Via https://newsapi.org online business online marketing online business opportunities In The Grocery Business, The World Is On Fire And Industry Leaders Don’t Want To Talk About It

Via https://newsapi.org  online business  online marketing  online business opportunities In The Grocery Business, The World Is On Fire And Industry Leaders Don’t Want To Talk About It

Via https://newsapi.org online business online marketing online business opportunities

via https://newsapi.org  online business  online marketing  online business opportunities Supermarkets are going to change a lot.

Supermarkets of the future have to change.

Getty

I recently attendedGroceryshop, probably the largest gathering of leaders in the grocery business in the country. On stage, there was lots of discussion about how the grocery industry is on top of its game. To listen to the presentations, you’d believe that grocery industry leaders are managing a glide path, transitioning to more online grocery buying and integrating the online and in-store shopping experiences. You’d have heard leading companies discuss the introduction of new products and services to meet consumer needs and take advantage of technological changes. It was impressive indeed.

But in the seats, the discussion was very different. It was a lot more about turmoil, upheaval and uncertainty in the grocery business than it was about any smooth transition. I asked numerous senior people from leading grocery retailers, consumer package goods companies and many others two questions:

  1. How will consumer adoption of online grocery shopping accelerate in the next several years?
  2. Will the leading companies in the grocery business in the U.S. right now be the leaders in the online grocery business in five to ten years?

The overwhelming majority of people in the audience, virtually all senior people in their companies, told me confidentially that consumer adoption of online grocery shopping, currently somewhere between 3% and 4%, will explode by seven times or more, to over 20%, and many said much higher. The same people also said that the grocery retailers currently at the top of industry now will not be the leaders in the online grocery business in five to ten years. While some cited how retail is constantly shuffling leadership, most people said the leading grocers aren’t doing what it takes to succeed in online grocery to remain on top. The top five grocers in the U.S. right now areWalmart,Kroger,Albertson’s(includingSafewayand others),Ahold Delhaize(Stop and Shop,Giant Food,Peapodand others) andPublix. Sylvain Perrier, CEO of grocery technology companyMercatus, said it succinctly and just right when he told me, “We are getting to the tipping point.”

Not everyone agrees. Will Glaser, founder of checkout-line eliminating companyGrabangoand founder ofPandora Media, told me that “we’re never going to get to 20% online penetration” in grocery. And David Moran, chairman ofEversightLabs, an AI-powered revenue management advisor, told me: “It’s easier to create the future than to predict it. … The majority of stuff will be sold by stores for as long as I can see.” Their thinking is sound, but they are in the minority.

The Basic Problem

The grocery business is different from other retail in two important ways. First, it’s enormous: The volume of the industry is about $800 billion per year, outscaling other retail sectors. Second, it’s more competitive and has very small profit margins.

The way most groceries are bought today is not very different from how your mom shopped: Consumers pick the products off the shelves and self-deliver to their homes. The online grocery business has struggled to make money because of the need for pickers and deliverers in an industry that doesn’t have the profit margin to support the increased costs of those added people.

What The Industry Is Doing

The industry has emphasized buy online, pick up in store (click-and-collect), and Walmart is the leader by far up to now. Walmart has made a big commitment to click-and-collect and that allows it to learn the business faster and possibly come to a better business model sooner. According to Tom Ward, SVP of digital operations at Walmart who spoke at Groceryshop, the company has hired and trained (training takes three weeks) 45,000 pickers for its online grocery business. Retailers like click-and-collect because it doesn’t require delivery and that cuts costs. It’s also a good fit for consumers who can’t commit to waiting at home for hours. It’s just a first step because it doesn’t serve the consumers who would prefer delivery.

Narayan Iyengar, SVP of digital and e-commerce at Albertson’s, laid out the economics in broad terms at Groceryshop. He explained that big distribution facilities can work in densely populated areas because the picking cost is low. To be cost-effective, you need a nine-hour delivery radius that means you can’t deliver quickly. Iyengar said Albertson’s is not testing big, automated facilities.

