Faye Algazzali (right), an owner of Gazzali’s Supermarket in East Oakland, rings up purchases for customer Jonell Walker.
The future is almost in the bag — even for this East Oakland supermarket that stands in a strip mall behind an Auto Zone.
“Our customers would always bring up: ‘Hey, do you guys deliver?’” said Rahban Algazzali, owner of Gazzali’s Supermarket where about 2,200 customers circle in and out on an average day.
Algazzali would periodically look into setting up a delivery service for online shoppers, but he was discouraged by the costs: He would need a van, insurance, extra staff. But as Bay Area startups like Instacart and Postmates and competing services from Amazon and Google began making grocery deliveries seem routine, Algazzali eventually had to give in.
He had good timing. Shortly after he paid Indemand, a Bay Area startup serving small grocers, to build his online store and contract out the delivery work, Amazon bought Whole Foods for $13.7 billion — a deal that experts say will shake up a traditional industry and accelerate demand for online food shopping.
“With the nature of our lives right now, we’re all so busy that I hardly even go shopping anymore,” Algazzali said. Stores waiting to go online “are just wasting time. If we don’t offer online shopping to our customers, then they are gonna go shop somewhere else.”
Shifts in the industry matter because food shopping is central to our everyday lives. The grocery industry employs more than 3 million people in the U.S., and accounted for more than $660 billion in sales last year, according to the Food Marketing Institute. Nielsen projects that online grocery shopping will make up 20 percent of all United States grocery shopping by 2025, accounting for $100 billion in annual sales.
But experts expect that time frame to tighten as Amazon’s deal with Whole Foods hurtles the industry toward a future where everyone from conglomerates to the local butcher is expected to provide online delivery.
“We really see where the market is headed,” said Alex Saidani, CEO of Indemand. “Customer buying behavior is changing, and Millennials don’t necessarily want to go into the store. And if they do, they just want a better experience.”
Saidani said he is excited about the Amazon deal because it will encourage smaller retail stores — like Gazzali’s — to make the move online. Indemand caters to midsize independent and ethnic stores that he says are typically underserved when it comes to technology.
However, people have been attempting to master online grocery deliveries for two decades. The industry also comes with the cautionary tale of Webvan, an online grocery business that promised 30-minute delivery. Amazon backed a rival, HomeGrocer, which merged with Webvan in 2000; the combined company went bankrupt in 2001 after a lot of hype and rapid expansion.
Photo: Leah Millis, The Chronicle
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Manager Wallace Miles stocks shelves at Gazzali’s in East Oakland. The market has recently added online ordering and delivery.
“It was the highest-profile failure of the dot-com bust,” said Arun Sundararajan, a New York University business professor. He said Webvan made a number of mistakes, including its focus on suburban areas where drivers had to travel long distances between deliveries. For a while, www.webvan.com redirected to Amazon’s grocery website, but the domain now appears to be dead.
Today, the market is much different, Sundararajan said: “The excitement around the on-demand economy, coupled with the fact that everyone can be a delivery person because everyone has a smartphone,” changes the economics.
Amazon has been in the grocery delivery service for more than 10 years, yet has less than 1 percent of the grocery market. If the deal with Whole Foods is completed by the end of the year as planned, it will have 460 stores that can be both retail destinations and distribution centers.
News of the deal sent stocks for traditional grocery sellers like Kroger, Walmart and Costco tumbling, and put a spotlight on a sector that has been largely ignored.
“The grocery store segment has gone from being watched by a few nervous nellies ... to just about everyone in the commercial real estate market,” according to a June report written by data analytics firm Trepp.
Amazon-Whole Foods will be a formidable competitor, experts said. That’s a mixed bag for startups, who may find themselves picking up new customers fearful of the Seattle giant. Companies like Instacart — whose workers pick up groceries for customers and deliver them to their doors — say they have already benefited through expanded partnerships with major retailers like Publix, Wegmans and CVS.
“This is absolutely a validation that grocery e-commerce is here to stay,” Nilam Ganenthiran, Instacart’s chief business officer, said in an email. “Every time Amazon comes to town we hear from retailers who want help competing. Instacart is ready, willing and able to help, and we’re already seeing the effects.”
Analysts see Amazon-Whole Foods giving shoppers a range of choices — the ability to touch produce before they buy it, or tap an app and have it delivered.
Photo: Leah Millis, The Chronicle
Produce manager Rafael Cisneros restocks greens at the store, which has about 2,200 customers daily.
But there is a cohort of companies that swear by the online-only model.
One of those is San Francisco’s Good Eggs, which delivers produce fresh from farms to customers’ homes. CEO Bentley Hall believes that if people trust the brand, they won’t feel a need to pick out fruits and vegetables themselves.
“The grocery industry is way too fragmented,” he said on a recent afternoon, walking up and down the aisles of the Good Eggs Hunters Point warehouse. He stopped and held up a vibrantly green bed of lettuce: “It all goes down to trust on great quality.”
Algazzali, on the other hand, has no plans to give up his brick-and-mortar locations in Oakland anytime soon. His stores cater to African American and Latino communities, and some customers travel dozens of miles for products they can’t easily find elsewhere.
