Mergers, cashless stores and packaging wars – how the looming threat of Amazon Go is driving transformation in grocery

Hello there and welcome back to This Week in Retail! Since I am fortunate enough to be writing back-to-back editions, I will pick up where I left off last week by developing some familiar themes, with another look at disruption in the online marketplace space, and at some encouraging signs that the seeds of the clicks-to-bricks revolution are gradually beginning to bear fruit. We’ll also run the rule over the results of the latest Which? UK supermarket consumer survey and ruminate on what’s driving transformation in the grocery sector right now.

Last week I wrote about the rise to prominence of a number of insurgent ecommerce marketplace platforms in fashion retail, with the likes of Zalando, Farfetch and ASOS looking to take on the hegemony of Amazon and Alibaba through a combination of niche specialisation and highly personalised customer offers. In addition to its recent deal with Zalando, Nike is now teaming up with ASOS to launch a pop-up space in Hackney, where punters will be able to take part in various onsite wellness experiences, as well as HIIT workouts and lifestyle classes, such as cooking and DIY. It’s certainly a bold move into the physical space from ASOS, but they should benefit from being able to leverage all of Nike’s experiential retail savvy. Opening quirky experimental temporary stores in hip places seems to be the cool thing to do right now, so not to be outdone, Zalando has popped up in the Alexa shopping mall in Berlin with a physical front for its Zalando Wardrobe resale app, selling second-hand fashion items and allowing customers to sell their used clothing back to Zalando in exchange for store vouchers. The full-fat multi-sensory experience of a physical store gives retailers the chance to differentiate themselves in the eyes of the customer in a way that is difficult to achieve in pureplay ecommerce. Zalando, Asos and Amazon themselves all recognise this, and in my opinion, this is what will drive the clicks-to-bricks wave in years to come.

In grocery news, Walmart confirmed that it is looking to offload Asda as part of a wider international strategy  to shift focus and investment to higher growth markets such as China and India. The news comes during a bad spell for Asda. The well-publicised failed merger with Sainsbury’s last year was followed by a woeful set of results over Christmas. And just to rub salt into the wounds, Asda has been named the UK’s worst supermarket by Which?, according to its latest annual consumer survey. Apparently, shoppers are not keen on Asda’s over-reliance on non-recyclable packaging and its lack of loose product options, scoring only one star for sustainability. Waitrose stormed into first place, scoring five stars in almost every category – although unsurprisingly it ranked joint worst for value. What Waitrose lacks in market share, it makes up for in customer loyalty and retention. Aldi and Lidl were naturally ranked best for value and came a very respectable third and fourth overall.

The Big 4 are clearly being squeezed and struggling to find answers as they continue to trail behind Waitrose and Marks & Spencer on experience and quality, and behind Aldi and Lidl on price and assortment. If the current competition is already causing a few sleepless nights, then the CEOs of the Big Four may soon be having nightmares about the prospect of Amazon sweeping into the grocery market in the coming years. Amazon is signaling real intent with the launch of its largest square footage Amazon Go store yet, in Seattle this week. This latest incarnation, Amazon Go Grocery, expands the cashierless shopping experience through integration with the Amazon Go app, which allows shoppers to scan barcodes of individual items and add them to a shopping list. The items are charged directly to the customer’s linked payment card when they leave the store. A network of cameras and weight sensors are embedded into the store shelves to keep track of every last SKU.

Most moves in grocery retail these days can be viewed through the lens of the looming challenge coming from Amazon. Of the Big 4 in the UK, Tesco has probably been the most responsive in real terms. In recent days, Tesco has opened a new cashless store in Holborn (always Holborn for some reason), pulled out of its Chinese venture to focus on other Asian and international markets, and announced its intention to reduce costs by simplifying its in-store bakery offer – apparently  shoppers are eschewing traditional loaves in favour of posh flatbreads and the like, so full-scale bakeries are an unnecessary running cost. Shame. The discounters too, will have to respond to Amazon. While Aldi and Lidl continue to make gains in the UK and US, the picture back in Germany is a little less rosy, with the likes of Edeka and Rewe chipping away at their market share. German business periodical Manager Magazin landed a real scoop last week, revealing top secret plans for a mega merger between sister companies Aldi Süd and Aldi Nord. The family business split back in 1961 – the legend goes that brothers Theo and Karl Albrecht had a fall out over the sale of cigarettes. But times change and families forgive, so Aldi could reportedly be reunified as soon as 2022. A combined 11,000 stores on four continents would certainly make them an even more formidable global force, leading to increased buying power, economies of scale and efficiency savings. The highly secretive Aldi family are keeping their cards close to their chest, but the early signs of a tie up are there. There has been increased collaboration in recent years in private label ranging and sourcing, a revamping of IT infrastructure, and common deals with a credit card service provider and a marketing agency.

Who knows how long until Amazon cracks the grocery market. But in the years to come, it will be fascinating to see who can keep up and who will fall by the wayside as increased competition and market pressures drive transformation like never before. Interesting times in grocery to be sure.

Have a great weekend,

Ed

Author

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Ed Jobson

Consultant, Retail Supply Chain (Operations Transformation)

Ed has a proven track record of helping multiple major international retailers through large scale business transformation programmes, with a strong interest and recognised expertise in Business Process Design, across Grocery and GM.