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Accept that the industry is being revolutionized, then dig in your heels and start competing.

Industry trends

Grocery Retailers: The Amazon-Whole Foods Deal Is a Chance to Up Your Game

  • 8/1/2017

Grocery retailers are in for a wild ride. Three recent industry transactions of enormous scope and size are sending seismic tremors across the retail grocery landscape as we’ve known it. They will undoubtedly force existing brick-and-mortar stores to entirely rethink how they compete, market, and engage consumers.

  • First, global supermarket discount chain Aldi announced a $3.4 billion expansion and refurbishment project for its U.S. stores. Its planned energy-efficient and no-frills remodel will drive down operating costs, allowing the grocery retailer to deflate product prices.
  • Second, German retailer Lidl is coming to the United States and says it will open 500 stores on our shores by 2023. Lidl’s entry into the U.S. market will further shake up consumers’ perceptions of private-label products, as its Trader Joe’s-style proprietary branding offers exclusive, high-quality, low-cost items.
  • And last, but certainly not least, Amazon declared its intended acquisition of Whole Foods for $13.7 billion, which will expand its reach and instantaneously makes it one of the largest food retailers in the country.
Sweet-faced Girls Scouts can’t sell cookies outside Amazon’s front doors. Grocery stores are hubs of community activity. Capitalize on this.

This triple whammy probably has traditional grocers like you on your heels. It signifies epic cost wars and brand battles, as well as a distribution and purchasing revolution. But change often leads to opportunity, and there are things you can do right now to stay competitive and evolve.

Before I offer some pointers, however, let’s take a closer look at the Amazon-Whole Foods deal, which will arguably impact the industry most profoundly and immediately, and what it portends for brick-and-mortar food retailers.

The Amazon-Whole Foods deal rapidly accelerates grocery industry change

Amazon had been pursuing a grocery acquisition for some time, so you probably aren’t exactly astonished by the news. The deal with Whole Foods in particular makes sense for several reasons.

  • It provides a ready-made cold supply chain — Amazon has long vended non-perishable food items, but fresh food delivery was problematic because it only had approximately 100 distribution centers across our sprawling country. It will now add Whole Foods’ cold supply chain (about 560 centers) to the list, shrinking the geographic span between supplier and customer. Shoppers will be able to receive perishable food before it actually perishes.
  • It marries brick-and-mortar outlets and online presence in one fell swoop — Amazon will instantly graft on a network of physical stores that places the mega-retailer in the midst of the majority of the population — and within 10 miles of more than 90 percent of its loyal Amazon Prime members. With the combined physical and web presence, it can also capitalize on increasingly popular “click and collect” programs, where shoppers order online and pick up at stores.
  • It takes advantage of the retail power of food — Numerous retailers have figured out that groceries drive traffic. Just about every drug store and discount department store sells groceries now. Many convenience stores are peddling more than just candy and snacks and stocking their shelves with limited but standard nonperishable (and sometimes fresh) grocery items. Even some hardware stores are getting in on the food retail action! By offering fresh food, Amazon will now attract new shoppers as people become more inclined to buy groceries online. It will also give existing customers more incentive to add groceries to their virtual carts as they shop for all the other goods they habitually order from the site. It’s always been Amazon’s goal to sell everything from A to Z, and the Whole Foods deal helps it take a giant step toward that end.
  • It was a dang good deal — Recent woes at Whole Foods had battered its stock price. Like any savvy, growth-hungry business, Amazon exploited the timing and picked up the chain at a bargain.

Taken all together, the deal’s impact on traditional and independent grocers as a group will surely be monumental. But at the individual company and store level, the significance may vary depending primarily on format, location, and use of technology.

As a near-term consequence, nonperishable products or center-store sales will probably decrease as shoppers gravitate toward online order-and-delivery or pickup programs. Sales of things like seasonal items, home supplies, and gifts will likely fade away with foot traffic. The store center could be replaced with expanded deli, bakery, and restaurant-like options, or even something else entirely. This could be an opportunity to get creative and competitive!

