To effectively compete with Amazon, grocers first have to stop thinking of e-commerce as an add-on. Online ordering may soon comprise half of sales and will be the growth engine over the next decade in any case. Putting that into perspective will change investment strategies and supply chain structure.

Grocers should look at this competition strategically. Amazon is emphasizing “free” and little else. The smart grocer will reject free — and deliver added value. For example, the grocer has a physical store local to the customer: How can a premium delivery service be built from that — where the delivery charge is perceived as worth the added value?

Amazon really only has one playbook — promising free. That leaves the field wide open for grocers to do something better — and do it economically wisely.

Grocers must rethink, realign, and replan their businesses to better compete with Amazon. The grocery business model has not fundamentally changed in decades and now must handle rapid modernization and rapid change due to COVID-19 and competition. Amazon has the advantage of technology and white sheet planning. Grocers must fight a battle on two fronts: offering an excellent consumer experience in-store and an excellent user experience online. AI-enabled supply chain planning to better handle demand may help on both fronts.

Independent and national chain grocers have had to adapt their supply chain operating model and infrastructure to meet the surging digital business. If they haven’t already, these companies need to become more fluid, empower their consumers to shop and engage seamlessly with the brand across all physical and digital channels.

Free grocery delivery are table stakes and it’s a losing sum game to only compete against Amazon without maximizing your brand, and what makes your grocery brand unique, authentic and differentiated. Having a physical store in the local communities matters more than ever.

The combination of value, service, prepared premium foods, localization, and personalization, along with flexible fulfillment options will help keep the independent grocers profitable, competitive and relevant in the race for consumer loyalty.

Grocers need to start seeing through their customers’ eyes and determine where they have gaps in the customer relationship. If you’ve added curbside pickup and online ordering, then you most likely need to ensure and improve inventory accuracy online to reduce substitutions. If you’re implementing delivery, rather than competing on “free” with Amazon, try to compete on something you can uniquely offer your customers that Amazon hasn’t yet done. What is your brand known for? Is it the quality of your produce? Is it prepared meals? Then focus on those items on your website for customers who shop online. Remind them if they’ve purchased those items before, why they should want to again. I have found some grocers have worked diligently to keep their shelf stable items well inventoried on their website but fall short on produce, fresh meats and, especially, prepared foods. Amazon hasn’t mastered those yet and it may be your best place to compete if it’s an existing strength to your brand. Now isn’t the time to trade to the bottom against… Read more »

Amazon currently has a limited number of dark locations and a small retail store footprint, compared to traditional grocers. To compete, grocers must build a multi-channel relationship with the customer segment that is most willing to shop online during the pandemic, and strengthen that relationship while the grocer still has a footprint advantage — which means more two-hour delivery, more prepared foods and building a personal relationship with the customer.

Sometimes when we get into discussions on these topics, I am hearkened back to the famous quote from the early-1900s: “Everything that can be invented has been invented.” We must look at the trajectory of technology, both digital technology and physical technology. And if we look to map the improvements in cost savings and labor savings, we would see an accelerating rate of change. Let’s take just about anything in our everyday lives. Compare the TV we have today, both physically and digitally, and cost wise, and how we watch them, with what we had 10 years ago. Now apply that same acceleration to what ultimately will cut costs and labor in a grocery store, too. In fact, what will make it considerably more profitable to sell groceries (and even deliver groceries) online rather than having the expense of in-store labor, physical stores, inventory management, and every other little challenge that comes with a grocery store. The previous chairman of General Motors predicted that by 2030 we won’t even be owning our own cars. If… Read more »

Free is such a low profit experience. Amazon is perfectly happy to lose money for years building share and driving competition out. They also have that membership fee that supplements “free,” and a substantial capital budget to spend on automation. Walmart is also offering free with annual membership fees, which leaves the rest of the pack with some pretty significant challenges, in an industry where price and promotion are the usual weapons. The supply chain is, of course, a given — the hard part will be the “fulfillment chain” and getting groceries to the curb or the customer’s doorstep cost-effectively, when the reward is the same margin on the shopping basket that would have occurred in-store. I suspect the only way to do this and stay in business is to mix some higher margin items into that delivery. Would you care for a pizza or a hot meal with your order?

Two areas to focus on are data and distribution locations. With the right data, unless there is a major swing in conditions (such as a pandemic), the ability to predict inventory levels is crucial. The second area of focus is location of distribution. It’s obvious you don’t need to distribute out of every location, so which one meets the best needs of the geographic location of customers and the infrastructure (roads) – just to start with.

Look, the simple answer is that it is past time to redefine the rules of the game. How can a retailer compete head-to-head with Amazon on delivery? They really can’t, at least not for “free.” But “free” isn’t really all that free, since you have to be a Prime member to qualify for many Amazon perks, and Amazon economics are much different from those of traditional supermarkets. So it’s time to think outside the overly-cliched “box” and think about outsourcing services and/or co-opetition models where distribution systems are shared with direct competitors, maybe even Amazon itself.

Let’s not so easily forget Amazon’s epic “grocery” ecommerce failure just a few months ago with Pantry (shutting down) and their utter inability to deliver basic “essentials” up to 4-5 weeks regardless of the Prime promise early in the COVID crisis. Simultaneously, traditional grocery retailers replenishment response times were far superior both in-store and online crushing the Death Star with much deeper inventories and replenishment capabilities. Frankly, Amazon still seems puzzled by grocery, having played around the edges (unprofitably) for nearly two decades (yes, nearly 20 years). Finally, taking the plunge in brick and mortar, acquiring Whole Foods 3 years ago that most would have to admit seems to still be “an experiment and learning platform” at best. Not that Amazon won’t figure it out, they most certainly will. But it will most likely be at the expense of mom and pops and weak regionals that will lose. Grocery leaders like Walmart, Kroger, Albertsons, Tesco, Loblaw’s, HEB, Wegmans have not been sitting on the sidelines when it comes to investing in data and technologies —… Read more »

Just trying to add technologies and processes to a traditional retailer will ultimately be a failed exercise to “compete” with Amazon. What’s required is a cultural shift that puts the customer at the center, not the store or any other part of the business. Instead of just adding on ecommerce to everything that has always been done, a true culture of innovation will need to ask new questions about how to best serve the customer and find new answers that potentially build new parts of the company or jettison others. When we get to the heart of where a company makes decisions from (their culture), we can make real, sustainable and even transformational changes in a relatively short period of time.

I think it is time for grocers to commit to micro-fulfillment, semi-dark stores to compete. Two leaders in grocery are moving to robotic micro-fulfillment with HEB’s announcement last week and Krogers Ocado Customer Fulfillment Center (CFC). These robotic fulfillment solutions are cost effective and give retailers not only the tools to compete, but to win. We can’t sit back and wait for Amazon to put us out of business. We must fight like our lives depended on it — and they do.