But, he said, when his customers can’t get to the store, they have the option to get it — with the touch of a button.
What will the grocery business look like in 5 years?
Recent moves by Lidl, Aldi and Amazon are sending tremors through the food distribution/retailing business that will result in major changes over the next 5+ years, and the question on the minds of many is: What will the grocery business look like in 5 years? Here’s what we see happening.
The ominous wild card
Amazon and the growth of hard discounters are going to suck a lot of oxygen out of the grocery market in the next 5 years, but by far the biggest and most ominous wild card is Amazon. With its offer to purchase Whole Foods, Amazon’s market position shifts from “outsider competition” to “one of us,” raising a lot of uncomfortable questions.
Will Amazon invest in lowering prices to drive more business to Whole Foods?
What else does Amazon plan to do with Whole Foods?
How will brand manufacturers be impacted by Amazon’s purchase?
We’ll return to changes in the competitive landscape later in this piece, but first we’re going to tackle an even more crucial topic – how consumers are changing. Because, how well you pay attention to consumers’ changing needs will mean far more to your survival than focusing on your competition.
Emerging Consumer Segments
Three consumer segments are emerging from the fragmentation that’s been eroding the mass market for two decades. Here’s a look at those segments, what motivates them, and what percentage of market share we believe they will represent in markets served by the full range retail options in 5 years. (Local markets with limited options will differ.)
1. Savings Superfans: 12% in 5 years, growing to 15% longer term
These consumers are willing to make tradeoffs in return for spending significantly less on food and groceries, and they will be strongly attracted to hard discounters.
Already, hard discounters’ market share is approaching 15% in the UK, and in the US, growth in this segment will accelerate – driven by the combination of new, larger Lidl stores and Aldi’s major investment in new and remodeled stores. For two years Bill Bolton and I have been studying the progress of Aldi and Lidl in this country, and we estimate their combined sales will reach $50 to $65 billion by 2023.
2. Traditionalists: 55% in 5 years, 47% farther out
Traditionalists are generally satisfied with current grocery options, but they don’t want to overpay. They are strongly attracted by retailers that carry a mix of aggressively priced national brands and private label products.
Walmart will be the big dog in the middle market. We don’t believe it’s possible for Walmart to match hard discounter pricing, and as industry consolidation continues, they are likely to become the default choice for shoppers who want national brands but don’t want to overpay. Walmart is in a strong position: It currently serves about 15% of the total US grocery market, it has a large store network, and it’s making a significant investment in both the in-store and online shopping experience.
3. Service Seekers: 33% of market share in 5 years, 38% farther out
These consumers are focused on value received and are willing to pay (though not necessarily overpay) for that value. They seek out products that are curated to support their values (like organic), and/or services that deliver solutions (like meals vs. ingredients) or save time (like online ordering, click and collect, delivery, and subscriptions).
Service Seekers will be attracted to a range of innovative retailers – independents that have pivoted to selling more food than groceries, the Amazon/Whole Foods nexus, and retailers like Sprouts and Wegmans that have forged strong relationships with their core customers.
Now for the competitive landscape
Although consumers will step outside their segment to satisfy certain needs, overall, each segment will be attracted to certain types of retailing. Competition within each segment will be intense for retailers – but competition between segments will be less so. The hard discounters will have a natural monopoly with Savings Superfans; with their efficient, private label supply chains, they will be nearly impossible to beat on price. Among Traditionalists, Walmart is in a strong position to increase its share as weaker players with similar offers (mainly national brands plus some private-label) drop out.
The competition for Service Seekers, will be intense and fast-paced. Success will require three things.
strong relationships with customers
excellent use of data to track changing tastes and values
agility, i.e., planning timetables that enable fast response
What will Amazon do?
Amazon will focus on competing for share within the Service Seeker segment with whom its offer resonates most strongly. We expect Amazon will:
Invest in lowering prices at Whole Foods for both in-store and online purchases.
Leverage the Whole Foods brand to improve its reputation for fresh foods, and leverage Whole Foods’ refrigerated supply chain/retail infrastructure to deliver against that promise.
Move to integrate online and in-store purchases for a seamless experience that includes significantly more Amazon private label products.
Actively develop and bring innovative new products to market, especially in the hot, fast growing areas of natural and organic.
What should you do now?
First decide if you want to stay in the game. This is not a throwaway question, and it deserves serious consideration. Second, if you decide to stay in, then you need to commit to the segment whose needs you can serve.
Finally, no matter which customer segment you serve, all retailers and suppliers will need to become more agile and nimble. Everyone will need to use their data to build stronger relationships with customers and to develop planning systems that allow them to respond more quickly.
In my career, there have been many things I am fortunate enough to be proud of. Yet one of the things I feel most strongly about is the culture we created during the ten years I was at Aetna, and its enduring impact. In my experience, it is the leader – the CEO – who plays the crucial role in creating and “owning” an organization’s culture, setting the tone, and executing on that consistently. We know a culture doesn’t just happen; it is the result of what you do every day.
I believe in the power of a positive, high-performance culture, which begins with strong ethical values at the core. When I was at Aetna, we worked to create the culture and values with input from our then ~40,000 employees. We felt having employee insights early and often in the process was critical to our long-term success.
