Grocers are primed to compete with Amazon’s free grocery delivery

Discussion
Photo: Giant Food
Sep 22, 2020
Andrew Blatherwick

In October 2019, months before the coronavirus crisis hit, Amazon.com made a strategic decision to offer free grocery delivery to those in the U.S. with a Prime subscription. This step was another sign that Amazon was actively working to establish itself as a serious player in the grocery space.

When it rolls out a new service, Amazon gets a great deal of attention. The trouble is that rival retailers often find themselves on the defensive even if they already offer similar, or better, benefits. In a survey of North American food retailers conducted by RELEX and EnsembleIQ last year, nearly half said they think Amazon is taking market share.

Traditional grocers need to regain their confidence and compete with Amazon. It certainly isn’t the only business to provide online ordering and delivery of fresh groceries, but its significant investments and assets give the impression of being unbeatable. Rival grocers, however, have many advantages over Amazon (and often match its offering). They just need the right foundation in place to leverage those advantages.

A robust supply chain infrastructure to support online shopping, which follows very different patterns than in-store, is critical for competitive success. If grocers that pick online orders from local stores rely only on in-store forecasts, they cannot replenish shelves accurately enough to meet demand from both channels. Customers placing online orders and shoppers in the store are more likely to encounter out-of-stocks and bounce to a competitor.

The best remedy is to generate separate, automated, data-based demand forecasts for each channel and bring them together in the supply chain plan. Appropriate investments will allow grocers to make the most of their long-established differentiators, such as having established stores that can make ultra-fast deliveries of fresh items.

Amazon, as we’ve seen, is opening its own mainstream Fresh concept as well as operating Whole Foods and 100 percent dark store locations. All of the above are being used to support grocery deliveries. Amazon has also reportedly had discussions to set up fulfillment hubs in local and regional malls. These too may be used to support Amazon’s grocery ambitions.

The pressure is on for grocers to build up their supply chain and forecasting capabilities while keeping the promotion of their strengths at the forefront of their marketing activities. Doing so will enable them to maintain their reputation as a reliable choice for both online and in-store shopping, now and in the future.

DISCUSSION QUESTIONS: How can traditional retailers, particularly grocers, best improve their supply chains to compete with Amazon? What technologies and processes are most effective?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Grocers should look at this competition strategically. Amazon is emphasizing 'free' and little else. The smart grocer will reject free — and deliver added value. "
"What’s required is a cultural shift that puts the customer at the center, not the store or any other part of the business."
"Frankly, Amazon still seems puzzled by grocery, having played around the edges (unprofitably) for nearly two decades (yes, nearly 20 years)."

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23 Comments on "Grocers are primed to compete with Amazon’s free grocery delivery"


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Jeff Weidauer
BrainTrust

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.

Steve Montgomery
BrainTrust

The pandemic change e-commerce from a needed to win to a needed to play. Once consumers tried it they found they liked it and regardless of the time frame it takes to beat COVID-19 many consumers will continue with their new shopping patterns.

Doug Garnett
BrainTrust

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.

FrankKochenash
Guest

Amazon has always prioritized convenience; not price and not “free.” Convenience in the future will almost certainly require a mixture of local physical stores and excellent online purchasing and delivery capabilities. Grocers of the future, whatever their name, will need both and they will need them to work together seamlessly.

Doug Garnett
BrainTrust

From my perspective, they might think “convenience” is what they’ve prioritized. But they’ve only won in the market with “free.” And that puts Amazon in an incredibly weak position — if a retailer gets smart and cracks the code on a paid service. (Amazon continues to lose vast sums from their “free” commitments.)

FrankKochenash
Guest

Amazon Prime is not free. There are somewhere around 100 million Prime members in the country that are willing to pay for it. Amazon’s North American segment (which excludes AWS) generated $27 billion in operating income over the TTM. By comparison, Kroger generated $3 billion. Amazon is succeeding by selling convenience. Grocers that want to compete well against Amazon need to understand that.

