Amazongeddon: The New Supermarket Battleground

Quartz: “In southwest Ohio, the prices of staple foods are hitting the floor. A carton of eggs in Cincinnati supermarkets are going for as little as 39 cents. And gallon-sized jugs of milk are selling for less than a dollar. The American grocery store is about to become a battleground—and consumers will love it.”

“Shoppers in the UK certainly did. Established companies such as Tesco forfeited millions in sales to compete on price with German discount grocers Aldi and Lidl, who began opening more and more stores. Now, those discount brands have made it to the US, and have opened hundreds of stores across the country … These telltale signs of a brewing US grocery-store war are happening just as online retailer Amazon has decided it wants to shoehorn itself into the grocery business by acquiring health food grocery chain Whole Foods for $13.7 billion.”

“But disrupting groceries will be a lot different than shaking up publishing, which is how Amazon got its start. Unlike bookstores of the late 1990s, clawing away at market share by driving prices down is a game supermarket companies are already good at playing.”

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Zero-Margins & The Future of Retail

Vox: “Competing with Amazon is terrifying for any incumbent business because the company’s executive team operates on a radical model whereby the company’s overall net income is nearly zero quarter after quarter … That’s an enormous problem for every grocery chain in America, which already operate on razor-thin margins … A Whole Foods under Amazon’s stewardship will almost certainly accept lower profit margins than it does as an independent chain — and that spells trouble for everyone else in the grocery business.”

“Whole Foods could deliver value to Amazon without necessarily delivering profits. The stores would create a useful additional channel for selling Kindles, Echoes, Fire TV boxes and other Amazon hardware. And by linking discounts to Amazon Prime membership, it could drive sales of those. More subtly but perhaps more importantly, encouraging Whole Foods shoppers to in some sense ‘log in’ with their Prime accounts would generate tons of new user data that could feed the larger Amazon beast.”

“The bottom line is there are lots of ways that a cheaper, but fundamentally similar, version of Whole Foods could contribute to the Amazon gestalt even while run as a zero-margin business.”

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Amazon Patents Shopper-Control Technology

The Washington Post: “Amazon was awarded a patent May 30 that could help it choke off a common issue faced by many physical stores: Customers’ use of smartphones to compare prices even as they walk around a shop. The phenomenon, often known as mobile ‘window shopping,’ has contributed to a worrisome decline for traditional retailers.”

“But Amazon now has the technology to prevent that type of behavior when customers enter any of its physical stores and log onto the WiFi networks there. Titled ‘Physical Store Online Shopping Control,’ Amazon’s patent describes a system that can identify a customer’s Internet traffic and sense when the smartphone user is trying to access a competitor’s website.”

“When that happens, Amazon may take one of several actions. It may block access to the competitor’s site, preventing customers from viewing comparable products from rivals. It might redirect the customer to Amazon’s own site or to other, Amazon-approved sites. It might notify an Amazon salesperson to approach the customer. Or it might send the customer’s smartphone a text message, coupon or other information designed to lure the person back into Amazon’s orbit.”

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New Realities of the Grocery Experience

The Wall Street Journal: “The challenges for grocers today include a new reality: The days of shoppers filling carts during a big weekly trip to their neighborhood supermarket appear over for now. Consumers are more targeted in their shopping habits. They are less loyal to retailers and more willing to buy groceries online. And they are buying more from stores at two poles: ones with cheap prices, and ones that offer high-quality fresh food, often at a premium.”

Natalie Kotlyar, a consultant, says shoppers expect “convenience, selection and the right price and they want it now. Everyone is trying to meld those concepts to create the perfect shopping experience.”

“Chains that don’t adapt quickly to the changes in consumer behavior and business dynamics won’t survive, say analysts, who, along with some supermarket executives, expect more consolidation in the coming years and predict more grocery stores will close. To compete with Amazon, Wal-Mart is offering curbside pickup and home delivery in test markets. Kroger is expanding its platform for customers to order groceries online and pick them up at the stores. It also said it has invested $3.8 billion in lowering its prices over the past decade.”

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From Baking Powder & Cardboard to Amazon

The Washington Post: “A&P Baking Powder was an important product in the history of retailing,” Marc Levinson wrote in The Great A&P, a history of the company and grocery stores. “With it, the Great Atlantic & Pacific Tea Company, and many of its competitors, began a transition from being tea merchants to being grocers. It was a transition that would dramatically change Americans’ daily lives.”

“The branding of baking powder was important because most merchants back then were just essentially selling, as Levinson wrote, ‘generic products indistinguishable from what was for sale down the street.’ And in selling their powder in a tin, the owners were ahead in another important way — packaging.”

“The invention of the cardboard box changed everything. The company could now make, brand and sell its own condensed milk, butter, spices — just about any staple of the kitchen … There was difficult, transformative work ahead. The company needed to upend an entire culture of shopping built around neighborhood stores … A&P’s business model began to sound a lot like the one pursued by its retail descendants — Walmart and Amazon … Amazon’s tea was books. Then it diversified.”