The single most important business reason to create a positive high-performance culture is the level and value of information leaders obtain when people are willing to discuss issues and problems. We know failures happen. When they occur, the leader needs to know what happened and what to do. In a negative culture people may try to cover mistakes and problems, and that undermines any real shot at performance improvement. In a positive and supportive culture, people will be more open to having fact-based discussions about problems, thereby allowing leaders to address those issues head on. As I have said many times, people are much more interested in meeting expectations than demands. Your corporate culture: is it what you think it is?
I was at Aetna during a time of massive change. We were losing $1 million per day on average, and rapidly losing the confidence of members, customers, brokers and investors. Doctors were furious with us. We had also lost the support of our employees. We soon learned that they were demoralized and beaten down because of the poor performance of the company, the strained relationships with our constituents and the constant negativity in the media. Many of our employees were embarrassed to work for Aetna. We could not be successful in rebuilding the company without employees who were engaged and committed to the company’s success. Employees were our most important assets on our path to rebuilding. My job, and the job of the entire leadership team, was to re-engage the employees. Part of that came from working to fix the company so that we could see performance improvements. But we also needed to understand what led to this dysfunctional state.
Something I realized early on in my career: if you ask a leadership team what the culture of a company is, you will get an answer. But the real answer is how the company’s employees answer that question. The CEO’s responsibility is to get alignment between those two answers.
We began a series of activities to communicate with employees, including educating them on the reality of our business and its substantial challenges. We also asked for their input. Working with an outside firm, we developed a survey that was distributed to the entire employee population. And we found that our employees had a lot to say. The first year we conducted the voluntary survey we achieved close to a 90% response rate. We also talked to our employees through focus groups and we took what they told us and created company values, which reflected the beliefs of employees at all levels of the company. We reinforced the legitimacy of the values by using them every single day, but also by incorporating survey action items within our business plans each year. Over time, our management team members were held accountable for improvement on survey action items, and their compensation was tied to their performance related to these survey action items.
We probed a number of areas in the survey, but as just one example, we asked whether employees believed that the company was acting in accordance with its values, and whether in fact their own department and their own leader was. We placed a high value on leadership capability, and for performance evaluations of leaders, it was weighted as important as their business results.
The surveys, among other programs, became a regular part of how we communicated about culture and values, as well as a marker for how and whether our employees felt the same as we did about our culture. Setting the right tone at the top is key. Consistency makes it work.
Much of a leader’s responsibility in creating a positive high-performance culture is setting the right tone, and acting on it consistently. That day-to-day execution – the tenor and tone – really makes the difference. With one deviation – one exasperating meeting – the CEO can legitimize bad behavior.
A way to reinforce the tone at the top is for the CEO to be clear on his or her expectations of their leadership team. While the CEO drives the culture, they can’t do it alone. The leadership team needs to be actively engaged in and supporting the culture, and the employees need to believe that their leaders are committed to the culture.
Another critical element in setting the tone is handling performance management. However the CEO models and communicates his or her expectations is how people will be held accountable. When conducting a business review in a setting with other executives watching, if results clearly committed to were not achieved, how does the CEO react and respond?
The CEO’s challenge is to signal that failure to achieve business goals is a serious offense for which people will be held responsible, but not at the expense of the person’s character. An example might be, “You missed the goal, you’re not a bad person but you didn’t do what you said. Let’s talk about what we could have done differently, or what we need to do differently going forward.” These are teachable moments, and not just for the person or team most closely involved. Everyone listening will learn both more about the specific issue at hand, but also what accountability means at their company, and how it will be handled when things don’t go as planned. Understanding the role of the Board in leading from the top.
Since the responsibility for fostering a positive high-performance culture is the CEO’s, that creates a critical responsibility for the Board: to identify a CEO candidate with the right skills, values, and “touch,” and to work with the incumbent to make sure that all those qualities are appropriately deployed. Directors should be mindful of the elements of CEO performance that bear on culture.
The challenge for the Board is that Directors do not spend time with the executive in a routine operating environment – it’s not their job. Yet they must figure out whether the CEO is behaving consistently with the company’s values and its espoused culture, and whether he or she is doing so consistently.
In my experience, there are a few ways for the Board to develop those necessary insights. One is through interaction with other senior leaders rather than solely with the CEO. A second, and in my mind critical element is getting access to metrics. A well-conceived and well-constructed employee survey can be extremely valuable. It can open a window on employees’ cultural and emotional health, and reveal their perspective on the values of the organization. The survey allows Directors to determine whether what they think they see in the CEO and leadership team matches what the organization is experiencing. There may be times for the Board to act on this information – whether by articulating goals, making clear demands, or making a change, to ensure the long-term success of the enterprise.
Ultimately, a high-performance culture is about accountability, and performance is the focus. There may be consequences and breakage, and some people will be let go. In a positive, high-performance culture there should be clarity about what is important for success among all involved, from leaders to the front line. In the best cases, there also is a shared understanding of values and behavior. A positive culture is a high-information culture, and that is a good recipe for strong company performance and employee success.
