So you’ve prepped your home for sale in every way. Your house looks better than it ever has and you are ready to hit the market! Before you proceed with the

What should grocery chains do in 2018 to avoid getting crushed by Amazon over the next 5 years?

When looking at survival, I look to evolution for a clear understanding of the goal. A basic principle is that two different species can’t occupy the same ecological niche, and it follows that the path to survival is for grocery stores to make sure that they differentiate their niche from the one inhabited by eCommerce grocery services. They need to avoid pushing to compete where they can’t, excel in areas where they can, and press hard in areas where Amazon can’t compete at all.

Of course, writing this, I am reminded of a recent NFL playoff game where the announcer said: “That’s how you have to beat Tom Brady, you <blah blah blah>”, reiterating the identical advice that announcers have been giving for the last ten years as Brady and the Patriots racked up a 123–37 record. Knowing what you have to do is a whole different ball of wax from actually being able to execute it.

Don’t push to compete where you can’t.

If it’s just about not getting off the sofa and price is no object, then the obvious solution is for local chains to offer grocery delivery with online ordering and compete directly with Amazon’s service. That’s a facile statement, but the reality is that many urban chains have partnered with online ordering and delivery companies to offer this service since practically the inception of the web: the World Wide Web dates to 1990, and Peapod at least has offered online ordering and grocery delivery since 1993.[1]

It’s very likely that many of the major chains have a goodly number of lessons learned already available to inform them as to what markets are susceptible to delivery service penetration, what the barriers are, and what would be needed to overcome them. Although I do see grocery delivery slowly becoming more and more common in the US, the article linked in the question source cites a figure of 2–4.3% for the share of the grocery market that is occupied by online ordering and delivery. Traditional stores have had a long head start in which to build this number higher, but they haven’t done it, and I don’t think this is because they didn’t look ahead and see Amazon coming.

Interestingly, the path of online grocery outside of the US has been markedly different: in the UK online grocery has taken off and led to the development of dark stores run by major grocery chains.[2] In these dark stores no actual customers shop, instead the operation is purely pickers filling orders for delivery. According to a white paper by a UK based strategy group, the rise of these dark stores is a direct outgrowth of the demand for online grocery:[3]

From the outset of online grocery services, the majority of retailers chose to develop store picking operations that enabled them to leverage their fixed assets, and also the store inventory. As volumes have grown, retailers have increasingly found that their stores lack sufficient capacity to support ecommerce order volumes without impacting the offline store operation.

At the same time, those UK chains have found that their dark store operations cut into their traditional outlets: [4]

But getting customers to keep coming back is the real challenge. Still gigantic in retail terms, the profit margins for supermarkets have recently been falling. The once-unflappable British chain Tesco has been forced to close stores and lay off thousands of staff. Meanwhile, customer loyalty is in tatters and loyalty schemes – once highly lucrative – are adding little to supermarkets’ profits.

Here’s the thing: Amazon is a monster dark store operation with a great deal of expertise and infrastructure already in place; grocery is just a new market for them. In the US, I feel it is unlikely that grocery chains that focus on competing with existing eCommerce leaders by pressing the online delivery pathway and moving business to dark stores will be able to overcome that head start and outcompete their rivals, especially as they are likely to experience the same degradation in the customer-facing locations. Dark store vs. dark store, Amazon will win. So while existing grocery chains will no doubt need to put some effort into online options, I don’t think this can be where they make their big push. In order to remain in business, grocery chains must keep their offline, direct-sell locations healthy and profitable and that is where their efforts need to go.

Excel in areas where you can compete.

We can begin looking for areas of successful competition by examining the ‘prior art’ in this area. Best Buy, Home Depot, and others are still in business despite significant incursions into their market share from Amazon. So what are they offering to compete?