Michael La Kier
BrainTrust

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.

Gene Detroyer
BrainTrust

Absolutely, and the grocer should tear up the blueprints and also adapt “white sheet planning.” Let’s take that blank piece of paper and design the business for 2025. What would we come up with?

Brandon Rael
BrainTrust

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.

Ricardo Belmar
BrainTrust
Ricardo Belmar
Retail Transformation Thought Leader
2 months 2 days ago
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 »
Mark Price
BrainTrust

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.

Gene Detroyer
BrainTrust
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 »
Peter Charness
BrainTrust

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?

Shep Hyken
BrainTrust

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.

Patricia Vekich Waldron
Staff

A combination of think big (Distributed Order Management including suppliers) and think small (local assortment, promos) will help retailers offer more convenience and value customers.

Ryan Mathews
BrainTrust

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.

Brent Biddulph
BrainTrust
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 »
Sterling Hawkins
BrainTrust

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.

Craig Sundstrom
Guest

What share of grocery does Amazon have? Two percent … three percent? (I looked it up and the answer was ~30% of online — and falling — so that should be applied to the contentious figure we had the other day for online overall.) Most of that presumably through Whole Foods. So perspective is in order here.

Yes, retailers should sharpen their game to compete with Amazon … along with every other competitor, and not necessarily in that order.

Ken Morris
BrainTrust

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.

James Tenser
BrainTrust

Agree. Tacking on new inventory management and order fulfillment processes to stores built for the self-service paradigm of the 1950s leads to high costs and service compromises.

“Semi-dark” stores — with the fresh foods party in the front and the micro-fulfillment business in the back — could well be the winning approach.

I’d go a step further to incorporate a super-efficient delivery process using a “bus-route” arrangement that covers neighborhoods around each store twice a day. Then offer to co-deliver orders for other local retailers, dry cleaners, pharmacies, etc.

This would put the new supermarket front-and-center in customers’ daily lives.

jbarnes
Guest
First and foremost, nothing is “free” in this world and “free” is typically a race to the bottom strategy unless you are providing some additional value that the customer wants. If you want to compete against Amazon, you do it by providing the customer a better experience and you manage the the customers expectations. You then have to build out operational excellence that keeps the promise that you make to the customer. Why do customers pay for PRIME ($125/year)? It is because Amazon delivers your order 99.5% of the time within 2 days or better. Stated differently, would you pay $125/year if they set the expectation to deliver in 2 days and delivered your order in 3 or 4 days? The point is that ANY retailer is required to set expectations and execute against it. As it relates how to compete and WIN against Amazon: 1) create a better experience. Wegmans for example does not see themselves as a grocery store chain. They raise the bar on the shopping experience: the best quality; a spectacular… Read more »
Tony Orlando
BrainTrust
As someone who lives this life everyday, there are many more issues to consider, when you are trying to compete for the retail grocery dollars. Amazon, Walmart, Costco, Target, and Dollar General are huge multi-billion dollar companies, and almost forgot Aldi, who are continuing to expand everywhere, and Kroger as well. There are many independent grocery store owners across the country, who grew up in the family business, and for the most part, many of them were center store owners, with very little perishable skills, relying on there employees to manage these critical departments. This puts them at a huge disadvantage, as growth comes from meats, deli, bakery, alcohol, and signature foods. Delivering groceries for independents would come at a great cost, and there is no way they can match Amazon with their free shipping, regardless of the actual cost of product. Most of you know what I do, but for those who do not, this is my advice to the independents and small regional groups of stores, if they want to stay in this… Read more »
wpDiscuz
Braintrust
"Grocers should look at this competition strategically. Amazon is emphasizing 'free' and little else. The smart grocer will reject free — and deliver added value. "
"What’s required is a cultural shift that puts the customer at the center, not the store or any other part of the business."
"Frankly, Amazon still seems puzzled by grocery, having played around the edges (unprofitably) for nearly two decades (yes, nearly 20 years)."

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