Grocery shopping, a cumbersome chore some do on a weekly or biweekly basis. It guides many family diets, budgets, and weekend schedules. Since the invention of the Internet in 1994, e-commerce has taken businesses to a whole new level; revolutionizing the shopping experience. [Tweet “As of today, April 2017, the use of Internet for commercial applications is still young (23).”] Which probably explains why e-commerce is just now beginning to hit the mainstream within the grocery market.
Even with the advent of technology the grocery experience has remained relatively the same with few people adapting to the current online ordering options provided by stores. However, Amazon, is looking to change that. As recently revealed license applications show Amazon is looking to make its big entrance into the grocery arena and will likely disrupt the experience, market, and competitors as we know it. According to Elizabeth Weise from USA Today, rumors of Amazon’s plans encompass a 9,700 square foot building where customers place orders online, then drive by during a specific 15-minute to two-hour window and have their groceries delivered to their cars. Similar to the popular Sonic drive-thru, except they already have your order and charged your card. Fast. Convenient. Efficient.
Remember the Piggly Wiggly?
Approximately, 100 years ago in 1916, a Piggly Wiggly market in Tennessee introduced the radical notion of self-service shopping. Previously, “at an old-style grocery, customers would pass a grocery list to a clerk, who would then put items together for shoppers in one bag. At Piggly Wiggly, on the other hand, the shoppers did their own choosing—and the products had to do the tempting” (Ross). The effects of the self-service change in 1916 became ubiquitous, having a ripple effect on the workforce, product costs, overhead expenses, and marketing. Now, in 2017, Amazon’s introduction of a new method of shopping is equally impactful and perhaps more certain since Amazon has implemented widespread innovations before.
While Amazon’s plans are new for the online retail giant, the concept of ordering online and being able to drive to the store for curbside pick up are not. Competitors such as Walmart have been doing this for almost two and a half years (Anderson). Other grocery competitors such as Kroger’s, Whole Foods, Wegmans, and many others also offer these services. While these competitors already have a similar system in place they still have the potential to be adversely affected by Amazon’s new move.
According to a 2015 Barnes Report on the Grocery Stores Industry, the US has more than 79,000 locations, generates $554B in annual sales revenue, and employs 2.4B people. At one extreme are “chain supermarkets;” though fewer in number approximately 6,800 locations generate 54% of sales revenue. Conversely, approximately 48,000 “grocery store” locations generate only 10% of the industry’s sales revenue while employing 31% of the workforce (Industry Report). [Tweet “Grocery stores, on average, already operate on extremely thin profit margins (1-3%) (Huebsch). Amazon’s entrance into the market is a significant threat.”]
By not currently owning any physical grocery stores, Amazon can strategically tailor location designs to this newer form of grocery shopping. The store can be a simple food warehouse without the need for fancy displays and a nice interior for customers. Instead, the interior can be optimized for automation and well-tuned stocking levels. Without shopper foot traffic and a parking lot, store locations can likely have small and simplified footprints.This translates into a wider array of store sites, reduced real estate purchase prices, and property taxes.
The Competitive Landscape
Grocery specific competitors such as Kroger’s, Whole Foods, Wegmans, and the local mom and pop store may also be adversely affected from Amazon’s strong ecosystem for non-grocery goods with loyal customers. These customers could be easy converts to Amazon grocery without much need for advertising as they are already familiar with the Amazon experience. Even those competitors able to adapt may still lose customers opting for an all-in-one experience. Competitors will need to consider starting or revamping loyalty or rewards programs. Giants like Walmart will lose service differentiation. Regional and local grocers will be forced to compete on price and service with a new and familiar omnipresent competitor.
One competitor lurking to jump into the grocery shopping market is convenience stores. [Tweet “In 2014, convenience stores accounted for 11 percent of millennial food and beverage stops. Many stores across the country are seeing record sales. Millennials, in particular, are not stopping to fuel up just on gas, but also fresh food and immediate meals.”]
“We’re finding that millennials are really looking for fresh offerings and snacking occasions,” says Kyle Sloan, merchandise manager for Love’s Travel Stops. Consequently, Loves has responded to this demand by adding fresh fruit, salads, sandwiches and coffee service upgrades to their stores.