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Supermodel & Supermarket: Klum & Lidl Collaborate

USA Today: “Former supermodel Heidi Klum is going to offer her designer fashions in the oddest of places … Lidl, an upstart discount supermarket chain based in Germany that opens its first U.S. stores on June 15 … That means buying a dress and salad dressing on the same shopping trip. Mass merchandisers like Target and Costco have long offered grocery departments in their stores. The Lidl idea flips the concept to make fashion secondary to food.”

“Lidl stores offer weekly promotions of non-food products, ranging from fitness gear to power tools to small kitchen appliances, like juicers and panini presses, according to Lidl U.S. spokesman Will Harwood. In the supermarket business, non-foods are known for typically offering some of the best profit margins in stores — and unlike cucumbers, they aren’t perishable except for long-term fashion whims.”

Lidl spokesman Will Harwood comments: “She’s an international fashion icon. She’s extremely passionate, creating incredible fashion that is high end, but also attainable and it worked really well with what we do. We’re very focused at delivering top quality and great prices. She integrates with that really well.”

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Walmart Tests Pickup Kiosk

The Oklahoman: “Walmart is trying out an automated kiosk where online shoppers can pick up their groceries … The kiosk is a 20- by 80-foot building in the parking lot at the Walmart Super Center at N Council and W Britton Roads in Oklahoma City. Walmart spokesman Scott Markley said the kiosk is capable of fulfilling hundreds of orders throughout the day that are placed by customers who shop online or through their mobile browser at walmart.com/grocery.”

“More than 30,000 items, including fresh produce, meats, dairy products and organic groceries, can be ordered online for the same price they cost in the store and can be picked up free, 24 hours a day, 7 days a week. The minimum purchase is $30. The retail operation will ask customers for feedback online as it tests the product during the next several months.”

“Customers place and pay for their orders online, and those orders are filled inside the store by Walmart associates that store officials have said are trained to handpick the freshest produce and choicest cuts of meat. The orders are delivered to the kiosk in bins that are stored inside. The kiosk customer pulls up to the building and walks up to an interface station to enter a pickup code. The kiosk retrieves the order, delivering it to the customer in a process that takes a minute or less.”

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Seaweed Cups: Food as Packaging

The New York Times: “A growing number of entrepreneurs and researchers are working to turn foods like mushrooms, kelp, milk and tomato peels into edible — if not always palatable — replacements for plastics, coatings and other packaging materials.” For example: “The United States Department of Agriculture … has developed a material from milk protein that can be used to line pizza boxes, encase cheese or create, say, soluble soup packets that can simply be dropped in hot water. The product could even serve as a substitute for the sugar used to coat cereal flakes to prevent them from going soggy too fast.”

“Over the past several years, governments have quietly bankrolled efforts to develop packaging from food. The European Union, which underwrote a project to develop coatings from whey and potato proteins from 2011 to 2015, estimates that the global market for so-called bioplastics is growing by as much as 30 percent each year.”
However: “Nestlé says it wouldn’t want its demand for packaging to reduce the food supply, given widespread hunger … Few, however, are begging to eat the peels left after tomatoes are processed. A group of researchers in Italy has used them to develop a lining for cans.”

“A British start-up called Skipping Rocks Lab is taking matters into its own hands. The company has developed a packaging it calls Ohoo from edible seaweed, and is building a machine to produce containers from Ohoo to hold water, juices, cosmetics and other liquids on the spot. A juice bar, for instance, could create a container with each order.”

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Michael Ruhlman & The American Grocery

The Wall Street Journal: “Is there any place more American than the supermarket? Forget the airport and the voting booth; for nearly a century, the one-stop shop has remained a temple of consumerism, not to mention our particular form of consumerist anxiety … In Grocery: The Buying and Selling of Food in America” Michael Ruhlman focuses on “his beloved hometown supermarket, Heinen’s Grocery Store, a Cleveland-based chain with 23 locations in Ohio and Illinois. Joe Heinen opened the first one in 1933, three years after Michael Cullen launched ‘the first true supermarket,’ in Mr. Ruhlman’s designation: King Kullen in Queens, N.Y. Heinen, like Cullen, stockpiled meat, seafood, dairy, produce and groceries, often at a discount, under a single roof. (King Kullen’s slogan was ‘Pile it high. Sell it low.’)”

“There are now 38,000 grocery stores in America, some as large as 90,000 square feet. Heinen’s has annual sales of some $600 million—on a margin of only 1.25% to 1.5%, typical of the industry. ‘You do sales of half a billion dollars,’ a Heinen’s executive notes to Mr. Ruhlman, “and you only have profit of $5 million—what kind of a business is that?'”

Now the best grocery stores compete in a crowded marketplace by combining all of the above while becoming obligatory shopping, and even tourist, destinations. Wegmans, an East Coast chain frequently named America’s top grocery, and Central Market, an upscale offshoot of Texas’ H-E-B … have generated the kind of fervent fan bases once limited to sports franchises.” However: “Jeff Heinen fears that the supermarket will eventually go the way of the suburban shopping mall. ‘We’ll be prepared food and specialty products,’ he tells Mr. Ruhlman. Everything else, all those center-aisle products, in his estimation, will be delivered via Amazon.”

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