During the pandemic, home delivery and customer pickup of groceries exploded. Those changes are now significantly impacting the future of the grocery business, making the business harder and more competitive than before. There are two reasons why this is occurring: one is in home delivery and the other is in-store.
With the realization that the grocery delivery business is here to stay, a lot of capital is rushing into the market to gain market share in grocery delivery. According to Retail Brew, grocery delivery companies worldwide raised $8.9 billion so far this year. Some of that capital is going towards large advertising and marketing campaigns including 30% price reductions and $20-$30 back on initial orders to gain market share. The fight for market share will likely cause everyone to lose money; they are using capital to gain share and they know they’ll lose money. As delivery systems get developed they will figure out how to expand into less densely populated places.
Why would startups want to go against the big players like Walmart, Kroger, Albertson’s and Ahold who have grocery revenues close to and exceeding $100 billion and enormous resources to bring to the fight?
Until now, the grocery business worked the same as it did when your mom did her grocery shopping. Whoever had the most convenient, easy-to-shop stores with the right prices on what Mom wanted got her business and she kept coming back week after week. With home delivery, that’s out the window. What matters now isn’t how the store works, it’s who can make it easy to shop on a mobile device or laptop and delivery conveniently. As grocery changes from being about how a store works to being about how an app works, being the owner of the logistics is less important.
That’s how the grocery business is changing. The company that makes the best user experience online, whether they own all the logistics or not, is going to get and keep the customers. The rapid growth of delivery has created an opportunity for new players to gain market share. New players who think they can offer the consumer a great experience are paying to buy market share they think they’ll keep, believing they have skills that the established players lack. If you’re a traditional grocer, it’s a very different way of thinking about the grocery business.
With the market for groceries in the U.S. nearing $1 trillion and the established players perceived to be vulnerable online, there’s an opportunity for someone, maybe several people, to displace the leaders and that’s why we’re seeing all these new companies come into the market now. Even Walmart, which has no stores in New York City, can’t stay away; it is now offering delivery through Instacart to three of the five boroughs of New York City.
In The Store
Physical grocery stores are also going to become more competitive now, for several reasons. First, as online grows, fewer customers will be coming into stores. Making the stores work economically on a smaller customer base is going to turn some stores that are currently profitable into losers. That’s why you will start to see closed supermarkets the same way you have seen closed fashion stores on main streets all over America.
Second, technology. The grocery business is highly competitive with small margins. Now store operators will have to invest enormous sums in technology to remain competitive. The technology is of several types:
- Shoplifting. Software can now be a key part of detecting when a customer walks out with something they didn’t pay for. Artificial intelligence is now well developed to see inappropriate behavior at the checkout and spot consumers taking what isn’t theirs.
- On the shelves. Cameras and software can see when shelves have run out of product and alert the staff to fill it in.
- Back of store. The same software that watches the shelves can see what gets delivered and where it’s supposed to go. When it goes to the wrong place, it can alert management to move it.
- In the distribution center. Software using artificial intelligence can now see what gets picked, when mistakes are made and issue immediate correction orders.
Most of all, technology is coming to the checkout. Or more correctly, to eliminate the checkout.
By Richard Kestenbaum, Forbes.com.