Why What They’re Doing Won’t Work

Imagine that you had unlimited capital and you wanted to be the dominant force in the online grocery business. Would you either:

A. Build traditional, 100,000-square-foot stores and use a part of each store to facilitate online delivery?

B. Build an entirely new infrastructure, devoted only to servicing online delivery, using new technology to minimize costs and maximize efficiency?

The industry has chosen A and it’s not going to work. Perrier of Mercatus told me that grocers “have a ball and chain of existing infrastructure that’s dragging them down.” They are all but asking competitors with better ideas to come into the market with something better and more efficient.

What Will Work

And that’s exactly what’s happening. Young companies are developing new ways of selling direct-to-consumer. They are rethinking how groceries are sold, not being locked into the once-a-week trip of the past or the existing infrastructure.

One of the ways to think about supermarkets today is as having two components: core and periphery. Core is staples that you find in the center of the store like breakfast cereal, mustard, salt, coffee, things you buy regularly for replenishment. Periphery is fresh items like perishables, bakery and other related items. We think of all these products as being of one type because we’ve been buying them in one place for generations, but in fact they’re different. The core items are very well suited to planned, automatic replenishment from a central, highly automated, very large and efficient distribution facility. You could get your cereal once a week and mustard every six months and salt once a year or you could reset each item to whatever cadence best suited your household. Whichever way you chose, you’d never have to go and get it yourself.

What would happen more regularly is smaller deliveries of perishables and other items. A company calledFarmsteadhas made over 100,000 deliveries in the San Francisco Bay area since 2016. Their CEO Pradeep Elankumaran told me, “we don’t think selection is king, we think curation is king…[and we charge] no fees [for delivery].” They are focused on fresh products and they are close to profitability. The majority of their customers are in a weekly program and the “subscription” aspect to the business allows consumers to save a lot on staples like milk, eggs, bacon and most packaged goods. Elankumaran attributes their success to exactly what the big players aren’t doing: starting from scratch with no reliance on legacy assets in the business, what he calls, “a fully unified stack.” They use machine learning for picking and managing their produce and they work closely with national brands to be able to deliver the right prices to consumers, even including delivery.

A company calledFabric(until recently, Common Sense Robotics) has built several micro-fulfillment centers that can get e-commerce orders to customers in under one hour. They do that by creating highly automated fulfillment centers in dense urban areas that can assemble orders rapidly and get them out the door in minutes. They currently have several facilities in Israel and are developing opportunities in the U.S.

Iyengar of Albertson’s talked aboutTakeoff Technologies, a startup with a valuation of $500 million, that can shrink the scale of a supermarket into a much smaller space and deliver locally, quickly, using robotic picking and artificial intelligence to select perishables.

But the big gorilla in online grocery delivery isOcado. They are a U.K.-based operator of large, automated distribution centers. Today Ocado is doing over $2 billion in revenue and, based on how they normalize EBITDA, they are profitable. Through a joint venture with Kroger, Ocado is coming to the U.S. They have announced the intention to build 20 fulfillment centers for online orders in the U.S. and have so far committed to facilities near Dallas, Cincinnati, Orlando and Atlanta. Kudos to Kroger for being willing to try online a whole different way.

Brad Bell ofSymphony Retail AItold me that when retailers present too many choices, “oftentimes the consumer chooses not to make a choice. So grocers are saying ‘do I need to have so many choices?’” That’s an opportunity to sell more by offering a more curated selection and smaller stores may be an opportunity for growth.Targetis trying that approach.  Target isn’t moving away from big stores but it has added 100 small-format stores so far and intends to open many more.

Why The Industry Is In More Trouble Than It Sounds

You might be reading this and saying to yourself, “Why is this so urgent? When consumers start buying the majority of groceries online, the big guys will adapt and figure it out then.” Maybe, but even if they do, they are going to have a bigger problem: What happens to the profitability of their 100,000-square-foot stores when 20% of the customers stop coming in? When you look at almost every shopping street in America and see all the dark stores you know the answer won’t be roses and gumdrops. The asset that grocers always believed in is potentially an anchor hanging around their necks. The decline in value of their real estate and the vanishing profits from their stores will be a massive question mark.Jean-Marie Tritant, U.S. president ofUnibail -Rodamco-Westfield, the large real estate operator that has 1.2 billion consumer visits per year, said they are developing shopping centers with grocers along with entertainment, health, wellness, coworking, offices and residences. If he’s right, it will accelerate the decline in the value of legacy supermarket real estate.

