Amazon & Whole Foods: The Next Evolution of the Modern Supermarket?
In anticipating the next step in the evolution of grocery shopping, it is impossible to ignore the statement-making moves of our neighbor, Amazon. In March 2017, Amazon revealed the first of many AmazonFresh Pickup locations for beta testing. Locals and newcomers of the beloved Ballard and SoDo neighborhoods looked on anxiously as AmazonFresh opened its doors to non-employees in May. Nearby residents voiced concerns about the impact that a drive-through grocery could have on their everyday lives; consumers of U.S. supermarkets near and far raised an eyebrow and wondered whether a new model of grocery shopping had been born.
Last August, Amazon bought Whole Foods for the sum of $13.7 billion and has begun to make its changes. Most notably to consumers, the change resulted in lower prices on many of Whole Foods’s staples. Various business analysts have speculated that Amazon’s acquisition of Whole Foods was driven more by its need to gain established local points for distribution and online purchase pickups as opposed to running supermarkets. Amazon also acquired Whole Foods’s reputation for fresh, quality produce and brand products, a reputation that AmazonFresh lacked.
Whether Amazon will ultimately repurpose the Whole Foods stores as distribution centers for AmazonFresh drive-through grocery pickup or create a multimodal grocery store remains an open question. It, nevertheless, calls into question the future of big box grocery stores like Safeway and QFC (Kroger for other parts of the country) and perhaps reflects the next evolutionary stage of grocery shopping.
Grocery stores have evolved with technology for over a century. While the idea of a drive-through grocery store seems like a revolutionary disruption to grocery stores, it is not. Until the early 1900s, the grocery shopping experience was one of little consumer effort. Shoppers had to make multiple stops – to the butcher for meats, green grocer for produce, bakery for bread, and local general store for dry goods – but once inside, one only needed to provide their list to the respective butcher, grocer, or clerk who would then fill their grocery bag. Then, in 1910, the nearest descendant to the modern supermarket, called the Piggly Wiggly, was born.
The introduction of the self-service model changed consumers’ relationship with grocery shopping and with technology. Products now needed to appeal to shoppers, resulting in aggressive marketing, pre-marked pricing, and strategic product placement. Due to the growing variety of products readily available to consumers, shopping bags became shopping baskets and carts, bulk foods became packaged, and clerks, though not entirely (thank goodness), became self-checkout machines. Market dominant grocery store chains emerged as supermarkets felt the pressure to expand (e.g. Kroger, which began manufacturing the products it sold), specialize (e.g. Whole Foods, which focuses on natural or organic foods), or disappear.
The current trend is convenience, not drive-through. Amazon certainly did not develop its pickup locations on a whim. The decision illustrates the growing expectation of convenience. Current U.S. trends are clear: urban areas are becoming more urban; a growing number of adults are choosing to get married and have children later, if at all; and young people are focusing on health-conscious eating. Depending on their financial circumstances, locals of the Seattle area have access to local vegetables delivery subscriptions, pre-made meal subscriptions, and third-party companies who will deliver goods to their front door. The idea of a drive-through grocery store is not far off. So how can supermarkets compete?
Downsize, specialize, or expand to a convenience store. Looking specifically in the greater Seattle market, it is true that grocery stores should critically consider their next step. Amazon’s entrance into the grocery store industry (not to mention its most recent acquisition of Whole Foods) means that traditional grocery stores may want to develop smaller storefronts in the urban areas where quick restocking is possible. Instead of variety, grocery stores may want to focus on providing specific food and non-food items that will incentivize consumers to shop there, and there alone. Larger-scale examples of this include Trader Joe’s, which sells its own private label of trendy and affordable food, and Target, a more recent player to offer fresh produce. The key is not merely to adopt Amazon’s model of drive-through grocery shopping, but to react to it – strategically. The result is not death of the traditional grocery store, but merely its next evolution.
- Larry CostichShareholder
- Cecilia JeongAssociate