  • In-store pickup for online orders
  • Access to expertise
  • Visual real estate / shopping experience

Delivery to your door isn’t always a win: either it’s awkward to be tied to the house for your one (or more) hour delivery window, or you have a couple of things you want to pick out in person at the same location, or it’s just easier to pick it up yourself for whatever reason. Plus, many customers (and this especially applies to some areas of grocery like meat and produce) like to be able to inspect before taking receipt, rather than having to deal with the hassle of a return.

At a resource level (order assembly and stock) in-store pickup and delivery are equivalent until the order leaves the store, and we saw above that in the grocery arena high volume of delivery orders outstrips the ability of existing stores to fill orders from stock. But drawing on my experience both as a kid who was routinely sent to the corner bodega to pick up eggs, sugar, or whatever else it was that we unexpectedly ran out of, and as a parent in a two-earner family today, I’m willing to bet there’s a solid market for an in-store pickup service with a cap on the item number. The target customer here is someone picking up a couple of things for dinner on the way home from work, or the mom who needs toilet paper and wants to grab it on the way home from the morning playdate without having to wrangle three kids farther into the store than absolutely required.

One thing that large scale eCommerce usually is not is personal. It goes against the very nature of the beast; frequently the only human you interact with during the entire process is, perhaps, the UPS guy as he drops off your box. It’s tempting to say that personal interaction facilitates custom requests that may be hard to find, but I’m not sure how accurate that is, because online operations can offer advantages of scale: a “customization” that doesn’t bring return on investment for 1% of 500 customers may well be worth the while when your market is 50,000 customers. Where I think the personal interaction currently wins over the online experience is with the customer who is not quite sure what they want or need. While many online services do offer a chat feature, most people talk faster than they type. In particular, when one person is uncertain then an in-person interaction allows for a larger range of expression and tends to move more rapidly. Eventually as video call overtakes chat this advantage may diminish, but right now it’s there and grocery stores should press it for everything they can.

If a customer at the butcher asks about a particular cut on display, the counter employee should be able to suggest some recipes that it would be good for, engage the customer in casual conversation, explore ideas given the customer’s constraints (little time, not much cooking experience, etc.) to facilitate the purchase, and be able to suggest appropriate sides if the customer expresses an interest in fleshing out the whole meal. Ditto the fishmonger, the deli counter, the cheese display, etc. Small store service should be available at every specialization area, and even a stockboy asked about the location of a particular item should be able to ask whether a customer is looking for a particular brand and make a few basic suggestions. Will that up the necessary skill level for these jobs? You betcha, although if you’ve got three butchers on a shift then arguably only one or two need to be able to manage this kind of customer interaction. But it also gives customers an experience they can’t get online, and this kind of service is where “elite” grocery chains such as Wegmans are already winning.

Information processing, largely visual, is an important aspect of the shopping experience. Take a look at this:

This is Amazon acknowledging that product comparison is important to shoppers. For grocery items though, it’s tough. Comparing nutrition panels doesn’t translate easily to the screen: the key comparison points vary hugely from product to product and when stacked up against the straightforward action of holding a box in each hand and glancing back and forth, the online experience can get awkward fast. Scale presents another issue; I’ve occasionally spent more time than was really necessary staring at my screen and trying to remember whether the 6 oz. or 12 oz. bag of cheese is the one that I usually buy, but in the store I can instantly pick it out.

A common tactic for managing these “finding” issues is for online sites to have favorites lists, but having customers go straight to the favorites list means they may be skipping past any highlighted merchandise. In a grocery store, there’s plenty of opportunity for new product display to be walked past on the way to the regular aisles. This is a tiny example, but the point is that the physical store experience, the act of shopping in the store, needs to have added value over the online experience.