Grocery Loyalty Program Memberships Continue Decline
M&A activity responsible, but situation can be remedied
Although growth of loyalty program membership has continued, reaching 3.8 billion, this year’s edition of Colloquy’s Loyalty Census shows that it slowed 11 points to 15 percent since the 2015 edition. And while several factors have been at play, grocery program memberships have contributed to this, dropping to 142 million from 88 million in 2015, continuing a downward trend in three consecutive reports.
The findings, presented by Toronto-based loyalty program and analytics firm LoyaltyOne, show that the 24 percent decrease in grocery program memberships is actually due in part to the many mergers and acquisitions in the sector. It also shows a need to continue offering enticing reasons for consumers to become members.
“The membership growth slowdown signals the U.S. loyalty market is maturing and retailers need to up their game on how to attract and retain members within their loyalty programs,” said Melissa Fruend, LoyaltyOne global solutions partner and author of the Colloquy Census, put out by LoyaltyOne’s independently operated Colloquy arm. “In order to improve loyalty marketing, brands must optimize the overall experience by creating more personalized and relevant experiences for their best customers.”
When looking at attributes that best keep consumers happy with and participating in a loyalty program, the 2017 research shows that 53 percent cite “easy to use” as the main one, even greater than “gives me discounts” (39 percent) and “easy to understand” (37 percent), both of which should also be considered by grocers, among other reasons. Conversely, grocers should take note of the greatest barrier to sticking with a program: “It took too long to earn points or miles” is the top reason for abandoning, with 57 percent of respondents citing that issue.
Additionally, the Colloquy Census shows that trust might not be as low as some think: Just more than half (51 percent) of Americans still trust loyalty programs with their personal information.
The nation’s largest drugstore chain doesn’t expect to see online retailer Amazon jump into the pharmacy business anytime soon, given the complexity of the prescription and healthcare industry.
Responding to recent reports that Amazon is looking to get into the pharmacy business, Walgreens CEO Stefano Pessina seemed to caution about any such new rival. He made his comments about the online retail giant the same day Walgreens Boots AllianceWBA -0.54% said it would buy 2,186 Rite AidRAD -8.65% stores for $5.2 billion to become an even bigger brick-and-mortar drugstore chain.
“Honestly, I don’t believe that Amazon will be interested in the near future...in this market,” Walgreens CEO Pessina told analysts Thursday on the company’s third-quarter earnings call. “They have so many opportunities around the world in many other categories, which are much, much simpler than healthcare, which is very regulated business.”
To be sure, Amazon less than two weeks ago announced plans to spend $13.7 billion to buy brick-and-mortar grocery chain Whole Foods MarketWFM +0.01%, which operates in a seemingly less complicated environment than healthcare.
Any competition from Amazon comes at a time Walgreens and CVS HealthCVS -0.24% are forming closer ties with government and private health insurers and employers looking at better ways to coordinate the delivery of medical care.
The trend in healthcare is toward value-based models and population health that require pharmacies to have relationships with doctors and other providers in the community that have existed for decades. And it’s the physicians in the health plan networks who write the prescriptions that Amazon would need to become a pharmacy growth story.
Some argue Amazon could make some inroads by getting into mail-order pharmacy. Walgreens made no comment on any potential Amazon could have in any aspect of the pharmacy business, but wouldn’t rule out a future partnership.
The Online Grocery Industry Just Won Big In Amazon's Whole Foods Acquisition
POST WRITTEN BY
Jagpreet Singh
Vice president of business operations at Taro Inc., a Silicon Valley startup.
Amazon’s recent $13.7 billion acquisition of Whole Foods will have many pros and cons for the online grocery industry. It will establish Amazon as a clear leader in this space, and the entire online grocery delivery industry will benefit.
One of the challenges in this industry today is low adoption rate. Depending on who you talk to, online sales for food and grocery is 1-2% of this $781 billion market in the U.S. Compare that to e-commerce, which has 10% penetration, and online travel, which has 40%. Whole Foods and Amazon will accelerate online grocery delivery adoption and will allow Amazon and others to figure out solutions to the challenges that will come along the way. Main Adoption Barriers
Some of the key barriers to adoption have been delivery fee premiums, trust in the source of online grocery, and targeted access to early adopters. The Amazon-Whole Foods deal has elements that will enable consumers to overcome these barriers and allow buyers to get comfortable with the idea of online grocery shopping. These key elements include Whole Foods' impeccable brand in the grocery industry, its store locations in affluent urban neighborhoods, and Amazon Prime customers.
In Whole Foods We Trust: When buying produce, people want to buy from a source they trust. That’s what led to the birth of Whole Foods, and it has been able to keep building that credibility and trust among its customers. By bringing Whole Foods brands under its umbrella, Amazon has now acquired that trust. Next time Amazon delivers an online grocery order, it just needs to leverage the Whole Foods brand to get first-time buyers more comfortable with the idea of buying tomatoes without actually seeing them.
