With Alexa now serving grocers as breakfast for Bezos, have we forgotten that Wal-Mart has had their lunch as the #1 grocer since the turn of the century?
What will it take for today’s grocers to keep a seat at the adult dinner table?
Written by EnterWorks Chief Executive Officer Rick Chavie
Battle of the Titans
The growth of Wal-Mart in grocery occurred as the experimented with hypermarkets drawing from the European experience before they landed on the Supercenter model in the late ‘80’s. The higher shopper frequency for food that feeds scale for the combined store, their advanced hard-goods merchandising technology that they adapted for grocery, and their leading supply chain platform created a compelling, competitive advantages in grocery, an industry lagging far behind other retailers in their investment in technology and the web.
The complex nature of food (frozen, refrigerated, perishable fresh, bulk) retailing put grocery at the bottom of the digital cart as a priority market. But along comes Amazon in urban markets where Wal-Mart isn’t, bringing their digital leadership in much the same way as Wal-Mart: frequency, technology, and supply chain. Wal-Mart saw the future and blinked, buying Jet.com in the hope of succeeding in ecommerce after repeated digital disappointments.
With Amazon’s tender for Whole Foods is indeed a battle with Wal-Mart, the digital and physical vise they are deploying is targeted at the rest of the players. We have a model for the future in the DIY industry, where Home Depot and Lowes rolled up the North American market, leaving mostly niche and small format players to battle for scraps.
Creating a Survivable Future
Grocers need to take a hard look at their strategies and assets. Most have been content to play the local game, believing that the traditional convenience of their local stores would offset the buzz of urban and other digital food concepts, that the complexity of the food supply chain would not succumb to digital advantage, and that customers would remain loyal (after all, they all have our loyalty card, right?).
Can these grocers’ assets be converted into advantages to reverse the erosion of their market share? Are they capable of changing strategies and executing their own digital transformation? If both are true, do they have the sense of urgency after decades of delay in seeing their fate?
7 Key Assets in the Grocers’ Competitive Storehouse
- Data on customer shopping patterns. While they have not harvesting their loyalty data in the way that major ecommerce players have, they still own the data as well as 50 to 70% of the spend of loyalty supermarket customers.1
- Local, physical stores (that can also be hubs). Amazon is expected to spend $13.7 billion for access to physical retail, something grocers already have. Grocers are better set up for full range online grocery in suburbs even if Amazon leads in urban markets.
- Food and CPG brand partners. Amazon’s and Wal-Mart’s buying clout threatens brands but retailer collaboration on product content and private label is mutually beneficial, even if the two titans try to disrupt with their own product data and brand plays.
- Digital threat as a motivator. Delay in digital is no longer an option (unless you sell retail real estate) but lack of prior investment in ecommerce limits a grocer’s write-offs. An advanced content & commerce platform preserves a seat at the Omni channel table.
- Low margins in grocery. The grocers’ challenge is a barrier for new entrants. Last year, overall retail margins fell 14.2% as ecommerce share reached 15.5% of sales.2 Grocers run with thin margins but the key is translating to food ecommerce as it grows.
- SMB market is open for business. A third of the grocery market is served by small and medium businesses that are slowest in adopting the digitization of grocery. Grocery chains have room to expand if they develop non-urban ecommerce models.
- Challenging Amazon. At 22%, US DIY retailer ecommerce growth exceeds Amazon’s 2017 rate; the 6% ecommerce share of grocery puts European Hypermarkets far ahead. Unique, digitally enabled services, recipes, and click and collect can create advantage.
Amazon’s goal is to become a Top 5 grocery retailer with $30 billion in the $800 billion grocery market by 2025.3 Over the past decade, Amazon has created many online concepts for grocery items: Amazon Fresh, Amazon Pantry, Prime Now, Subscribe & Save, Dash Buttons, Amazon Go and now the Whole Food deal. Contrary to the “steamroller” narrative about Amazon, it tells you they are struggling to solve online grocery and have conceded that they need physical stores.
As grocers, you understand the challenge they in mastering retail stores. And we know that it isn’t until online sales hit 20% of all purchases in a given retail category that the Amazon growth surge occurs.4 Their 2025 goal gets them nowhere near that level. So, despite the news headlines and #AmazonWins commentary, it’s not over.
Carpe commercium digitalis. Seize the digital store – before you lose the physical one.
1 Bryan Pearson, President, LoyaltyOne at Alliance Data, on January 28, 2016, citing Precima report.
2Wall Street Journal May 22, 2017
3As reported by insider discussing the goal in a feature with Bloomberg News March 20, 2017
4 according to L2 Inc., a business intelligence firm, by Tonya Garcia, May 17, 2017 in MarketWatch.
About Rick Chavie
Rick Chavie was appointed CEO of EnterWorks in May 2015. He came to EnterWorks after serving as SVP, Global Solution Management with hybris and SAP’s Customer Engagement and Commerce group, where he brought together digital and physical commerce and CRM assets for seamless customer experiences. Mr. Chavie brings industry experience from his leadership roles at retailers such as The Home Depot and C&A. He brings technology experience from his role as the global marketing leader for NCR’s retail and hospitality business, and management consulting expertise from his partner roles at Deloitte and Accenture, where he served clients across retail, branded consumer and wholesale verticals. Chavie is a Harvard MBA, a Fulbright Scholar in International Trade, and a summa cum laude graduate from the University of St. Thomas in Minnesota. He is a noted speaker at industry events, an author on the wholesale industry, and frequently comments on commerce, marketing and customer engagement topics.
About EnterWorks Holding Company
EnterWorks® Master Data Management (MDM) and Product Information Management (PIM) solution enables companies to acquire, manage and transform product information into persuasive content that drives higher sales and new competitive strengths through e-commerce Web, mobile, print and various electronic channels. Services offered include: Master Data Management, Product Information Management, Dynamic Data Modeling, Workflow & Collaboration, Syndication & Publishing, Digital Asset Management, Geographic Localization, Portal Content Exchange, and Digital Channel Accelerators.
EnterWorks is highly ranked by Gartner, Forrester and Ventana Research and used by industry leaders such as: EnterWorks customers include: Ariens, Big Rock Sports, CPO Commerce, Creative Converting, Darigold, Fender Musical Instruments, Guthy-Renker, Hearth & Home Technologies, HON Furniture, HP Hood, Interline Brands, Johnstone Supply, Mary Kay, Mercer, Orgill, Publishers Clearing House, Restoration Hardware, Strategic Market Alliance, US Foods, and W.B. Mason. Learn more athttp://www.enterworks.com.