Mercatus invited industry analyst and commentator, Brittain Ladd, to share his views on the seismic shifts affecting the grocery retail landscape. In this blog series, Brittain details the steps traditional grocery retailers can take to prepare themselves by digitally transforming the way they do business today.
A useful technique in consulting and project management is referred to as Reverse Planning. Stephen Covey addresses the concept of Backwards Planning in his famous book, The Seven Habits of Highly Effective People, as “Habit #2 – Beginning with the End in Mind.” Covey states in his book, “To begin with the end in mind means to start with a clear understanding of your destination. It means to know where you’re going so that the steps you take are always in the right direction.”
When applied to the grocery industry, my unpublished research indicates that most grocery executives struggle with understanding not only where their own companies are going, but also where the grocery industry is going. New entrants, resurgent leaders, changing consumer trends, shifting demographics, increasing technology demands, and pricing pressure are all having an impact on the industry. To make matters worse, grocery retailers are surrounded by growing threats at an alarming rate, making it difficult for executives to understand what steps or direction to take their companies.
In the Year 2025…
To gain a sense of the magnitude of threats to traditional grocery retailers, fast-forward to the year 2025. What will the grocery landscape look like? What will success look like? Where should grocery retailers in 2018 focus their efforts and capital to ensure their ability to survive and thrive?
In 2025, the retail store will have transformed and morphed into lively, immersive environments powered by digital technology and sensors that capture and analyze data in real-time. The boundaries between online and offline have been removed, using a collaborative organization and infrastructure that connects everyone from the CEO to store associates, as well as suppliers.
Generational Shifts Drive Change
Demographic influences from millennials and Generation Z will have impacted store operations, giving rise to the assortment of groceries, immersive food preparation and cooking from AR/VR to in-store chefs. Smartphones and wearables will buzz with customized assistance from virtual agents while serving as payment platforms, removing the need for cashiers. Baby boomers are now older and have been surpassed by millennials who number 80 million. This large age group increasingly relies on personal shoppers and nutritionists to help them select their groceries. Last mile delivery is simply delivery and has been fully integrated into the grocery experience.
Amazon Controls E-Commerce
Amazon now controls 60% of the e-commerce market and its recently re-branded ‘Prime Grocery by Amazon’ stores, formerly known as Whole Foods Markets, control 6% of the retail grocery market. Analysts estimate Prime Grocery by Amazon will surpass Kroger as the second largest grocery retailer in revenue by 2027.
Walmart Retains Grocery, Loses E-Commerce Share
Walmart retains its overall market in grocery, but continues to lose market share to Amazon in all things e-commerce. Walmart made the decision in 2022 to end use of the name Jet.com and shuttered the company in 2024.
Instacart is Fourth Largest Grocer
Instacart is the fourth largest grocery retailer and is ranked in the top five for grocery distribution. Instacart’s CEO credits its growth and market share to the fact that it gained valuable knowledge from the “Amazon-Whole Foods Panic” of 2017 and 2018. The panic from Amazon’s acquisition of Whole Foods resulted in grocery executives looking for an immediate alternative to Amazon and contracting Instacart for order fulfillment and last mile delivery solutions. A Harvard University case study concluded that Instacart’s rapid ascent was fueled by a strategy that surprised and disrupted the major industry players. Instacart quickly learned the grocery business through partnerships and those partners’ strengths and weaknesses, which it then used to siphon away a large share of grocers’ wallets.
Influencing the Future Today
The 2025 presented above will be the reality for many grocers unless they take control of their future today. The first step in doing so requires grocery retailers to understand the threats to their current business model. Then, they must make a commitment to designing and implementing strategies that will provide a competitive advantage and an exceptional customer experience.