It’s not just the grocers that are looking trouble in the eye. A lot of supermarket purchase decisions are made when a consumer walks down the aisle and makes an impulse purchase. Consumer product makers know how to package their products to enhance their chances of a sale. When a meaningful percentage of consumers stop coming into the store, those consumer product companies will have to develop new skills to motivate their consumers. It sounds simple, but if you look at what has happened to brands selling in department stores you can see how hard that change is to make.

What About Amazon?

What’s so remarkable about Amazon in grocery is how successful they haven’t been, even afterbuying Whole Foods. Success in grocery is mission-critical for Amazon because Amazon’s stock price is based on growth and grocery is one of the last places it can find meaningful growth in U.S. retail. With a near-zero cost of capital, there’s virtually no limit to the resources Amazon can commit to online grocery so you can be sure they are not going away silently. Earlier this week, theWall Street Journalreportedthat Amazon has plans to open numerous grocery stores of 20,000 to 40,000 square feet, with 12 leases for such stores in the Los Angeles area already signed.

Risk-Takers Wanted

At the recentBloomberg Global Business Forum, the chairman and CEO ofDisney,Bob Iger, said something that applies well to grocery retail right now: “Technology is increasing the speed of change… and that requires…the ability to take risk and make decisions without having all the answers because the answers are harder to get at now.” Iger talked about having “patience [and] guts” to make decisions without having as much data as you’d want about whether it will work. We’re seeing the established players take incremental steps rather than giant leaps to adapt and that’s why they run the risk of being outfoxed by startups who are trying new business models.

In the same Bloomberg conversation,Jamie Dimon, the chairman and CEO ofJPMorgan Chase, said, “you can put all the money you want into a broken system and it will still be a broken system.”

Retail grocery now requires a lot of experimentation because no one knows what will work and finding the answer is imperative. Companies can stand on stage and say things are great all they want, but the people in the seats know what’s happening.

“>

via https://newsapi.org  online business  online marketing  online business opportunities Supermarkets are going to change a lot.

Supermarkets of the future have to change.

Getty

I recently attendedGroceryshop, probably the largest gathering of leaders in the grocery business in the country. On stage, there was lots of discussion about how the grocery industry is on top of its game. To listen to the presentations, you’d believe that grocery industry leaders are managing a glide path, transitioning to more online grocery buying and integrating the online and in-store shopping experiences. You’d have heard leading companies discuss the introduction of new products and services to meet consumer needs and take advantage of technological changes. It was impressive indeed.

But in the seats, the discussion was very different. It was a lot more about turmoil, upheaval and uncertainty in the grocery business than it was about any smooth transition. I asked numerous senior people from leading grocery retailers, consumer package goods companies and many others two questions:

  1. How will consumer adoption of online grocery shopping accelerate in the next several years?
  2. Will the leading companies in the grocery business in the U.S. right now be the leaders in the online grocery business in five to ten years?

The overwhelming majority of people in the audience, virtually all senior people in their companies, told me confidentially that consumer adoption of online grocery shopping, currently somewhere between 3% and 4%, will explode by seven times or more, to over 20%, and many said much higher. The same people also said that the grocery retailers currently at the top of industry now will not be the leaders in the online grocery business in five to ten years. While some cited how retail is constantly shuffling leadership, most people said the leading grocers aren’t doing what it takes to succeed in online grocery to remain on top. The top five grocers in the U.S. right now areWalmart,Kroger,Albertson’s(includingSafewayand others),Ahold Delhaize(Stop and Shop,Giant Food,Peapodand others) andPublix. Sylvain Perrier, CEO of grocery technology companyMercatus, said it succinctly and just right when he told me, “We are getting to the tipping point.”