Delivery Fees: Whole Foods stores are located in more affluent and urban neighborhoods where residents have a need to get their groceries delivered and are willing to pay a premium for the service. The fact that they can get it on-demand from the nearby Whole Foods store will further aid adoption. This was perhaps the reason Whole Foods invested in Instacart. Delivery costs may ultimately come down but the people living in Whole Foods neighborhoods are not going to wait until $2-$3 are knocked off their tabs. They will adopt right now because they have the need right now. Strength In Numbers: Amazon's estimated 65 million Prime members represent a segment that has already leaned toward online retail versus brick and mortar. With a little tweak in its AmazonFresh membership, Amazon will leverage this huge customer base to buy more and more groceries online. Once consumers get comfortable with the idea of getting their groceries delivered, they will be willing to pay a premium for these added benefits to their existing membership. As more and more Prime members adopt online grocery delivery, Amazon will be able to generate insights into these customers and apply them to convert more customers.
Of course, Amazon is going to be the biggest beneficiary of this $13 billion purchase. But once consumers adopt the idea of more grocery delivery, the entire industry will benefit. Perhaps we will see Kroger, Safeway and other competitors seek out Instacarts to acquire these early adopters together. Once we start seeing adoption in double digits, then the problem marketers will need to solve is how to keep customers sticking to their platform.
Lidl, Aldi at price parity, study shows
Walmart, Kroger beaten at the shelf but closer on fresh
Prices at Lidl’s stores during its opening week were running between 5.7% to 10% cheaper than neighboring Wal-Mart Stores, nearly 15% lower than Kroger stores but nearly at parity with Aldi, a pricing study conducted by Deutsche Bank showed.
Analysts from the bank conducted the study at three of the 10 Lidl stores that opened earlier this month in Greenville, Sanford and Raleigh, N.C., along with nearby competitors in those markets.
The study confirmed that Lidl’s arrival represents an incremental price threat — but not necessarily a new one — to traditional grocery sellers that have been defending against Lidl’s hard-discounting counterpart Aldi for some time, and showed Lidl’s price advantage was generally greater in center store items than in fresh. It would also suggest Aldi and Lidl are keeping a close eye on one another and could compete for many of the same shoppers in the markets Lidl enters.
“Lidl’s entry and continued expansion … will be a challenge for existing competitors, but the offering may not prove to be as disruptive as some fear given that hard discounters have been in the U.S. for many years and have not resonated with U.S. consumers in the same way as with European consumers,” the report, authored by analysts Paul Trussell and Shane Higgins, said. “Most of the disruption will likely be around the grand openings, as curious shoppers line up to see the new stores, pulling traffic from competitors.”
Deutsche Bank’s basket studies revealed the following results:
• In Greenville, Lidl was 10% cheaper than a Walmart Neighborhood Market on a basket of 46 items ($70.61 vs. $78.48), with Lidl having a lower price on 41 of the 46 items. The differences were narrower on fresh items, where Lidl showed 8.5% advantage on price.
• The same Lidl store in Greenville was priced nearly at parity with a neighboring Aldi, with a total basket of 44 items being $68.75 at Lidl, 0.7% higher than the $68.28 price at Aldi. Within fresh items, Lidl held a 0.5% advantage. Analysts noted that three items in the study at Aldi had temporary markdowns that accounted for the entire difference between them.
• In Sanford, Lidl beat a Walmart Supercenter by 5.7% overall and by 8.1% when excluding national brands on a basket of 53 items. Lidl’s advantage was far less when limited to dairy items, with only a 1% price edge achieved on 8-ounce cheeses ($1.69 vs. $1.74), while milk (skim, whole and 1% gallons) and Grade A Large eggs were at identical prices ($2.78 and $1.18, respectively).
• In Raleigh, a basket of 40 items at Lidl cost $63.17 — or 14.6% cheaper than a $74 basket of the same items at Kroger. As in the Supercenter study, Lidl’s price advantage in fresh items was considerably narrower (1.1%), with Kroger offering lower prices on milk ($2.39 at Kroger for 1-gallon skim, whole and 1% milk vs. $2.75 at Lidl), the study found.
Amazon’s New Echo Show Has A Decent Chance Of Taking Over Your Kitchen Counter
The $230 device adds a visual element to the Alexa. In the kitchen that matters a lot.
I have an Alexa Echo in my kitchen, but I’ve found it to be of limited use because it’s non-visual–it can hear and make sounds, but it can’t see and display images.
Amazon’s new Echo Show device (see our full review here) gives the Alexa brain both audio and visual senses. The device, which goes on sale for $230 Wednesday, does pretty much everything an Echo does, skills-wise—but for $50 more adds a camera and a 7-inch display.
While Amazon envisions the Show being used in your bedroom and living room, make no mistake: it’s optimized for your kitchen counter, where that 7-inch display is likely to be a crucial assistant in helping prepare meals and stock your fridge and cupboards.
“Say you use your voice to set a timer; now you can see how much time is left,” says GlobalData analyst Avi Greengart. “You might ask Alexa how many cups are in a gallon; now you can reference it (on the screen) a few seconds later, after you’ve forgotten the answer.” Many of us have turned to online videos to learn how to make new things in the kitchen, and the Show will be perfect for that, especially if there’s a skill that lets you back up or pause the video using voice commands. Right now the Show is mainly a front end for Amazon’s Prime video, but the video selection will grow as third parties create new skills.
