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Grocers Encounter Fresh Challenges to Compete With Amazon

Grocers Encounter Fresh Challenges to Compete With Amazon

Frans Van De Schootbrugge
Frans Van De Schootbrugge

Amazon recently started its rollout of Amazon Fresh in the United Kingdom, offering same-day and next-day delivery and collection options with a minimum order value of £15 for Amazon Prime customers.

This expansion builds on the retailer’s grocery efforts in the United States. In Summer 2020, Amazon opened its first Fresh location in Woodland Hills, California. This move differentiates Amazon’s grocery options beyond its Whole Foods subsidiary, which primarily focuses on higher-end organic and specialty goods.

Many believe Amazon Fresh is primarily a threat to the larger retailers, but using a £15 basket with same-day delivery for free could seriously affect smaller grocers. For example, Aldi and SPAR made strides to embrace online grocery for the first time as COVID-19 prompted rapid demand for e-commerce. With online shopping volumes more than doubling for grocery retailers in only five months, smaller convenience stores should begin to consider what this means for their existing technology and service offering.

Amazon’s efforts are setting the company up to become the first truly digitally native omnichannel grocer. But how can traditional grocers compete?

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Amazon’s fresh service offering starts with a partnership

What sets Amazon apart is its ability to define strategic partnerships along with a data-driven, tech-first approach that’s been inherent to its core business model. Their system is completely event-driven, with total visibility across the entire supply chain. This is in stark contrast to “traditional” grocery retailers that, at their core, still have monolithic technology stacks.

Apart from superior technology, Amazon’s breadth allows the company to enter the market at a loss. According to a price comparison study from analytics company Ascential, Amazon Fresh pricing is 6.9 percent lower than its nearest competitor. Interestingly, that competitor is Morrisons, which recently entered a strategic supply arrangement with Amazon to offer Morrisons products to Prime members, with free delivery options in select areas for both Morrisons and Fresh orders over £40. It will be interesting to see how Amazon Fresh will perform in partnership with a traditional retailer.

Amazon Prime members are already accustomed to the convenience of next-day or even same-day shipping – an uphill battle for grocers challenged by slower fulfillment models or an abundance of product substitutions.

Think about a traditional grocery delivery experience. Consumers go online or access an app, book a slot, submit their order and typically get a delivery in two to five days. But with outdated technology, traditional grocers struggle to guarantee fulfillment in time and in full. Though traditional grocers achieve a reasonable order picking and fulfillment performance, many lack real-time visibility of what is available and where, making slot and pick location fixed and not flexible in a way that accommodates shifts in demand.

If digital disruptors like Amazon start taking market share from the traditional retailers, it will put their margin under increasing pressure, as economy of scale is absolutely critical. And without significant change, traditional grocers cannot compete on a level playing field.


A multi-step approach

How to compete with digitally native grocers

 For grocers, looking to compete takes a multi-step approach to tackling digital business transformation:

Align digital transformation goals across the organization

Technology and commercial/business departments within grocery retailers are often not fully aligned, which can make it difficult to secure buy-in for transformation projects if value is not communicated effectively. Why is this? Monolithic systems have many limitations and grocers have often created costly workarounds regarding those limitations, resulting in costly upkeep and resources and lost sales due to inability to deliver optimal customer experiences. To succeed, grocers must consider how digital transformation projects strengthen the organization as a whole, with data shared across silos to unite different processes under shared goals.

Align Digital Transformation
Refresh the Tech

Refresh the tech

Hesitancy to upend outdated technology is often burdensome, with a common argument being that it is difficult to replace, re-engineer or migrate legacy systems. However, once grocers have aligned commercial and operational parts of the business under a shared data infrastructure, the business can begin to improve e-commerce operations and generate detailed and relevant customer insights. More data means better application of artificial intelligence and machine learning capabilities, fueling better business decisions in real-time settings.


Use data to improve order picking

Once goals are aligned and data is used across the organization, grocers can begin to get smarter about managing inventory to meet customer demand. For example, smaller grocers could designate select products to always have in stock, current staff can easily pick the orders and customers can collect quickly. Doing it that way does not need many changes in infrastructure, and investments can be minimal, often funded from the increase in revenue this could bring.

Use data to improve order picking

Going digital

COVID-19 has fundamentally changed the grocery retail sector. The online sales growth previously expected over the next three to five years materialized in four to five months.

This rapid shift gave digital natives like Amazon the opportunity to accelerate entrance into the grocery market. It will affect the landscape as it is now, and for retailers large and small. For grocers to remain competitive, investment in reshaping the business and embracing a digital-first mindset now is critical to remaining competitive and owning a share of the market.

Frans Van De Schootbrugge
Frans Van De Schootbrugge
Director of Program Management, EMEA/APAC