Not everyone agrees. Will Glaser, founder of checkout-line eliminating companyGrabangoand founder ofPandora Media, told me that “we’re never going to get to 20% online penetration” in grocery. And David Moran, chairman ofEversightLabs, an AI-powered revenue management advisor, told me: “It’s easier to create the future than to predict it. … The majority of stuff will be sold by stores for as long as I can see.” Their thinking is sound, but they are in the minority.

The Basic Problem

The grocery business is different from other retail in two important ways. First, it’s enormous: The volume of the industry is about $800 billion per year, outscaling other retail sectors. Second, it’s more competitive and has very small profit margins.

The way most groceries are bought today is not very different from how your mom shopped: Consumers pick the products off the shelves and self-deliver to their homes. The online grocery business has struggled to make money because of the need for pickers and deliverers in an industry that doesn’t have the profit margin to support the increased costs of those added people.

What The Industry Is Doing

The industry has emphasized buy online, pick up in store (click-and-collect), and Walmart is the leader by far up to now. Walmart has made a big commitment to click-and-collect and that allows it to learn the business faster and possibly come to a better business model sooner. According to Tom Ward, SVP of digital operations at Walmart who spoke at Groceryshop, the company has hired and trained (training takes three weeks) 45,000 pickers for its online grocery business. Retailers like click-and-collect because it doesn’t require delivery and that cuts costs. It’s also a good fit for consumers who can’t commit to waiting at home for hours. It’s just a first step because it doesn’t serve the consumers who would prefer delivery.

Narayan Iyengar, SVP of digital and e-commerce at Albertson’s, laid out the economics in broad terms at Groceryshop. He explained that big distribution facilities can work in densely populated areas because the picking cost is low. To be cost-effective, you need a nine-hour delivery radius that means you can’t deliver quickly. Iyengar said Albertson’s is not testing big, automated facilities.

Why What They’re Doing Won’t Work

Imagine that you had unlimited capital and you wanted to be the dominant force in the online grocery business. Would you either:

A. Build traditional, 100,000-square-foot stores and use a part of each store to facilitate online delivery?

B. Build an entirely new infrastructure, devoted only to servicing online delivery, using new technology to minimize costs and maximize efficiency?

The industry has chosen A and it’s not going to work. Perrier of Mercatus told me that grocers “have a ball and chain of existing infrastructure that’s dragging them down.” They are all but asking competitors with better ideas to come into the market with something better and more efficient.

What Will Work

And that’s exactly what’s happening. Young companies are developing new ways of selling direct-to-consumer. They are rethinking how groceries are sold, not being locked into the once-a-week trip of the past or the existing infrastructure.

One of the ways to think about supermarkets today is as having two components: core and periphery. Core is staples that you find in the center of the store like breakfast cereal, mustard, salt, coffee, things you buy regularly for replenishment. Periphery is fresh items like perishables, bakery and other related items. We think of all these products as being of one type because we’ve been buying them in one place for generations, but in fact they’re different. The core items are very well suited to planned, automatic replenishment from a central, highly automated, very large and efficient distribution facility. You could get your cereal once a week and mustard every six months and salt once a year or you could reset each item to whatever cadence best suited your household. Whichever way you chose, you’d never have to go and get it yourself.

What would happen more regularly is smaller deliveries of perishables and other items. A company calledFarmsteadhas made over 100,000 deliveries in the San Francisco Bay area since 2016. Their CEO Pradeep Elankumaran told me, “we don’t think selection is king, we think curation is king…[and we charge] no fees [for delivery].” They are focused on fresh products and they are close to profitability. The majority of their customers are in a weekly program and the “subscription” aspect to the business allows consumers to save a lot on staples like milk, eggs, bacon and most packaged goods. Elankumaran attributes their success to exactly what the big players aren’t doing: starting from scratch with no reliance on legacy assets in the business, what he calls, “a fully unified stack.” They use machine learning for picking and managing their produce and they work closely with national brands to be able to deliver the right prices to consumers, even including delivery.

A company calledFabric(until recently, Common Sense Robotics) has built several micro-fulfillment centers that can get e-commerce orders to customers in under one hour. They do that by creating highly automated fulfillment centers in dense urban areas that can assemble orders rapidly and get them out the door in minutes. They currently have several facilities in Israel and are developing opportunities in the U.S.

