Retail hasn’t changed much over the last 100 years. Even without AI drones and the Internet, the Great Atlantic and Pacific grocery chain offered one-hour home delivery of fresh groceries and pantry staples – on credit — from dozens of distribution centers and 16,000 storefronts back in the 1930s. The A&P’s global supply chain and inbound logistics set the standard for food safety, standardization, private label products, freshness, affordability and convenience.
The A&P’s control over the grocery business was so successful that some states outlawed its chain stores and Congress investigated its monopoly practices. When the A&P disintegrated after the death of its founders, Sam Walton adopted its methods and augmented them with modern communication tools to expand his empire of mega stores. Untold numbers of small wholesalers and their independent storefronts folded, unable to complete on price, selection, and overhead.
In the 1990s, with the advent of broadband internet, Jeff Bezos posed the question, Why build retail stores at all? He founded Amazon on the premise that shoppers didn’t value place, experience, brands, or community as much as they valued lower prices, unlimited selection and the convenience of home delivery. Low prices worked their magic for a while, but it became apparent that human nature would not always bend to accommodate Bezos’ business model. Maybe place and community mattered. Amazon created a slew of fake “authentic” brands, mimicked community through product reviews, and tried to make Amazon.com itself a virtual place to gather, share, and learn.
You could buy everything you need through Amazon. If you wanted. But you don’t. Why is that? The reason is simple: the grocery business is adapting faster than Amazon can keep up. Business analytics firm CB Insights has identified a bevy of innovations given flight by bricks and mortar retailers: one hour delivery through partners and in house services, seamless integration of online browsing with in-store shopping, order pickup and home delivery, high quality private brands with back stories and strong margins, partnerships with established online brands to capture their expertise, brand cache, and customer base, highly targeted digital promotions, robust customer analytics, streamlined global supply chains, real-time optimized pricing, cashier-less shopping, and more. The tech start-up community is awash with new systems and apps to support these competitive tactics.
The American grocery store has one job and it does it well: we put food, sundries, and dietary supplements on shelves within a mile of your home. We sell small packages that fit your kitchen, fresh food that lasts a week, and thousands of specialty items that make every meal and nutrition plan unique to you and your family. And we do all this at a weekly cost in step with the cadence of your paychecks.
Human shoppers stubbornly continue to find affinity with what they can see, touch, smell and experience. Online retailers, forced to concede that innate human behavior is a real thing, now open bricks and mortar stores to better connect with customers. As the leader of Amazon, Jeff Bezos acts like a teenager with no real-world romantic experience: he imagines his love interest will only behave in ways that please and comfort him. His idealized human shopper is supposed to adapt compliantly to all of Amazon’s needs and limitations. Get ready for a slap in the face, Amazon.
Amazon’s tests of its GO store effectively delivers on its beige-brand promise. GO offers anonymous purchases of generic products with no human interaction and unconditional surrender of personal and financial privacy. GO’s meagre plans to open only six new pilot stores confirms even Amazon’s slim confidence in the model. The VPs in charge of GO recently admitted with amazement that the store requires changing behaviors consumers have had their whole lives.
Amazon’s biggest strength is its freedom from financial constraints. Awash with investor funding and cashflow from its web services division, it can sell and deliver products at a loss while attempting to dominate the market for food and dietary supplements. Its weakness remains logistics. Despite its hallowed success with tech-savvy sourcing, warehousing and delivery, it is unlikely it can build a durable cold-chain model given the cost of the last mile – the same last mile where conventional grocery stores are smartest, and getting smarter. The bizarre acquisition of Whole Foods, a company known for its convoluted supply chain, hardly brings insight and savvy to Amazon’s ranks. But online buyers most often buy online from the same grocery store they frequent. Amazon needed bricks and mortar customers to convert to online grocery ordering.
Putting aside the fantasy of buzzing ninja drones dropping frozen ice cream and raw chicken on your front porch on a summer day, it takes thousands of individual Amazon truck deliveries to resell the contents of a single incoming semi-trailer load of goods. That’s why we see rented U-Haul vans driven by gig workers careening through our neighborhoods dropping off boxes at all hours. But for every new distribution node that Amazon builds, the grocery business already operates hundreds of its own. The A&P model never died; it just morphed into today’s neighborhood supermarkets — supported by modern global supply chains.
Amazon’s logistical problems are amplified in rural areas: If you’re concerned about the vitality of our rural communities, don’t count on Jeff Bezos to support them. Amazon’s model works best in high density areas, where it can take advantage of tax incentives, existing transportation and communications infrastructure, underemployed workers, and public assistance for underpaid and part-time labor. In 2016, The Institute for Local Self-Reliance issued a scathing 79-page report on the “Amazon Stranglehold” which details the company’s abdication of responsibility to our communities while it demands privileged tax treatment and free infrastructure upgrades. Ultimately, predatory companies are called to account.
After hundreds of first-person interviews with household food buyers, consumer research firm GutCheck recently found the most common reasons cited for shopping on Amazon.com are lower prices and saving time. But they noted the biggest barriers are ordering/delivery costs and the suspect quality of fresh food. People like to choose their own. As long as Amazon can afford to subsidize Amazon’s prices and delivery costs, it may grow market share. But as long as America’s grocery stores do what they do best – provide a wide selection of affordable quality products near our homes – Amazon must continue to invest in its desperately underpriced home delivery business model.
Which brings us back to the right questions. Why do we not buy everything from Amazon? Why do millions of us flock to grocery stores every day? Why are offline dietary supplement sales still strong? Well, because the neighborhood grocery store is where we see our neighbors, get answers from experts, taste new foods, and find new products that surprise and delight us. We even stop at several stores each week because, it seems, we can’t get enough. Each is a place with people, products and relationships that are meaningful to them. Jeff Bezos’s gift to the grocery and dietary supplement industry is reminding us of what we knew really mattered all along. The single most important initiative in retail is the customer experience. Try as it may (and they try really, really hard), Amazon just can’t measure up.