Competition to Meet Consumer Demand
As recently as the 1990s, traditional food stores (such as Publix, Stop & Shop, Kroger, Albertsons and Shoprite) accounted for roughly 90% of retail food sales. Today brick and mortar sales are only half of that figure, accounting for only 45% of all retail food sales. This shift is due to consumer demand for more options, better prices and greater convenience. Traditional food stores have been faced with market disruption from alternative channels such as Walmart, Target, Costco, Sam’s Club, boutique supermarkets, and online food delivery services. Industry reports forecast that by 2021, nearly one quarter of traditional food stores will no longer be around.
The biggest threat to traditional food stores is Walmart. In 2016, grocery sales in the United States were roughly $670 billion, with Walmart making up a staggering 17% of that figure. The retail giant has used its scale to offer low prices and convenience to consumers, and seeks to gain more market share through a number of innovations:
- 24 hour automated pickup locations where customers can quickly retrieve online orders;
- A program allowing in-store employees to sign up to deliver groceries to customers;
- Utilizing Uber to deliver groceries;
- The Scan & Go phone app, through which customers can scan products and pay, then show their digital receipt to a greeter and walk out, avoiding lines;
- Pairing with Google to interface with Google smart devices such as Google Home and,
- Offering discounts to online orders that are picked up in physical locations.
With all of these options, it is no wonder that Walmart’s online grocery business has grown 70% year over year. Both in-store and online grocery sales comprise nearly 50% of its US revenues.
The food delivery retail channel is quickly growing, with Walmart, Amazon, Stop & Shop, Fairway and countless others joining in. With the recent acquisition of Whole Foods, Amazon increased its distribution channels, footprint and product offerings for its food delivery service. Though this acquisition created many headlines, it is regarded by many in the industry as being nothing more than just noise in the short term. This is because Amazon has less than 1% market share in the grocery industry and Whole Foods has around 2%. Furthermore, in 2016, online grocery delivery made up just $14 billion of the roughly $670 billion of grocery sales in the US.
However, the deep pockets and technological expertise of Amazon will keep food retail executives looking over their shoulders. For example, Amazon is experimenting with cashier-less stores where customers go in, grab what they want, and walk out with their goods, which are tracked and virtually ‘checked out’ using various sensors while a receipt is sent to the customer’s account. Amazon further threatens to disrupt the retail food industry in many ways:
- Utilizing Whole Foods’ locations for customers to pick up online orders;
- Offering ‘Instant Pickup’ locations where food staples can be ordered and ready in under 2 minutes;
- Offering Amazon Meal Kits, which directly threaten meal subscription services such as Blue Apron and HelloFresh;
- Offering special pricing and rewards programs to those with Prime accounts and,
- Utilizing their existing technological presence in tens of millions of homes (via Amazon Alexa) to interface with users and offer food ordering capabilities.
Market disruption will certainly continue in the food & beverage industry going forward, with 62% of shoppers expressing a desire for an alternative to in-store grocery visits. The online grocery channel is expected to more than double by 2021, while traditional food stores are expected to decrease around 25%. With concepts like Amazon’s drone delivery service (where drones can deliver from warehouses to your home in less than 30 minutes) inching closer to reality, food retailers will be forced to innovate and create value for their customers or be left behind.