the site for Metro Market (one of the Kroger’s divisions operating here in Milwaukee, and the sister brand of Mariano’s in Chicago). Its prices on organic bananas, eggs, butter and Fuji apples are already at or slightly below the new pricing at Whole Foods. (Its price on lean ground beef is 50 cents higher as of this morning.) What this points out is that Whole Foods had a pricing problem (“Whole Paycheck”) that Amazon is taking aggressive steps to correct.

Based on what happened to Costco’s and Walmart’s stock prices since Friday, there is a typical overreaction to the steps that Amazon is taking. Just keep in mind that Walmart and many other grocers are already competitive and Whole Foods is just joining the party. Also keep in mind that the Whole Foods brick-and-mortar footprint has a long way to go before it catches up with its competitors, despite the smart moves that Amazon is likely to make.

Groceries are battling too much space too

Excess square footage in general merchandising has been well-documented, especially with 2017’s wave of store closures. The trend hasn’t swamped grocery retail — yet — but don’t be surprised if the advent of online grocery shopping will take a toll. Here’s my comment, from a recent RetailWire discussion:

The grocery business is suffering from the same “overspace” problem that has plagued general merchandisers for years, leading to waves of store closures this year. The retailers in the middle — the old standbys like Kroger — are particularly vulnerable to increased competition from discounters, small-format stores and retailers doing a better job engaging with “foodies” and Millennials. (At least Kroger has a winning concept with Mariano’s in Chicago.)

There is no doubt that shopping behavior is changing. Some shoppers are opting for more frequent but smaller trips for fresher food, while others are bulking up at warehouse clubs. Aldi, Lidl and Trader Joe’s are offering smaller stores with curated assortments, and now Amazon is lurking in the background with its purchase of Whole Foods. As a regular shopper at Kroger’s “Metro Market” chain in Milwaukee, I can tell you that the overwhelming amount of choice (to fill all that space) makes even a simple shopping trip harder than it should be.

While some mid-tier chains are in a better position than others to survive, some industry consolidation is probably long overdue here. Meanwhile, here’s a related post about mall developers looking to fill empty space with food retail:

It’s ironic that we’re talking about food stores taking over vacant mall space today, after discussing excess square footage in the grocery business yesterday. There may be specific malls where it makes sense to add a small-footprint store like Fresh Market, but it’s hard to see how full-line mid-tier stores like Kroger can make this work on a large scale despite its test in Ohio. Presumably the grocery store would be the “last stop” on the shopping trip, if the shopper visits the rest of the mall at all.

The entire issue comes down to mall developers and how they reinvent all that real estate. Southdale (outside Minneapolis) is replacing a JCP store with a three-level fitness center; other malls are adding more dining and entertainment. But pulling off-mall retailers (TJX, Costco) into the fold may be a more viable solution if the price of entry is right.

Can Amazon execute grocery delivery better than the competition?

A lot of the conversation about the Whole Foods acquisition centers on Amazon acquiring a bigger brick-and-mortar footprint. My RetailWire comment suggests that Amazon also has a chance to take home delivery of groceries to a higher level:

I think Amazon has the chance to bring a level of execution to online grocery shopping that doesn’t appear to be in place yet. I don’t want to judge an entire industry from my experience with Safeway last week, but it may be typical. While on vacation, I ordered groceries to stock up our rental house for a week. The order did not show up in the scheduled delivery window (in fact, Safeway was running 3 hours behind and I canceled the order) and would have been 1/3 short-shipped. What I thought would be a convenience turned out to be a customer service nightmare, after spending nearly an hour on hold to fix the problem.

Again, it’s a small sample size but the combination of stock-outs and late delivery is not exactly meant to inspire confidence in the process. I believe Amazon has the capacity to make this work, and they won’t roll it out aggressively until they are ready.

On Amazon’s bid for Whole Foods

Talk about breaking news: RetailWire panelists had a chance today to weigh in on the announcement of Amazon’s bid to acquire Whole Foods. While many panelists see it as a way for Amazon to gain a bigger toehold in brick-and-mortar retail, I view it differently:

First, the move can help grow Amazon’s brick-and-mortar footprint, but it’s more about taking the Whole Foods brand to every household in America that may order groceries from Amazon. It gives Amazon’s fresh food businesses (meat, produce, organics) instant credibility in homes without a Whole Foods location in sight.

As to the skeptics about whether Amazon can handle the logistics — can they deliver organic produce and Cheerios at the same time — this is the smartest logistics management company in the world that we’re talking about.

Finally, Amazon has a longstanding willingness to lose money in a new business where it is trying to grow market share. The days of “Whole Paycheck” may be over.