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




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.
- Study of American Grocers Uncovers Opportunity in Competitive Market – RELEX Solutions
- Amazon Fresh grocery store opens touting low prices and cashier-free checkout – RetailWire
- Is Whole Foods’ e-grocery business headed down a dark path? – RetailWire
- Will Amazon install distribution hubs in malls across America? – RetailWire
DISCUSSION QUESTIONS: How can traditional retailers, particularly grocers, best improve their supply chains to compete with Amazon? What technologies and processes are most effective?
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23 Comments on "Grocers are primed to compete with Amazon’s free grocery delivery"
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Principal, SSR Retail LLC
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.
President, b2b Solutions, LLC
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.
President, Protonik
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.
President, Wunderman Thompson Commerce Marketplace Services
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.
President, Protonik
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.)
President, Wunderman Thompson Commerce Marketplace Services
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.
President, What Brands Want, LLC
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.
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
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?
Strategy & Operations Delivery Leader
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.
Retail Transformation Thought Leader, Advisor, & Strategist
Chief Data Officer, CaringBridge
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.
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Retail Strategy - UST Global
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?
Chief Amazement Officer, Shepard Presentations, LLC
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.
Contributing Editor, RetailWire; Founder and CEO, Vision First
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.
Founder, CEO, Black Monk Consulting
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.
General Manager, Retail & Consumer Goods, Cloudera
Co-founder, CART
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.
CFO, Weisner Steel
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.
Managing Partner Cambridge Retail Advisors
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.
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
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.
Digital and Physical Commerce Thought Leader, enVista
Owner, Tony O's Supermarket and Catering