Grocery Stores Are In So Much Trouble!

The news for grocery store chains has not been good recently.

• Amazon bought Whole Foods after its valuation declined by 50% over the last two years as sales declined
• Discount German grocery chains Aldi and Lidl are coming to the US
• Walmart reduced its threshold for free shipping from $50 to $35
• Kroger’s missed their outlook. The stock went down 18% in response. Then another 9% in response to the Whole Foods acquisition. The CEO’s strategy? To reduce costs!

In other words, the only strategy that grocery chains that run single digit profit margins seem to know is to reduce costs. It’s a race to the bottom! Lower costs result in lower prices which require lower costs which….

How do you break this vicious cycle? Is it true that the only thing shoppers care about is lower price? Is it possible that they care about a good user experience and are willing to pay a little more for it?

Let’s examine current grocery store chains

• There are far too many choices. It is difficult to find a specific item
• Stores are large requiring lots of ambling around, pushing a cart to find an item.
• Little help or advice for the shopper. Store personnel spend too much of their time (15% of labor costs) on inventory management. Only about 5% of labor is spent on customer service.
• 50% of labor costs are spent on checkout. Self-checkout is not set up for ease of use, rather it mimics a high volume checkout lane. This requires shoppers to acquire the skill of a checkout clerk. Not happening!

Here are some ideas for improvements

• Reduce choices in the aisle. Rare items can be in the back of the store that can be ordered through a smartphone. This will reduce inventory and the need for floor space making the store easier to navigate (and incidentally lowering costs)
• Automate inventory tracking through computer vision — humans will be freed up to help shoppers
• Make the cart (and maybe the shelves smart) so you can find things easily. Enable automatic check out on the cart. No more playing grocery store clerk for shoppers.
• Perhaps you should be able to fill your cart and pay from your smartphone remotely. Just pick up the groceries from the front.

There’s been such a dearth of innovation in grocery stores, and retail in general, for so long, it seems like the time is ripe for some massive changes. Even if the majority of the $600B grocery market eventually goes online, I believe there will be a significant minority of the market where people are looking for a great in-store shopping experience.

* thanks to @Francois Chaubard for useful edits