Many people have a TV in the kitchen because they like to watch the news while they cook. The Show might eventually make the TV unnecessary, Greengart points out. Echo owners are used to requesting news briefings, based on news outlets they select in the Alexa app. Those flash briefings might now become video playlists instead of just audio clips.
Amazon is set to release new developer tools to video doorbell companies so that the image caught by the front door cam can display on the Show in the kitchen.
The Show will work well for family communications that are better seen than heard—things like notes, to-do lists, shopping lists, or the family “chore wheel.”
Although this isn’t available yet, the Show’s screen might be easier to use than voice for controlling connected home devices, too, Greengart says. That’s because the verbal commands for controlling Alexa-connected devices can get to be a mouthful, like “Alexa, turn on light number 7B in the living room north wall.” It might be simpler to just tap a button on the Show’s screen. The Show’s camera both detects people in the room (and wakes up) and is used for video chat with people on cellphones using the Alexa app. It can also be used as a sort of home intercom system, Amazon says, communicating with other Echos and Echo Shows around the house.
The kitchen is crucial—it’s where people tend to spend a lot of time and make plenty of purchasing decisions. Greengart says PC makers and others have for years tried to win a spot on the kitchen counter with various kinds of devices, without much success. Those devices had screens but didn’t have the Echo’s and Echo Show’s capability of hearing and understanding a voice command from across the room. That may set the Show apart.
Providing a kitchen counter device might be a good role for Amazon, Greengart points out, as opposed to one of the big platform players like Microsoft, Google, or Apple. Each of those companies is competing to get consumers to adopt their productivity services (calendar, email, etc.), so each may be less inclined to integrate of the other. Amazon, on the other hand, isn’t a platform play in that sense, so it might be more inclined to integrate with all of them.
There’s still a lot of things the Show can’t do. Right now the visual presentation of skills that have long been audio-only is limited. But expect Amazon and third-party developers to enhance the aesthetic quality and usefulness of the visual content.
And, of course, Amazon will make sure the Show offers many ways of purchasing products from Amazon.com. The Show, for example, is perfectly positioned as the front part of a system that lets consumers order groceries as needed at the kitchen counter to have it later delivered to the front door.
Thursday, June 29, 2017
Amazon’s Whole Foods Deal Adds Pressure on Grocery Services to Deliver
The impact of the e-commerce giant’s Whole Foods deal on online grocery services is still unclear, but one thing is certain: Competition is heating up. From Instacart to Peapod, firms are racing to gain a larger share of the fast-growing market.
By
Heather Haddon and
Julie Jargon
Even before Amazon.com Inc. put a supermarket chain in its cart, U.S. grocery delivery services were racing to grab hold of new regions, spending millions to gain a larger share of the fast-growing market.
Now, with the e-commerce giant planning to buy Whole Foods Market Inc. for $13.7 billion, giving it a large foothold in the food retail industry, the stakes are all the higher for companies such as Instacart Inc., Peapod LLC, Shipt Inc. and FreshDirect LLC to deliver not only fresh food—but continued growth.
Midwestern grocery chain Schnucks Markets Inc. is expected Thursday to announce its partnership with Instacart for online delivery will extend to most of its 100 stores by next month. Ahold Delhaize’s Peapod is expanding its push into New York City, a key market, after spending more than $94 million on a warehouse in Jersey City, N.J., in 2014.
Shipt, which delivers food orders for retailers including Costco Wholesale Corp. , Meijer Inc. and Whole Foods, intends to almost double its markets by next year, from 51 to 100. Founder Bill Smith says the company’s expansion is targeting suburban customers in less saturated regions like the South and the Midwest to gain an edge.
The largest U.S. food sellers, Wal-Mart Stores Inc. and Kroger Co. , meanwhile, are testing delivery services using Uber Technologies Inc. and Lyft Inc.
It isn’t clear whether Amazon acquiring Whole Foods will remake grocery shopping in much the same way the company has changed book-buying.
Concentrated in cities and surrounding suburbs, grocery delivery is still a small business, accounting for less than 2% of last year’s $715 billion in food-retail sales, according to food-services research and consulting firm Technomic Inc. Amazon already makes up more than half of online food orders through its Fresh, Prime and Prime Now services.
Seventy percent of respondents to a survey by supply chain consulting company AlixPartners LLP last year said they had no intention of having groceries delivered. Grace Herrera, a 59-year-old caregiver in California, said she’d rather spend time shopping than pay extra for delivery. “I have time to go to the store,” she said.
Margins also remain an issue. Razor-thin to begin with, they’ve dropped in recent years as falling food costs sparked a price war. And in the online world, the learning curve for how to sell fresh foods has created an added drain.
Ocado Group PLC, the biggest online grocer in the U.K. and one of the few public ones, posted its first full year of profits in its fiscal year ending in November 2014 and averages transaction sizes of $140 per order, compared with $32 for the typical brick-and-mortar supermarket, according to Barclays Capital Inc. But about 30% of Ocado’s fresh produce is wasted daily, a drag on margins and far worse than a traditional grocer’s average of 3%, the firm found.