Adios Checkout Lines
Amazon’s disruption to the business model also transforms the consumer experience of grocery shopping. The checkout line experience entails a bit of psychology when it comes to consumer behavior. Most major stores offer more than ten checkout lanes in addition to a self-checkout area. The psychological part of the experience is the perception that inefficient line designs are a waste time. [Tweet “Humans hate standing in lines, but love being in front of them with this “first-come, first serve” mentality.”] Furthermore, people who stand in line longer feel they are more deserving of service because they paid for it with their time (Business Insider). Significantly, Amazon is disrupting the current “impulse buy” consumer behavior that occurs during checkout. According to an article published in Popsugar, the average checkout time ranges anywhere from 3-8 minutes, bolstering the theory that many grocery store marketing departments thrive on last-minute conversions (Living). These conversions happen by way of wayfinding design and eye-level placements.[Tweet “By placing items the store wants a consumer to buy at eye level, the greater the likelihood of making a purchase.”] According to a Cognizant Shopper Study, 65% of those who buy online and pickup in-store purchase additional items in-store when they go to pick up purchases–especially near the checkout (Resources). Therefore it can be inferred many grocery stores leave a plethora of goodies next to the checkout counter on purpose, hoping to entice shoppers waiting in long lines to throw additional items into their cart.
There’s an app for that
Let’s not forget about the membership warehouse giant, Sam’s Club. They, too, also want to enhance the grocery shopping experience for customers and maintain their membership market share. [Tweet “In September 2016, Sam’s Club released their “Scan & Go” concept, which has since gone live in 645 U.S. Stores.”] The service works just as it sounds. Shoppers open the app and scan each item’s barcode, keeping a running total of items in the cart. A shopper checks out and pays via the app and shows the receipt from the app to the employee standing at the door. Apple retail stores and Amazon-Go have also recently launched similar services eliminating the checkout line for shoppers. https://www.youtube.com/embed/NrmMk1Myrxc
Gone are the days of providing a grocery list to the Piggly Wiggly clerk and awaiting their return with the items. With a growing competitive landscape in the grocery e-market, Amazon’s drive-up model will strategically cut costs by styling the store for function versus appearance. In addition, store overhead will be reduced and can easily adapt to eliminating underperforming locations. Overall, Amazon will create a paradigm shift by eliminating checkout lines and updating the store layout, making it more efficient for consumers to purchase products. While Amazon’s success in other markets has been widespread, the anticipation for taking over the grocery store market is another way the company is looking to expand their empire through a convenience-first business model.
Work Cited:
Anderson, G. (2014, October 2). Walmart’s Drive Through Grocery Concept Is A Head Scratcher. Retrieved February 25, 2017, from https://www.forbes.com/sites/retailwire/2014/10/02/walmarts-drive-through-grocery-concept-is-a-head-scratcher/#5d9755681b99
Budnar, Richard. Exam I – WTAMU. N.p., n.d. Web.
Business Insider, 15 Sept. 2015. Web. 26 Feb. 2017. https://www.thestreet.com/story/13749217/1/walmart-s-sam-s-club-unveils-scan-and-go-to-make-cash-register-obsolete.html
Gerlich, R. Nicholas, Ph.D. “Unit 01: The Bucks Start Here.” West Texas A&M University, Canyon. 06 Apr. 2017. Lecture. GROCERY STORES INDUSTRY (NAICS 44511). (2017). United States Grocery Stores Industry Report, 1-140.
Huebsch, R. n.a. What Is the Profit Margin for a Supermarket? Retrieved February 25, 2017, from http://smallbusiness.chron.com/profit-margin-supermarket-22467.html
Living, Smart. Washington DC Shoppers Wait the Longest in Grocery Lines. POPSUGAR
Smart Living. n.p., 31 Aug. 2009. Web. 26 Feb. 2017.
“Resources.” InReality. n.p., n.d. Web. 26 Feb. 2017.
Ross, A. (2016, September 9). America’s First Supermarket at 100: How It Changed the World. Retrieved February 25, 2017, from http://time.com/4480303/supermarkets-history
Sozzi, Brian. “Walmart’s Sam’s Club Scan-and-go App May Make Cash Registers Obsolete.”TheStreet. TheStreet, 23 Sept. 2016. Web. 06 Apr. 2017.
Urbanowicz, Tom. Exam I – WTAMU. N.p., n.d. Web.
Weise, E. (2017, February 22). Beer to go? Amazon applies for a liquor license at its secretive grocery store. Retrieved February 25, 2017, from http://www.usatoday.com/story/tech/news/2017/02/22/amazon-seattle-supermarket-drive-thrugrocery/98250154/
Weller, Chris. Everything about the Way We Stand in Lines Is Wrong. Business Insider.