The Next Disruption in Food Distribution
The growth of eCommerce is big news in the grocery industry. Google’s entry into the grocery delivery arena is one more indication that we are witnessing not merely a shift but a major disruption in the way food is distributed. Walmart, Fresh Direct and Instacart are providing local delivery, and Amazon Now is offering same-day delivery in many areas. Other online companies are using UPS delivery to ship non-perishables from warehouses in various locations.
It is clear that as the technology for eCommerce has matured, the market has been receptive to this disruption of the traditional food hub.
This transformation of traditional supermarket shopping is a natural outgrowth of a simple principle: Like water flowing downward in the path of least resistance, effective business practice seeks the most direct route to the consumer, skipping the unnecessary steps wherever possible.
History of the Food Hub
For centuries, traditional marketplaces served as the Food Hub. Hundreds of local farmers and merchants brought their goods and sold them to buyers face to face. Without refrigeration that made shipping possible, only local vendors were involved. Even cattle were brought to market and slaughtered on the spot.
Eventually people realized that it was more effective practical way to assemble a variety of goods in one place, under one roof. This gave rise to the traditional grocery store. Over time, refrigeration technology made it possible for perishables to be shipped from distant locations.
The neighborhood grocery store gave way to the modern supermarket, which eliminated the need for a sales person in each department and brought about a number of technological and operational innovations. Now even perishable foods arrive from all over the world. Once again, we see the cost reduced while the location and variety of vendors is increased.
At each stage, every breakthrough in the logistics of food distribution became possible as a result of technological innovation.
It is becoming clear that the next step in the evolution of food distribution will be the virtual storefront backed by warehouses. The obvious advantages include cutting expensive supermarket real estate by using cheaper warehouse space; cutting labor costs by automating the operational processes; and delivering fresh products without delay.
The technology is ready. It remains to be seen which implementation processes will be most successful.
The Commodification of Food
Asked about commodity, most people think of raw materials like corn, soybeans or cotton. Let’s look at the definition of commodity:
1. It must be standard.
2. It must be ready to use.
3. It must be accessible for purchase from a variety of sources.
With these three conditions met we can see a market forming for a specific commodity in which prices will fluctuate based on supply and demand (as in the case of oil prices).
Is Hellman’s Mayonnaise a commodity?
Is Hellman’s Mayonnaise a commodity? We can examine it in relation to the definition of commodity: It is definitely standard and ready to use, but is it accessible to the consumer for purchase from a variety of sources? Until recently, a typical consumer could theoretically reach a few supermarkets or grocery stores in a day to compare prices. In practice, this would rarely happen.
Today, with the multiple virtual storefronts accessible online and searchable by Google, I can quickly find the cheapest source of any packaged product. With time, we will have even more options for buying, and as a result the price of packaged goods will continue to level out.
So, in fact, Hellman’s Mayonnaise has not been a real commodity until recently. Online purchasing options have changed the rules of the game.
Do I want My Supermarket to be Merely a Distribution Hub of Commodities?
The short answer is probably “No.” If you do want to go further in the commodity direction, however, you must be prepared to compete on price.
The problem is that supermarkets are not likely to win the price war because the virtual storefronts have clear economic advantages over supermarkets.
The Solution for Retail Stores
You cannot stop global processes. You cannot control the wider market but you can take control of your own business model. The goal for your supermarket should be to stop being a distribution center of standard commodities, and become instead a destination where customers come seeking a unique experience and products.
As a retailer, you face your customers. Make this work to your advantage.
There are a few ways to achieve this:
1. Create a strong brand that stands for a level of quality not found elsewhere.
2. Offer additional variety not available elsewhere. Gourmet takeout is far from being a commodity if it offers a distinct flavor or style.
3. Enhance customer pre-shopping, shopping and post-shopping experience. Remember, service is not a commodity.
4. Engage customers. Entertain customers. Become a cultural center that is interesting to visit.
In short, you need to drive the process away from standard toward UNIQUE.
Supermarket eCommerce Choices
The first step in eCommerce seems at first glance to be simple: Find the most economical way to present your SKUs online and provide an easy way to shop for them. Actually, it’s not so simple… Let’s take a look:
There are two viable options:
Supermarket eCommerce 1.0: Outsource your eCommerce to a reseller like Instacart. The reseller puts your SKUs on their website and allows their visitors to shop for your products alongside those of your competition.
Supermarket eCommerce 2.0: Work with a solution provider that creates and manages your branded eCommerce.
Supermarket eCommerce 1.0 is relatively easy to implement because it requires less effort from your store. However, you lose your historic advantage as a retailer – you no longer face your customer. In fact, the customers are not even yours. The reseller keeps the customer base and promotes its own brand.
In addition, Supermarket eCommerce 1.0 is inconsistent with the direction away from the commodification of food. It may even become a catalyst helping to bring about price wars and smaller profit margins.
Supermarket eCommerce 2.0
Having spent years observing the challenges that supermarkets face when going online, we have developed a concept of Supermarket eCommerce 2.0. In this model, eCommerce is no longer viewed as an entity separate from the store. Rather, the primary goal of eCommerce is to become an extension of your store into the online space. It should be done in a uniform and truly omni-channel way.
Supermarket eCommerce 2.0 features the following:
1. Store brand is correctly represented and promoted by eCommerce.
2. Operation and customer experience should be under store’s control.
3. Store retains and expands its customer base.
4. Store controls online prices and specials.
5. Store uses promotional coupons online.
6. eCommerce streamlines order fulfillment.
7. eCommerce integrates with the store’s rewards program.
8. eCommerce helps distribute digital circulars.
9. eCommerce offers customers the store’s recipe library, with the option to shop by recipe.
10. eCommerce promotes in-store events.
This concept requires more effort and commitment from the store, but it yields much better long term results because it helps in the journey toward being UNIQUE.
Think about your store’s place in the market and where you’d like it to be. Once you achieve a clear vision, you need to have good tools. Having the right tools and using them the right way can help you not only survive, but flourish during the disruptive turmoil in the grocery industry.