Amazon and the slow death of the traditional grocery store

Amazon and the slow death of the traditional grocery store

The Amazon effect has Loblaws and others reimagining their businesses. Consumers will have greater choice and convenience – from their homes

By Sylvain Charlebois
Senior Fellow
Atlantic Institute for Market Studies

The bricks-and-mortar food retailing model is losing its lustre in Canada.

The signs are everywhere.

Loblaws is the latest grocer to commit to home delivery. Starting in December, the leading food retailer in Canada has an ambitious plan to deliver food for a fee from coast to coast.

The company has spent millions to make many of its stores cathedrals for food – like the Maple Leaf Gardens store in Toronto. But suddenly, serving up President’s Choice in people’s homes seems like a better idea.

Basically, the socio-economic fundamentals that supported big-box stores are weakening rapidly. Real estate isn’t cheap, increasing in-store sales is difficult and finding good labour to cover large spaces is challenging. As higher minimum wages add to the pressure, grocers need to think of ways to make their equity and human capital work more efficiently.

What’s more, a good portion of the Canadian population is becoming less independent. By 2025, more than eight million Canadians will be 65 or older.

Add Canada’s unpredictable – and sometimes horrid – weather and all indicators point to one thing: the traditional food retail structure is less attractive to a growing number of Canadians.

Our lifestyle is also a factor: time-strapped consumers want convenience. Those who can’t or don’t want to cook are looking for quick fixes. So that’s exactly what the food retail industry is trying to offer.

Grocers are essentially trying to chase down the money that shows up less often at their doorsteps.

As a result, we’re witnessing – and contributing to – the slow death of the traditional grocery store.

An increasing portion of the average Canadian’s budget – almost 30 per cent of all money spent on food – is dedicated to eating outside the home.

As well, most of us are shopping online for anything and everything. And food is part of that portfolio. Five years ago, barely one per cent of our food purchases were made online. Today, some analysts suggest that’s close to four per cent. We’re catching up to the Americans, who now buy seven per cent of their food online.

And prodded along by Walmart, online grocery shopping is expanding. Walmart’s online sales in the U.S. grew by almost 50 per cent last quarter and a lot of it was food. Canada is seeing similar trends.

Even though Canadian grocers’ balance sheets are in fairly good shape, Amazon – the boogeyman of retailing – has become a legitimate threat since it took over Whole Foods this summer. Amazon isn’t just a business killer, it destroys entire sectors. The bookstore was its first victim. And since its acquisition of Whole Foods, we can assume that the grocery store is in Amazon’s sights. It’s redefining how the food industry makes transactions in a digitalized, borderless world.

In Canada, Grocery Gateway is a pioneer. For years, this fleet owned by Longo Brothers delivered food products in the Greater Toronto Area but barely made a profit. The company acquired Grocery Gateway in 2004 from a failed dot-com project.

For 13 years, the competition stood back and did nothing, for fear of cannibalizing a fellow market grocer. Several questioned the sustainability of operating a full fleet of trucks while charging a premium of 15 to 20 per cent on an order of $50. But Grocery Gateway learned and is now expanding.

For Longo Brothers, it was about running a good business.

For Loblaws, it’s about fighting the Amazon effect, which is why we’re about to see a revolution in home food delivery.

Imagine coming home and everything is already done for you. Leveraged by data, food retailers have started to connect directly with homes. In some U.S. cities, Walmart is delivering food to the consumer’s fridge.

In 10 or 15 years, the possibilities seem boundless.

It’s possible, for example, that companies will own the food we receive and we’ll only pay for what we consume.

It’s also possible that leftovers could be credited, resold on our behalf and used for something else, eliminating waste.

Similar gains can be achieved on the nutritional front. Consumers could wear portable devices that automatically tell their fridges it’s time to be replenished to satisfy customized diets. Or a Fitbit for food could see food retailers deliver healthy choices, directed by a personal tracker.

The new trends will force grocers to deal with better-informed consumers. All the data consumers need is readily available online, where they can also shop at their own pace. That should make consumers more rational, dampening impulse buying – a scary thought for many food companies. Grocers will need to be far more precise in their practices to match higher expectations.

The food retailing industry’s link directly to our homes may seem incredible but it’s only the beginning.

While management at Loblaws and other retailers are kept up at night seeking strategies for long-term survival in the face of the Amazon effect, the opportunities are endless.

At least Loblaws had the foresight to act before it’s too late.

Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).

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