by Greg Feinberg/president and CEO, Aisle 9 Special to The Shelby Report
Amazon’s acquisition of Whole Foods Market is not an indication that the brick-and-mortar grocery business is going away. Amazon’s acquisition of Whole Foods is an admission that the grocery business was never going to be overtaken by online retailers. While Amazon took a shot, the fact is brick-and-mortar still accounts for over 90 percent of sales in the clear majority of sectors and virtually 100 percent of the operating profits. Last year, online shopping accounted for only 2 percent of the sector’s sales, according to Kantar Retail.
The problem with brick-and-mortar retail sales, in general, is that retailers forgot to embrace change and ignored the demands of their clients. Shoppers today want a retail experience. They want customization. They embrace innovation and specialization. Too many retailers ignored this and doubled down on their successful strategies from the 1980s and 1990s by acquiring similarly bland stores.
Macy’s bought out several of its equally “all things to all people” competitors and now has more poor-performing stores than ever. Many grocers followed suit. To make matters worse, these retailers began to invest their capital into e-commerce platforms (where they have no expertise) instead of into their stores, product innovation and improving the shopping experience (where they do have expertise.) By purchasing Whole Foods, Amazon concedes that consumers will not purchase groceries online. Amazon will not eliminate the retail grocery business as they did bookstores. Amazon will focus its innovation and ingenuity to improve the shopping experience of consumers in grocery stores. What Amazon knows is how to sell to its customers. And it knows that its customers will continue to go to the grocery store. It also knows that grocery stores are not effectively selling to their customers. The grocery store, as we know it, will change. But it will not go away.
Grocers still have the upper hand in improving their shopping experience and providing innovative and customized products in exciting ways. They have more stores than Amazon/Whole Foods and are geographically closer to their customers. They know the grocery business far better than Amazon and can provide a more diverse and interesting shopping experience through their experience in selling general merchandise and health and beauty care items. However, if grocers continue to act in the same manner and do not embrace change, they will be the next bookstores.
Whole Foods has 460 stores, which represents a very small percentage of the grocery business—less than 2 percent. It is time for grocery, drug and mass retailers to reassess how they do business in their stores and how they utilize their valuable brick-and-mortar space. Amazon spent over $30 million per store for this space. Within these walls, Amazon will not use drones and its Prime membership works no differently than every other loyalty card.
The playing field is level for now. It is time for grocers to aggressively restructure their stores, shopping experiences, inventory, promotions, etc.
Amazon will not be restricted by old-school business practices such as:
- National brands demanding blind loyalty;
- Restrictive and slow category resets;
- Centralized buying; or
- Fear of new and experimental products and services.
Shoppers are not moving online as much as they are gravitating to retailers that provide unique products and exceptional shopping experiences. Grocers, therefore, need to rely less on major brands and devote more shelf space to healthier, organic and innovative products. They need to become more international in their offerings, catering to the cultural spectrum of customers that shop in their stores. Buyers must be challenged by executives to look for the most unique products instead of the ones that are simply willing to pay slotting fees. Retailers must look to also lower prices by eliminating third-party distributors or at least negotiating margins that do not add another 20-25 percent or more to the delivered prices. Reliance on private label brands will further dilute the shopping experience.
Experientially, stores should re-invigorate their bakeries, customize their butcher shops while offering more non-meat alternatives. Coffee kiosks should not be outsourced to the same company that is on every other city block. Tortilla machines and fresh sushi stations can add a dynamic flare. Successful stores of the future will look more like international marketplaces with separate kiosks and new discoveries.
The window of opportunity to listen and adjust to the consumer mindset is closing. Merely staying the course is no longer an option. If you are a grocer, you need to look for, or create, dynamic new brands and shopping experiences. If you are a brand owner, you must offer retailers win-win solutions in their fight to create a better shopping experience and capture more customers.