Still, delivery is one of the fastest-growing segments of an otherwise sluggish supermarket sector. Online sales of consumables grew by 21% in 2015 over the previous year, according to the Willard Bishop grocery consulting firm.
The planned partnership between Amazon and Whole Foods is a new challenge for delivery services vying for that growth, said Bill Bishop, co-founder of Brick Meets Click, an e-commerce grocery consulting firm. Whole Foods’ 466 stores could serve as mini-distribution centers in densely populated, affluent areas; Amazon, which has demonstrated a willingness to forgo profits for years to build up market share, could use its e-commerce prowess to cut the specialty grocer’s prices to near those of its competitors.
“This gives them another way to drive up penetration in grocery purchasing and ultimately delivery,” Mr. Bishop said.
Peapod executives say that being owned by a large retailer like Netherlands-based Ahold Delhaize allows the delivery service to bargain with suppliers for lower prices. They add that Peapod is profitable in markets where it has operated for at least a decade.
A Peapod truck makes deliveries in New York’s Chelsea neighborhood in December. The Ahold Delhaize subsidiary is expanding its push into the city after spending more than $94 million on warehouse in New Jersey in 2014.Photo: Richard B. Levine/ZUMA Press
“We are the original online grocers and have outlasted many of the competitors who have come and gone,” said Jennifer Carr-Smith, chief executive of the Skokie, Ill.,-based company, which was founded in 1989 and took its first orders by fax.
FreshDirect didn’t respond to requests for comment.
Brick-and-mortar supermarkets are wrestling with whether to invest in their own delivery services, cede profits to startups or risk losing more business to Amazon. For grocers who use Amazon Prime to deliver to their customers, the Whole Foods deal presents a particular challenge.
Natural health-food chain Sprouts Farmers Markets Inc. will continue to use Prime to deliver groceries for now, said Bradley Lukow, chief financial officer for the Phoenix-based company. “We’ll make the determination going forward if we want to make any changes,” he said at an industry conference last week.
Schnucks chief marketing officer Andrew Nadin said the grocery chain was planning to expand its partnership with Instacart even before Amazon set out to buy Whole Foods.
“We’ve never tried to out-Wal-Mart Wal-Mart. We won’t try to out-Amazon Amazon,” he said.
Instacart, founded by a former Amazon engineer, aims to be able to deliver to 80% of U.S. households next year, up from 69% today. In addition to stores like Wegmans Food Market Inc. and Target Corp. , Instacart currently handles deliveries for Whole Foods. Analysts expect that to end.
Instacart wouldn’t comment on its partnership with Whole Foods.
“Amazon is here,” said Nilam Ganenthiran, Instacart’s chief business officer. “Grocery retail is going to have to respond.”
Okamoto, Doiron join Fresh Thyme management team
Experienced execs to help transition from “start-up” phase
Fresh Thyme Farmers Market on Tuesday said that two experienced grocery industry leaders, Carol Okamoto and Mark Doiron, have joined its executive team.
Okamoto, who has been named CFO, previously served in the same role for Roundy’s Supermarkets following its acquisition by Kroger Co. Doiron, who will be chief merchandising officer for Fresh Thyme, previously was chief merchant and supply chain officer at Schnuck Markets and before that was an executive with Delhaize America and Hannaford Supermarkets.
“We are excited to have Carol and Mark join the Fresh Thyme family,” Chris Sherrell, CEO of Fresh Thyme, said in a statement. “They both bring with them extensive experience that will help align our processes to become more efficient, and support our continued growth and success.”
Sherrell said earlier this year the company, which operates farmers’ market-style stores in the Midwest, was searching for experienced executives to help the fast-growing chain emerge from the “start-up” phase. Fresh Thyme, which opened its first store in 2014, said it would operate 70 stores by the end of 2017. Sales are in excess of $500,000 annually, Sherrell said.
Okamato brings more than 14 years of experience to her new role, in which she will oversee accounting, financial planning and analysis, pricing and information technology. Prior to joining the company, she served as controller for Roundy’s Supermarket, which was acquired by Kroger late in 2015. She also has experience with True Value and Crate & Barrel.
Doiron brings more than 30 years of experience in the food and grocery industries to his position as chief merchandising officer, where he will be responsible for procurement, merchandising and supply chain. He will also oversee the brand’s non-perishables, distribution and marketing departments. Most recently, Doiron served as chief merchant and supply chain officer at Schnuck Markets. He has also served as president of a frozen food distribution company and chief supply officer for all of Delhaize’s operations in the United States. Doiron started his career with Hannaford, where he worked for 12 years, eventually serving as EVP of supply chain and merchandising.
Fresh Thyme was launched by former members of the Sunflower Markets management team following that chain’s sale to Sprouts Farmers Market. Meijer Inc. is a silent investor in Fresh Thyme.
Darkness Ahead for Physical Stores?
Experts debate the future of retailing in a digital world
By Jim Dudlicek, EnsembleIQ
Yale professor Ravi Dhar; Steve Henig, of Wakefern; Joanne Harris, of P&G; and Shopkick co-founder Cyriac Roeding discuss omnichannel at Nielsen CoNEXTions
Is the physical store as good as dead?
