depend on physical interaction, are at risk.”
Although Amazon has yet to achieve success
in grocery, underestimating its long-term impact
would be a fatal mistake, say observers. “You’ve got
to be several steps ahead of Amazon and overreact to
what they’re doing,” adds Sargent.
He points to Best Buy as an example. By being proactive—even over reactive—the electronics retailer
thrived in the online space, despite strong competition from Amazon. “If you wait for the threat to
materialize the way Staples and Office Max did,
then it’s too late,” he says. “Once Amazon establishes
momentum it’s difficult to turn that tide.
“Grocery is a long haul business for Amazon,”
Sargent adds. “They wouldn’t be investing in physi-
cal stores if it wasn’t. Grocers have to get on top of
it or they might find themselves in the position of
Office Depot or Office Max.”
However, observers say Amazon should not be the
focus of the supermarket industry’s online efforts.
“Everyone, including Wall Street, wants the indus-
try to follow the Amazon model, but retailers under-
stand they don’t need it and though their model
might be different—it’s working,” says Shaheen.
“The people in the industry who get it have decided
not to chase Amazon. They pay attention to them,
but the AmazonFresh model will take more time to
impact their business.”
For example, Kroger is much more interested in
what happens when Lidl enters the market. H-E-B is
one of the large regional players that, on its own, has
figured out how to make online grocery work. It may
not be sexy, but it is functional and through it, the
company has developed a relationship with custom-
ers instead of just being another retailer.
And, despite all the publicity surrounding online
retailing, it might be best for some grocery retailers to walk away and not even try to compete. “It’s
about knowing where your point of differentiation is as a retailer,” adds Shaheen. “Some retailers just don’t have to be followers. Wegmans is one
that comes to mind. Every mom and pop store isn’t
going to do online grocery because they can’t. But
as Boomers age out and don’t have the same mobility and Millennials drive the need for convenience,
everyone values the convenience stress components
of online shopping. It is more about using the service
as a relationship builder and a loyalty driver than
SNAPing Up Sales
Once upon a time, retailers thought online grocery sales were for higher income shoppers or
time-crunched consumers looking for convenience. But an entirely new customer base is coming to the forefront with the U.S. Department of Agriculture’s program to make online grocery
purchases available to food stamp recipients.
The two-year pilot program, stemming from a mandate in the 2014 Farm Bill, could conceivably be expanded to the 44 million people who participate in the federal government’s
Supplemental Nutrition Assistance Program (SNAP).
For now the initial pilot includes seven retailers in seven states: Amazon in New Jersey,
Maryland and New York; FreshDirect in New York; Hart’s Local Grocers and Dash’s Market
in upstate New York; Safeway in Washington, Oregon and Maryland, ShopRite in New Jersey,
Maryland and Pennsylvania and Hy-Vee in Iowa.
USDA says it is confident that additional retailers representing a variety of store formats will be
brought on once the system is “operating as required and consumer usage has been gauged.”
However, industry observers note that about half of all SNAP dollars—amounting to an average of $125.50 monthly—are spent at stores like Walmart, which is not part of the initial pilot.
Proponents of the online purchasing program say it could go a long way toward solving the
problem of food deserts in certain areas, an issue that the retail industry and local activists have
been wrestling with for some time. It will also address the needs of the elderly and disabled customers that lack mobility or are in areas that do not have consistent public transportation.