Viewpoints

How Much Will Amazon ‘Disrupt’ Grocery?

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It’s well past the year’s halfway mark and the industry is mesmerized by the eye-popping pace of mergers transforming supermarket retailing.

Compared to that, few other topics are generating major buzz, not even the online expansion of a giant company that has the potential to make major inroads in the supermarket space.

SN Editor-in-Chief David OrgelThat company is Amazon.com, whose recent expansion of its AmazonFresh concept from Seattle to Los Angeles was widely covered by the media. However, many observers said its pricey membership model won’t generate mass appeal, at least for now. Others point to the challenges inherent in home delivery strategies.

In the midst of this comes a more in-depth perspective by consultancy Oliver Wyman that should give the industry pause. Oliver Wyman, a unit of Marsh & McLennan Cos., worked with Food Marketing Institute recently on the planning and implementation of its new strategic plan.

Here are some key points about Amazon from a position paper Oliver Wyman recently put together:

• AmazonFresh is “by far the most dangerous of the new breed” of online and multi-channel competitors, partly because it aims to cover a wide range of consumer needs and doesn’t necessarily view each one as a profit center.

• Its assortment is “surprisingly broad and deep,” including 700+ produce items, 600+ meat and seafood items, and 2,000+ beverage items.

• When Amazon opts to begin a wider market rollout, it will probably expand rapidly. It has a recognizable brand and it only needs to build distribution centers and networks, not physical stores.

• Amazon could dramatically change food retail economics if it’s successful, in particular forcing a major number of supermarket store closings.

To be clear, Oliver Wyman isn’t saying that Amazon should be considered the key challenge for food retailers right now, but rather another pressure point, and one that retailers shouldn’t ignore.

In Oliver Wyman’s assessment, retailers should focus on three things to deter a push by Amazon or other online players.

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One is the need to build a multi-channel offering, a point that’s hard to argue with.

Another is to “prepare for a world with fewer stores, possibly a lot fewer.”

The third area of preparation is the most surprising. Oliver Wyman urged retailers to “get seriously good at fresh,” adding that “most U.S. retailers are nowhere near where they could be.”

That seems like a disconnect, because supermarkets are far better purveyors of fresh foods than is AmazonFresh. In fact, Oliver Wyman’s own polling of AmazonFresh customers found the online retailer hasn’t yet figured this out, because its current offer is hit or miss.

I explored this point with the author of the paper, Joel Rampoldt, who is an Oliver Wyman partner and member of the consultant’s Retail practice.

Rampoldt emphasized the potential for an online player like Amazon to successfully figure out fresh foods. Eventually, that might even entail outdoing traditional retailers in getting high-quality, fresh products to customers.


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How could that happen? As he explained, an online retailer’s process is streamlined because it cuts out physical stores, which collapses the time from a DC to the consumer’s home. That contrasts with the traditional journey from DC to store to home, which leaves more time for product quality to degrade.

So in that sense online retailers have an advantage of sorts. That’s why Oliver Wyman urged traditional retailers that “getting good enough at fresh to fend off online competition means rethinking the supply chain, store practices and merchandising standards.”

So how much will Amazon disrupt grocery? Here’s a point of comparison: I don’t believe the potential is nearly on the same scale as the dislocations that resulted from Wal-Mart’s expansion of its supercenter concept, and for the record, Rampoldt concurs. However, even if Amazon doesn’t prove to be a fresh monster and grocery killer, another online player could emerge to fill that void and seriously impact food retailing. The Oliver Wyman analysis deserves careful consideration, because its message is based on solid points.

The Wal-Mart supercenter threat made the surviving supermarket industry smarter and tougher, so why can’t the Amazon/online threat do the same? That would be the best outcome of this challenge, at least from the supermarket industry’s perspective.

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Contributors

David Orgel

David Orgel is executive director, content & user engagement, of Supermarket News (SN) and its website, SupermarketNews.com. Orgel delivers his opinions on industry trends through a bi-weekly...

Jon Springer

Jon Springer has been writing about food, food retailers and food retailing for more than 10 years, and is in his second tour of duty with Supermarket News. His prior experience includes covering the...
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