ALBUQUERQUE, N.M. — In the summer of 1923, Eblen’s Cash Store placed several advertisements in the Albuquerque Journal for what it called the “most efficient grocery delivery system ever offered.” For a small fee, or none at all if the order totaled more than $5, Eblen’s said it would quickly deliver everything from cookies to “firm radishes” to any address in Albuquerque via taxi.
It is unclear whether the experiment was a success. In any case, it did not prevent Eblen’s from disappearing in the wave of modernity that swallowed up most of the city’s small grocers and their delivery services.
Building “the most efficient grocery delivery system ever offered” might have been hyperbole for Eblen’s nearly a century ago, but the possibility is real for Seattle-based e-commerce giant Amazon today. Amazon – which has brought sweeping changes to the book, cloud computing and retail industries, to name a few – announced in June it would acquire Austin, Texas-based supermarket chain Whole Foods for $13.7 billion. The news sent grocery stocks tumbling in what data and analytics firm Trepp LLC termed “the Amazacolypse.”
Though Amazon remains tight-lipped about its strategy, analysts say the grocery industry is scrambling to anticipate the e-retailer’s next move. That means Albuquerque consumers could see changes in their shopping experience more quickly than they might have expected.
“Everything is going to change very rapidly,” said Phil Lempert, an industry observer and the founder of SupermarketGuru.com. “It’s going to change in Albuquerque. It’s going to change everywhere.”
A saturated market
Lempert described the grocery industry in medium-sized metropolitan areas such as Albuquerque as “highly saturated and very competitive.” Here, the market is comprised of major chains (Smith’s, Albertsons, Whole Foods), warehouses (Costco, Sam’s Cub), mass merchandisers with grocery operations (Walmart, Target), as well as independent operators.
Data from the trade publication Chain Store Guide show two companies dominating the Albuquerque grocery sector: Walmart (which operates Walmart Supercenters, Walmart Neighborhood Market and Sam’s Club) controls about one-third of the market share, while grocery chain Smith’s has a little less than a quarter. Another quarter is approximately split by Albertsons and Costco. The rest is shared by Whole Foods, Sprouts, Trader Joe’s and all other grocers, including La Montañita Co-op, Lowe’s and independent operations.
Whole Foods has only two locations in Albuquerque, but Lempert said they could potentially be important brick-and-mortar sites for Amazon Fresh, Amazon’s grocery delivery service, which is currently unavailable in New Mexico. In the U.S., nearly all 80 million members of Amazon Prime live within 10 miles of a Whole Foods.
In other words, Lempert said, the Whole Foods deal gives Amazon hundreds of depots out of which to base its grocery operations, as well as a built-in customer base within delivery distance.
“Amazon Fresh could very quickly become the number one grocery delivery service in the country,” he said.
Lempert also speculated that Amazon would place lockers in Whole Foods locations, allowing in-store customers to pick up other Amazon orders. Perhaps most crucially for the rest of industry, he said, it is likely that Amazon will significantly reduce Whole Foods’ prices to undercut the competition, a tactic it has used in other industries.
A spokesperson for Whole Foods told the Journal it was “premature” to comment on the deal, and Amazon did not respond to a request for comment. Both companies have said there will be no layoffs as a result of the acquisition.
No one-size-fits-all solution
Not everyone agrees the Amazon deal will usher in a sea change for the grocery industry, at least in the immediate future. John Dryden, a former research analyst for Kroger, parent company of Smith’s, pointed out that the shopper who goes to a specialty grocer like Whole Foods is not necessarily the same shopper who frequents a store like Smith’s. If Amazon keeps Whole Foods’ operations in its current form, the impact on the industry could be minimal.
“(Whole Foods and Smith’s) are relatively different spaces with a pretty significantly different product mix,” said Dryden. “I don’t see a lot changing right away (with the acquisition), though it ups the level of competition for sure.”
Still, Gene Valdez, executive director of the New Mexico Grocers Association, said the deal was a sign that it is time for grocers of all sizes in the state to think carefully about their digital business strategy.
“Every (grocer) is going to need to work out their delivery operations, to come up to speed with their online ordering system,” he said. “This affects everyone, across the board.”
Several grocers in the state have experimented with e-commerce operations. Smith’s and Walmart have programs that allow customers to order their groceries online and pick them up outside the store at a designated time. South Valley-based Skarsgard Farms has an online ordering and home delivery system, and offers two-hour delivery to some Albuquerque neighborhoods.
A report earlier this year from Food Marketing Institute and Nielsen determined online grocery sales could surge to 20 percent of the grocery market by 2025, with younger shoppers leading the trend.
Dryden said one of the biggest headaches for Internet Age grocers is that no one shopping experience will appeal to every category of consumer.
“There’s no one-size-fits-all solution,” said Dryden. “For every shopper who wants their groceries delivered or waiting for them outside the store, there’s another who wants to physically pick up their fruit and smell it.”
As a result, traditional grocers are adopting a variety of strategies aimed at different categories of consumers. Dryden said Kroger has focused on both streamlining checkout for shoppers who want to get in and out of the store quickly, while also encouraging other shoppers to linger. One technique involves cutting open samples of citrus fruits in the produce section so the smell wafts through the air to draw shoppers in.
A spokesperson for Sprouts said its recently expanded deli, sushi, juice and pre-made item offerings are aimed at convenience-focused consumers. In some markets, Sprouts has partnered with Amazon to offer online ordering and two-hour delivery, though the service is not available in Albuquerque.
In the low-margin world of groceries – between 1 percent and 3 percent is typical, according to experts – Dryden said success across consumer categories often comes down to two words: impulse buys. In fact, he said one of Kroger’s business tenets is that shoppers “get the products (they) want, plus a little.”
“You know the magazines and candies they sell right by the checkout counter?” said Dryden. “Those items have pretty good margins. The faster you get people out of the store, the quicker you will see those sales fall, not to mention (the sales) of all the other things shoppers might have picked up had they stayed in the store longer.”
Unfortunately for traditional grocers, if there’s one thing Amazon has been able to do with its e-commerce ventures, it’s using data to understand and target shoppers’ impulses. And with the acquisition of Whole Foods, it will have access to a plethora of data on grocery shopping.
Hope for the corner store
Late last year, Amazon released a video introducing a grocery store called Amazon Go. The video depicts shoppers taking items from the store without stopping by a cashier, their purchases tracked by an app on their phones. A few months later, Amazon filed a patent for a beehive-like tower to house and receive delivery drones.
Lempert said neither Amazon Go nor the drones are likely to change the grocery landscape in the next few years. The opening of the first Amazon Go store in Seattle has been delayed due to technical issues, he pointed out. The drones, while promising, are still considered “creepy” by many consumers.
Instead, Lempert said the rise of e-commerce grocery operations, whether run by Amazon or other companies, may ultimately help an unlikely competitor: small, local grocery stores. Even if the vast majority of shoppers turn to e-commerce and delivery, he said, they will still need to enter a physical store at some point to pick up items on the go. In that case, they are more likely to choose a business where they have personal connections.
“The mom-and-pop stores that have been building relationships with their customers for years, they will be fine, because their customers want to see them succeed,” said Lempert. “It’s the faceless, 40,000-square-foot chain store that’s in trouble.”
In other words, it’s possible that in the not-too-distant future, Albuquerque’s grocery industry could be dominated less by major chains and more by the modern-day equivalent of Eblen’s. But whether those “firm radishes” will be delivered by car or by drone is anyone’s guess.