The Must-Have for Grocery Retailers
Grocery retailers received a wakeup call on June 16, 2017 when Amazon announced it was acquiring Whole Foods. The unstoppable force of Amazon made it clear with a single acquisition that it was no longer interested in only offering groceries through Amazon Fresh and Prime Now, Amazon has every intention of dominating the grocery industry. My research indicates that Amazon has the ability to become the largest grocery retailer by sales between 2027 and 2035. Many individuals assume that Amazon is a threat to the grocery industry because it’s morphing into an omni-channel retailer. False. Amazon is a threat because it has expanded to the largest retail category in existence, groceries. It is a threat not because it’s omni-channel, but because it’s omni-present. In other words, Amazon is everywhere.
To be effective against Amazon, grocery retailers must embrace digital and envision new ways to serve and interact with customers. This is what is referred to as the must-have. Without it, failure is assured.
Be a Wolf, Not a Sheep
Although Amazon is a growing threat, an even bigger threat to grocery retailers is having the courage to step back and evaluate the current state vs. rushing to the arms of a provider promising protection from Amazon. Instacart and the reaction of grocery executives after Amazon announced it was acquiring Whole Foods proves this point. In the words of Instacart’s CEO when speaking about the impact of Amazon’s Whole Foods announcement:
“What happened that day and the next few days after that was that pretty much every single important grocery retailer in the country — international, as well — called us, and they wanted to meet us,” explains Instacart CEO Apoorva Mehta. “That was sort of a formative moment for Instacart because that acquisition signaled to the entire grocery landscape that e-commerce is important, and Amazon is coming.”
Instacart deserves credit for its ability to recognize and seize an opportunity to grow its business. However, peel back the surface of Instacart and it becomes apparent that if every grocery retailer is using Instacart, no grocery retailer has a competitive advantage. Worse, as described earlier, grocery retailers that leverage the services of Instacart are allowing Instacart to learn their operations inside and out along with their strengths and weaknesses.
It’s time for grocery executives to step back and re-think their strategy with Instacart. They need to place their focus on being a Wolf instead of being a sheep that follows the herd.
The Way Forward
Global research indicates that the battle between Amazon and Walmart is having a ripple effect across the entire grocery industry. Grocery retailers that operated profitably with only physical stores are scrambling to meet the growing demand for digital interaction. As more consumers experience e-commerce, they are choosing brands that provide the most convenience over their regular grocery provider. For grocers, the stakes have never been higher.
During the recent Shoptalk conference in Las Vegas, the topic of digital transformation for grocery retailers was of special interest. Speakers highlighted strategies they recommend grocery retailers pursue, including:
Go BIG when it comes digital with a focus on reducing complexity. Executives lamented the fact they chose to build their own digital/e-commerce platform resulting in limited capabilities and poor customer experience. These complexities can be reduced by purchasing or leasing a digital platform designed specifically to the needs of grocery retailers.
Digital isn’t a “thing” that can be touched, it is a mindset. Grocery retailers can’t brute force digital into their current operations. Digital requires a completely different approach for how to attract, engage and enable customers to buy the products they require.
Brand matters. Customers want a consistent experience whether they engage with a grocery retailer in its stores and online. Customers are becoming sensitive to what they perceive as being unfair. For example, selling products online at a higher price than sold in stores, and adding an additional home delivery fee is a recipe for disaster.
Personalization matters. Baby boomers, Millennials and Generation Z all have different behaviors and requirements. Grocery retailers must master personalization and content.
Supply chains designed for physical grocery retailing do not meet the needs of e-commerce customers. Retailers must invest in designing and implementing omni-channel supply chains.
Based on my experience, grocery retailers that maintain a “we built it” mindset for technology, especially digital and e-commerce, and who believe they can bend and twist their physical supply chains to meet their omni-channel needs, are doomed for failure. Now, more than ever, grocery retailers must take steps to reduce complexity within their technology platforms and digital needs, invest in their supply chains and personalize the shopping experience. Success is never guaranteed, but grocery retailers that fail to heed this advice may fail.
In my next blog post, I will cover the importance of grocery retailers to make Big Moves that are essential for long-term business success.
To learn more about how traditional grocery retailers can compete, download our eBook, “A Survival Guide to Digital Retail”.