That’s a nice segue into a point I feel we shouldn’t overlook here: traditional supermarket chains are not only losing grocery business online, they are losing it to other physical store formats as well: [5] [6]

“Experience” offerings that help grocery chains to compete against other formats will also help them to compete against eCommerce. A couple of examples, one already in play, one imagined:

1: We have a local small grocery that now faces competition from a 3-year old Target that has a liquor license. They seem to be doing fine: they have an excellent in-house butcher, a great line of in-house prep items that are either ready-to-eat or ready-to-cook, and they frequently hold product experiences such as wine or chocolate tastings. I’ve already referenced the role of great butcher service above. Most supermarkets already offer some ready-to-eat or ready-to-prep, and how much quality they are known for there is entirely up to them. Last, although I rarely see product experiences at my local supermarket, I do commonly find them in the Fresh format/ limited assortment (Whole Foods, Trader Joe’s) stores. I’m not aware of anything that prevents traditional grocery from offering these, and this experience, the opportunity to taste, touch, and smell is something that an eCommerce establishment will definitely not be offering any time in the near future.

2: At least some of our weekly grocery shopping has been replaced by Blue Apron, and meal kits are a growing market. On the whole we like the service, but there are some drawbacks: the amount of delivery packaging, having to choose in advance, and the inability to scale when you have 3 kids and the only serving plans available are for families of 2 or 4. Oh, and also the times when you really needed only 1 meal that week or else when you wish you had a third.

Grocery purveyors already have on hand much of what would be needed to set up a “Dinner tonight” section: a choice of three pre-pack kits (different each day) and a recipe card. The packaging problem goes away, the super-advance planning goes away, and scaling or substitution — or even mix and match sides and mains — become tremendously more manageable. Combine this with an expertise aspect such as described for the butcher or fish counter above, and I bet you’d have a winner. Of course these kits would cost more than if you walked around the store and assembled it yourself, but so do the ones everyone is getting from Hello Fresh and Sun Basket! This buyer is more than willing to pay overhead to be relieved of the decision about what to make for dinner and the task of checking cabinets to make sure everything is on hand to make it. If my grocery store offered this I would drop Blue Apron like a hot rock and never look back, because this experience would be vastly superior to what can be done online in this area. It would probably be cheaper too.

The key thing to keep in mind when thinking about these examples above is that these experiences serve the same function as loss leaders:[7] they get people in the store. Once you’re there anyway, and expecting to be there on a frequent basis, it’s just as easy to grab the toilet paper in person as it is to order it online.

Press hard in areas where eCommerce can’t compete at all.

There is really only a single area that I can think of where eCommerce can offer absolutely no competition. In the long run, I think that grocery chains’ best chance of survival lies in each store becoming an integral part of the community that it serves. eCommerce is, somewhat by definition, global, and the physical store must take the utmost of the advantage that it has from being local.

When I say that stores must become an integral part of the community, I don’t mean that they need to support local sports teams. I mean that they need to be an integral part of the local economy: they need to not only offer local jobs, but offer them at living wages, with suitable benefits. They need to be a visible source of real income for everyone’s friends and neighbors, jobs that will hurt to lose as opposed to jobs that are replaceable with something else at minimum wage.

I live in New England and my town has a local Market Basket; every teen I know either is or knows someone who is a bagger or has a part time job there. It was my privilege to support the protests of 2014 around the battle between Arthur T. and Arthur S. that received national coverage.[8] [9]Take a look at the Slate piece and its description of what Market Basket is offering that drove not only the worker protests themselves, but the extensive support they received from communities that refused to shop there during the strike in a show of support of those workers:

Such an outpouring of goodwill for a millionaire CEO from hourly wage workers confounds our sense of how business in America works today. We’re much more accustomed to workers protesting their company’s policies, as we’ve seen with the spate of recent fast-food-worker strikes. So why has Arthur T. inspired such fervent support? “The new owners, they want to close the stores and raise the prices,” said one Somerville worker who declined to give her name. “They want to take away our benefits. Arthur T. has been supporting us more.”

The affection for Arthur T. goes beyond the personal touch he brings to the CEO role (for example, he remembers the names of low-level employees, and the names of their sick relatives). Under Arthur T.’s stewardship, employees have been relatively well-compensated. Manager pay often climbs above six figures after years of service. Cashiers with experience can make over $40,000, and full-time clerks start at $12 an hour, the Boston Globe reports. According to U.S. Department of Labor numbers, the annual mean wage for grocery store cashiers throughout the country is $21,370. In Massachusetts, the minimum wage is currently $8 an hour (though a bill was recently approved to raise it gradually to $11 by 2017).