Opinions on both sides of that debate fueled discussions at this week’s Nielsen CoNEXTions conference in Los Angeles, where the growth of omnichannel retailing and the Amazon-Whole Foods Market deal framed sessions focusing on how retailers should be leveraging shopper insights to stay relevant amid constant disruption in the marketplace.
The dimmest outlook for brick-and-mortar retailers came during a Tuesday panel discussion, “What’s Next for Omnichannel.”
“The future of physical retailers looks really dark. The future of retail looks really bright,” asserted Cyriac Roeding, co-founder of digital shopping app Shopkick, based in Redwood City, Calif. Consumers want shopping to be a “vacation” rather than work, and most physical stores will be unable to provide that experience, Roeding contended.
Others offered less dire predictions. Steve Henig, VP of digital for Keasbey, N.J.-based Wakefern Food Corp., said that Amazon’s pending acquisition of Whole Foods should “act as an impetus to take digital more seriously. The window is closing for us to keep up with it.” Grocery retailers should "consider your digital assets as another tool to engage your shoppers," Henig asserted.
Roeding said that investors are underestimating Walmart as well as Amazon. “People don’t understand Amazon – it’s not a retailer, it’s a service provider,” he said. “Amazon bought Whole Foods because they needed a customer for its own services in grocery.”
Henig did agree that some center store categories are likely to vanish from traditional stores as consumers opt to shop these categories online; he predicted that within a decade, the health and beauty care category would be exclusively online.
Meanwhile, German hard-discounter Lidl has firmly planted its flag in the southeastern United States, with sights on eclipsing its longtime overseas rival Aldi, which has built a commanding presence in the States over the past 40 years. Panelist Joanne Harris, VP of North American sales for Cincinnati-based Procter & Gamble, predicted that Lidl will reach the same level in 10 years year that Aldi took 25 to reach.
But fresh categories stand to give traditional retailers an edge.
“Retailers need a point of difference and are increasingly turning to the perimeter for it,” Matt Lally, Chicago-based Nielsen’s manager for fresh growth and strategy, said in an interview with Progressive Grocer. “As we continue to watch the disruptors, fresh will be playing a bigger role. We don’t expect brick-and-mortar stores to be eliminated. They’ll use fresh to bring shoppers into the stores.”
Marc Lore, president and CEO of Walmart Ecommerce, and founder and CEO of the Bentonville, Ark.-based mega-retailer's recently acquired Jet.com, said that “winning at retail is about merchandising and logistics, and understanding where it’s going next.”
In a Q&A session with Nielsen President and COO Steve Hasker, Lore said that the latest step change in retailing wasn't home delivery, it was digitizing the catalog of products long available to consumers in more primitive formats. Now fertile with rich content and speedy online ordering ability, digital “allowed a step change in merchandising that caused home delivery to explode,” according to Lore.
Grocery is a key category, Lore said, and “we’re going to see incredible acceleration in that category online” over the next five years. “It’s going to be a mega-trend.”
Deanie Elsner, president of U.S. snacks at Battle Creek, Mich.-based Kellogg Co. noted that “brands are getting squeezed” amid the changes among consumers (haves and have-nots, Millennials, and a multicultural and aging population) and customers (ecomm, discounters, big box versus small box, and private label).
Amazon and other e-tailers are intimidating, Elsner said, because “they know more about our customers than we do.”
Nielsen was showcasing many of its data solutions at the conference, including the rollout of its Connected System, positioned a way for retailers and their trading partners to more easily digest and effectively convert consumer data into sales-driving solutions.
Michael Terpkosh, VP of store services for Minneapolis-based Supervalu Inc., said that the system has allowed the company to be more “nimble” and has facilitated greater collaboration with its vendor partners.
The system provides more granular info, noted Chris Morley, Nielsen’s president for fast-moving cosnumer goods (FMCG) and retail. “We were blown away by the amount of integration and collaboration within the system,” Morley said in an interview with PG.
The collaboration of data sources, he said, “could be the difference between success and failure in the future.”
Recent moves by Lidl, Aldi and Amazon are sending tremors through the food distribution/retailing business that will result in major changes over the next 5+ years, and the question on the minds of many is: What will the grocery business look like in 5 years? Here’s what we see happening.
Okamoto, who has been named CFO, previously served in the same role for Roundy’s Supermarkets following its acquisition by Kroger Co. Doiron, who will be chief merchandising officer for Fresh Thyme, previously was chief merchant and supply chain officer at Schnuck Markets and before that was an executive with Delhaize America and Hannaford Supermarkets.
Doiron brings more than 30 years of experience in the food and grocery industries to his position as chief merchandising officer, where he will be responsible for procurement, merchandising and supply chain. He will also oversee the brand’s non-perishables, distribution and marketing departments. Most recently, Doiron served as chief merchant and supply chain officer at Schnuck Markets. He has also served as president of a frozen food distribution company and chief supply officer for all of Delhaize’s operations in the United States. Doiron started his career with Hannaford, where he worked for 12 years, eventually serving as EVP of supply chain and merchandising.