February 12, 2018
By Parmy Olson
Supermarket firms should look past Amazon’s threat and consider copying its move to turn stores into mini-warehouses.
Ever since Amazon spent $13.7 billion on Whole Foods last June, theories have been swirling as to why the world’s biggest e-commerce firm would get into the old-time business of selling groceries in stores. Now it’s becoming clearer that what Amazon really wanted was a slice of real estate closer to consumers, to get goods faster to them than ever.
The clearest signal so far: Amazon announced Thursday that people subscribing to its Prime service in four major U.S. cities (Austin, Cincinnati, Dallas and Virginia) can get groceries from Whole Foods delivered within just two hours of placing an order, for free. They’ll be able to order fresh meat, seafood, flowers and “most” of the items stocked in their local Whole Foods outlets, the company says.
That means you could theoretically eat lunch, and then order your dinner ingredients on the same day.
The move could have far-reaching consequences once Amazon begins introducing speedy delivery from other Whole Foods outlets across the world, raising consumer expectations and putting pressure on other grocers to offer the same kind of shipments too.
In one movement, Amazon has also taken the so-called “last mile” delivery problem it’s been trying to solve with one-day deliveries on Prime, and flipped it on its head.
Instead of driving goods to your house from a vast warehouse on the edge of the city, it’s bringing them direct from main street; with an order being processed just down the road, the last mile is now the “first mile.”
For now, this applies to the groceries that are traditionally available in Whole Foods. But some in the e-commerce industry believe Amazon has been planning to seriously restructure Whole Foods stores, sectioning off areas that it can turn into miniature versions of its highly-automated warehouses.
That could allow Prime customers to not only receive Whole Foods fresh fish and veg, but popular household items like toothpaste and baby diapers.
Amazon wants to build a distributed supply chain, says Elram Goren, who runs CommonSense Robotics, an Israeli startup selling automated-warehouse technology to rival grocery chains, and to be “close to their customers.”
While that might seem like a threat to other grocers, Goren contends that Amazon is setting an example those competitors can follow too. That is, if they’re willing to make radical changes to the way they use their stores, and also turn sections of them into “micro-fulfilment centers.”
“For a very long time, e-commerce was growing extremely fast and companies like Walmart, Kroger or Albertsons, didn’t really have any kind of strategic advantage over Amazon,” he adds.
“But with online groceries they have that infrastructure. Think of a store. It already has a supply chain coming in, and it is by definition close to the customer.”
Tom Adeyoola, who founded the British e-commerce startup Metail, agrees retailers need to embark on a “big change in mindset,” and take advantage of the fact that their stores are physically closer to customers than Amazon’s warehouses.
“If you could have a big store footprint, how can you turn that into a fulfilment center?” he says. Companies with a trusted logistics model and reliable delivery service could have the most success, he adds.
Amidst a so-called retail apocalypse that’s swallowing up storied retailers like JCPenney and Toys R’ Us, that could be a model worth thinking about.
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