In addition, the company matches about 15 percent of annual pay to a retirement fund, and regular, substantial bonuses are awarded throughout the course of the year—which is a significant boon to their quality of life, workers tell me. Outside the Somerville store, one employee said she’s worried about what she’ll do if those bonuses disappear under new Market Basket leadership, particularly around Christmastime. Another Somerville employee named Jessica, who works behind the customer service window, said she’s anxious that the board of directors might take away her $1,000-per-semester stipend to University Massachusetts Boston, which three of her co-workers also receive.

Former Secretary of Labor Robert Reich also wrote about the strike in the larger context of a discussion around shareholder capitalism, in which the primary goal of a business is to maximize profit for shareholders, and stakeholder capitalism, in which the primary goal of a business is to provide benefit at all levels from the mailroom clerk all the way through CEO and shareholders. [10]

But maybe, in retrospect, shareholder capitalism wasn’t all it was cracked up to be. Look at the flat or declining wages of most Americans, their growing economic insecurity, and the abandoned communities that litter the nation.

Then look at the record corporate profits, CEO pay that’s soared into the stratosphere, and Wall Street’s financial casino (along with its near meltdown in 2008 that imposed collateral damage on most Americans).

Does that sound familiar? Arguably the issue of American jobs was one of the most potent forces that drove the election of Donald Trump to the office of United States President. Yes, people care about the jobs in their community that much. The United Auto Workers union publishes a list of UAW made cars every year,[11] [12] because there are people who value the jobs of those workers that much that when shopping for a car they will eliminate models from contention based not on price, not on quality, but on whether or not the profit of those sales supports their community. The ILGWU, now defunct, ran successful advertising campaigns throughout the 70’s and 80’s, and some of you may remember this jingle: [13]

Look for the union label
When you are buying a coat, dress, or blouse,
Remember somewhere our union’s sewing,
Our wages going to feed the kids and run the house,
We work hard, but who’s complaining?
Thanks to the ILG, we’re paying our way,
So always look for the union label,
It says we’re able to make it in the USA!

And it worked. People looked for that union label, they did.

Online vs. in-person; it’s easy to write hostile and hateful things to an unknown person behind a screen who is miles away, but many who write those things wouldn’t say something like that to their neighbor. In the same way, many will find that it’s harder to trade in all their brick and mortar shopping for eCommerce when you know that it’s your neighbor whose job will be going away. The American consumer is not a sheep that blindly chases the lowest price based only on their own self-interest, and even if they were, a year after the strike Market Basket was still doing well and offering lower than average prices.[14]

We already know by the above examples that shoppers can be motivated by loyalty aspects beyond price and convenience. I think the biggest thing that grocery stores should start doing right now, in 2018, is to build that loyalty by establishing themselves in the community in the way that has been relatively unique to Market Basket up to this point in time.


[1] Peapod – Wikipedia

[2] Dark store – Wikipedia

[3] White Paper – Online Grocery Fulfilment – Javelin Group

[4] Shop, but don’t enter: The strange world of dark stores

[5] Why supermarkets are in trouble


[7] Loss leader – Wikipedia

[8] Meet America’s Most Beloved CEO—Too Bad He Just Got Fired

[9] Here’s Why Grocery Workers in New England Are Rallying Around Their Millionaire Ex-CEO

[10] The Rebirth of Stakeholder Capitalism?

[11] 2017 UAW Built Vehicles List | UAW

[12] The 2018 UAW Union-Built Vehicle Guide: Let’s Start Bringing the Jobs Back Home | UAW

[13] International Ladies’ Garment Workers’ Union – Wikipedia

[14] A year later, things are going pretty well for Market Basket