Sunday Long Read: Grocery Games

The venerable supermarket is on its way out.  Amazon has come to bury the industry, but there's at least one man who wants to save it.

A cursory glance might suggest grocery stores are in no immediate danger. According to the data analytics company Inmar, traditional supermarkets still have a 44.6 percent market share among brick-and-mortar food retailers. And though a spate of bankruptcies has recently hit the news, there are actually more grocery stores today than there were in 2005. Compared to many industries — internet service, for example — the grocery industry is still a diverse, highly varied ecosystem. Forty-three percent of grocery companies have fewer than four stores, according to a recent USDA report. These independent stores sold 11 percent of the nation’s groceries in 2015, a larger collective market share than successful chains like Albertson’s (4.5 percent), Publix (2.25 percent), and Whole Foods (1.2 percent).

But looking at this snapshot without context is misleading — a little like saying that the earth can’t be warming because it’s snowing outside. Not long ago, grocery stores sold the vast majority of the food that was prepared and eaten at home — about 90 percent in 1988, according to Inmar. Today, their market share has fallen by more than half, even as groceries represent a diminished proportion of overall food sold. Their slice of the pie is steadily shrinking, as is the pie itself.

By 2025, the thinking goes, most Americans will rarely enter a grocery store. That’s according to a report called “Surviving the Brave New World of Food Retailing,” published by the Coca-Cola Retailing Research Council — a think tank sponsored by the soft drink giant to help retailers prepare for major changes. The report describes a retail marketplace in the throes of massive change, where supermarkets as we know them are functionally obsolete. Disposables and nonperishables, from paper towels to laundry detergent and peanut butter, will replenish themselves automatically, thanks to smart-home sensors that reorder when supplies are low. Online recipes from publishers like Epicurious will sync directly to digital shopping carts operated by e-retailers like Amazon. Impulse buys and last-minute errands will be fulfilled via Instacart and whisked over in self-driving Ubers. In other words, food — for the most part — will be controlled by a small handful of powerful tech companies.

The Coca-Cola report, written in consultation with a handful of influential grocery executives, including Rich Niemann, acknowledges that the challenges are dire. To remain relevant, it concludes, supermarkets will need to become more like tech platforms: develop a “robust set of e-commerce capabilities,” take “a mobile-first approach,” and leverage “enhanced digital assets.” They’ll need infrastructure for “click and collect” purchasing, allowing customers to order online and pick up in a jiffy. They’ll want to establish a social media presence, as well as a “chatbot strategy.” In short, they’ll need to become Amazon, and they’ll need to do it all while competing with Walmart — and its e-commerce platform, Jet.com — on convenience and price.

That’s why Amazon’s acquisition of Whole Foods Market was terrifying to so many grocers, sending the stocks of national chains like Kroger tumbling: It represents a future they can’t really compete in. Since August 2017, Amazon has masterfully integrated e-commerce and physical shopping, creating a muscular hybrid that represents an existential threat to traditional grocery stores. The acquisition was partially a real estate play: Whole Foods stores with Prime lockers now act as a convenient pickup depot for Amazon goods. But Amazon’s also doing its best to make it too expensive and inconvenient for its Prime members, who pay $129 a year for free two-day shipping and a host of other perks, to shop anywhere else. Prime membersreceive additional 10 percent discounts on select goods at Whole Foods, and Amazon is rolling out home grocery delivery in select areas. With the Whole Foods acquisition, then, Amazon cornered two markets: the thrift-driven world of e-commerce and the pleasure-seeking universe of high-end grocery. Order dish soap and paper towels in bulk on Amazon, and pick them up at Whole Foods with your grass-fed steak.

Traditional grocers are now expected to offer the same combination of convenience, flexibility, selection, and value. They’re understandably terrified by this scenario, which would require fundamental, complex, and very expensive changes. And Kelley is terrified of it, too, though for a different reason: He simply thinks it won’t work. In his view, supermarkets will never beat Walmart and Amazon at what they do best. If they try to succeed by that strategy alone, they’ll fail. That prospect keeps Kelley up at night — because it could mean a highly consolidated marketplace overseen by just a handful of players, one at stark contrast to the regional, highly varied food retail landscape America enjoyed throughout the 20th century.

“I’m afraid of what could happen if Walmart and Amazon and Lidl are running our food system, the players trying to get everything down to the lowest price possible,” he tells me. “What gives me hope is the upstarts who will do the opposite. Who aren’t going to sell convenience or efficiency, but fidelity.”

The approach Kelley’s suggesting still means completely overhauling everything, with no guarantee of success. It’s a strategy that’s decidedly low-tech, though it’s no less radical. It’s more about people than new platforms. It means making grocery shopping more like going to the movies.

What worked for movie theaters, turning the experience itself into something enjoyable, is what these guys are aiming for.  Better hope it works, or Amazon will control your food supply.