Iyengar of Albertson’s talked aboutTakeoff Technologies, a startup with a valuation of $500 million, that can shrink the scale of a supermarket into a much smaller space and deliver locally, quickly, using robotic picking and artificial intelligence to select perishables.

But the big gorilla in online grocery delivery isOcado. They are a U.K.-based operator of large, automated distribution centers. Today Ocado is doing over $2 billion in revenue and, based on how they normalize EBITDA, they are profitable. Through a joint venture with Kroger, Ocado is coming to the U.S. They have announced the intention to build 20 fulfillment centers for online orders in the U.S. and have so far committed to facilities near Dallas, Cincinnati, Orlando and Atlanta. Kudos to Kroger for being willing to try online a whole different way.

Brad Bell ofSymphony Retail AItold me that when retailers present too many choices, “oftentimes the consumer chooses not to make a choice. So grocers are saying ‘do I need to have so many choices?’” That’s an opportunity to sell more by offering a more curated selection and smaller stores may be an opportunity for growth.Targetis trying that approach.  Target isn’t moving away from big stores but it has added 100 small-format stores so far and intends to open many more.

Why The Industry Is In More Trouble Than It Sounds

You might be reading this and saying to yourself, “Why is this so urgent? When consumers start buying the majority of groceries online, the big guys will adapt and figure it out then.” Maybe, but even if they do, they are going to have a bigger problem: What happens to the profitability of their 100,000-square-foot stores when 20% of the customers stop coming in? When you look at almost every shopping street in America and see all the dark stores you know the answer won’t be roses and gumdrops. The asset that grocers always believed in is potentially an anchor hanging around their necks. The decline in value of their real estate and the vanishing profits from their stores will be a massive question mark.Jean-Marie Tritant, U.S. president ofUnibail -Rodamco-Westfield, the large real estate operator that has 1.2 billion consumer visits per year, said they are developing shopping centers with grocers along with entertainment, health, wellness, coworking, offices and residences. If he’s right, it will accelerate the decline in the value of legacy supermarket real estate.

It’s not just the grocers that are looking trouble in the eye. A lot of supermarket purchase decisions are made when a consumer walks down the aisle and makes an impulse purchase. Consumer product makers know how to package their products to enhance their chances of a sale. When a meaningful percentage of consumers stop coming into the store, those consumer product companies will have to develop new skills to motivate their consumers. It sounds simple, but if you look at what has happened to brands selling in department stores you can see how hard that change is to make.

What About Amazon?

What’s so remarkable about Amazon in grocery is how successful they haven’t been, even afterbuying Whole Foods. Success in grocery is mission-critical for Amazon because Amazon’s stock price is based on growth and grocery is one of the last places it can find meaningful growth in U.S. retail. With a near-zero cost of capital, there’s virtually no limit to the resources Amazon can commit to online grocery so you can be sure they are not going away silently. Earlier this week, theWall Street Journalreportedthat Amazon has plans to open numerous grocery stores of 20,000 to 40,000 square feet, with 12 leases for such stores in the Los Angeles area already signed.

Risk-Takers Wanted

At the recentBloomberg Global Business Forum, the chairman and CEO ofDisney,Bob Iger, said something that applies well to grocery retail right now: “Technology is increasing the speed of change… and that requires…the ability to take risk and make decisions without having all the answers because the answers are harder to get at now.” Iger talked about having “patience [and] guts” to make decisions without having as much data as you’d want about whether it will work. We’re seeing the established players take incremental steps rather than giant leaps to adapt and that’s why they run the risk of being outfoxed by startups who are trying new business models.

In the same Bloomberg conversation,Jamie Dimon, the chairman and CEO ofJPMorgan Chase, said, “you can put all the money you want into a broken system and it will still be a broken system.”

Retail grocery now requires a lot of experimentation because no one knows what will work and finding the answer is imperative. Companies can stand on stage and say things are great all they want, but the people in the seats know what’s happening.

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