“Click and collect” was a fast-growing concept that was going to catch up to you anyway, but the Amazon-Whole Foods deal just accelerated it by years.

You may also find it necessary to launch or expand your social media and online presence and offer click and collect programs of your own to compete with Amazon and other grocers — sooner rather than later. This was a fast-growing concept that was going to catch up to you anyway, but the Amazon-Whole Foods deal just accelerated it by years. One key benefit of this format is that it could allow you to offer a more diverse, eclectic, and expanded assortment of products that draw customers in without the need to increase or alter current shelf space in the store.

You can turn this challenge into opportunity

While some industry experts are casting a “doom and gloom” pall on traditional grocers, I think there are several ways that you can stay competitive and even thrive in the radically changing marketplace. There’s no one-size-fits-all approach, but here are some things to consider.

  • Kill it at customer service — Local stores have the advantage of building face-to-face customer relationships. If your customer service is consistent, engaging, and genuine, you can engender greater loyalty and keep people coming back. Extra things, however small, can make a difference, like offering recipes, samples, or complimentary products, and warm, friendly service from a familiar face is something customers can’t get online.
  • Get creative with front-of-store services — Many grocery stores have added banking, coffee, dry cleaning, pharmacy, floral, and postal services inside their doors. Who else might you partner with to add convenience and set yours store apart from online retailers? What indispensable or innovative services will attract shoppers?
  • Enhance your loyalty programs — It is imperative that you know what your customers want, when they want it, and what price point they are willing to pay for it. Shopper loyalty data can reveal a lot about customers’ preferences and trends. You can leverage it for highly effective promotions or coupons and to identify items you should be stocking on your shelves. Plus, you can use it to communicate new offerings, special events, and even product recalls.
  • Create a sensory in-store experience — Put some “theatre” into your store, and let your shoppers see some of the action, like bakers icing cakes or tossing pizza dough, butchers fileting fish, produce employees slicing up watermelons for sampling. Try some wine and cheese tastings, perhaps — anything that entices the senses.
  • Be visible in the community — Remember, sweet-faced Girl Scouts can’t sell cookies outside Amazon’s front door. Local grocery stores are hubs of community activity. You always see signature-gatherers or food-drive volunteers flanking the entries. Capitalize on this. Studies show that shoppers place a high value on grocers who are involved in the local community. Whether it’s sponsoring a Little League team, donating items to schools and churches, or supplying coffee for a volunteer event, shoppers react favorably. Stay active in your chamber of commerce and other civic organizations to prove you have vested interest in your neighborhood and community.
  • Develop a signature, one-of-a-kind product — Maybe your deli could create a unique and highly craved sandwich or specialty recipe that becomes famous in the local market and absolutely not available anywhere else (least of all online). You could try tortillas or fresh pasta made on site, or something that features a locally harvested ingredient — just get creative. If you can get customers to drive past two or three other stores to come to yours, you’ll have a remarkable competitive advantage.
  • Amp up your social media presence — Post recipes, product photos, employee pictures, sale information — you name it. This is one way to be online and still have a friendly face. Communicate with the shopper and stay in front of them with promotions, deals, coupons, and informational messages about upcoming events or joint promotions with vendors or local businesses. Maybe there’s even an opportunity to develop a mobile app for your store.
  • Capitalize on food trends — Call in food and diet experts to talk about the latest food trends in free seminars or at informational booths. Paleo, gluten-free, anti-inflammatory, probiotic, vegan, plant-based — the trends are unending. Group trend products together, publish circulars featuring trend-related products and recipes, stock some reference books for customer perusal.
  • Play up the power of your people — The human element at your store cannot be matched by any online retailer. Hiring great people, training them on a continuous basis, cross-training them in various departments, and providing an exceptional working environment will make your employees happy, capable, and eager to serve. That’s a lot more satisfying to your customers than a page of search results or an order confirmation screen.

Grocers have some adjusting and adapting to do, but change can make you better, more innovative, and more efficient. Accept that the industry is being revolutionized, then dig in your heels and start competing.

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