Amazon could make Whole Foods cheaper than most grocery stores

Amazon’s plan to offer a 10% discount on Whole Foods items to Amazon Prime members is a “meaningful signal about Amazon’s laser focus on taking share in the $800 billion US grocery industry,” Morgan Stanley analyst Brian Nowak wrote in a note to clients out Wednesday.

The 10% discount will also apply to “already discounted” items at Whole Foods stores, Nowak said. Amazon has already been slashing prices at Whole Foods as it continues its effort to transform perception from the high-end grocer it once was to the grocer-for-the-masses it may be in the midst of becoming.

“These reductions have been important to driving traffic,” Nowak wrote. “These incremental reductions could make Whole Foods cheaper than conventional grocery stores for Prime members.”

And the price cuts are also a great way for Amazon to reel in more Prime customers, which was one of the main synergies Amazon had envisioned when it bought Whole Foods. The “5-10% savings on groceries (and free shipping) can go a long way toward justifying Prime membership…even at $120 per year,” Nowak said.

And Nowak thinks Amazon’s ownership of Whole Foods has fundamentally created room for more Prime subscription growth as only about 62% of Whole Foods shoppers are currently Prime members.

Amazon has been causing a raucous in groceries since it acquired Whole Foods for $13 billion in the summer of 2017. When the acquisition was announced, grocery stocks were hit hard with Kroger, Walmart, Target, and Sprouts Farmers Market falling as much as 8%. Those stocks tumbled again when Amazon slashed prices at Whole Foods.

Now, with Amazon starting to run Whole Foods like just another one of its e-commerce businesses, the rest of the industry has to adapt in order to survive. Amazon’s tech-minded approach is forcing other grocers to focus on delivering food to customers through apps and online orders.

Nowak has a $1,700 per share price target on Amazon, about 8% above its current levels.

Amazon is up more than 35% this year.

Source: Markets Insider

Iconic A&P grocery brand finds a buyer

Despite the sale, Hilco Streambank SVP Richelle Kalnit hinted in a press release that there may still be hope for fans that the iconic grocer could be brought back in some form. “Such supermarket banners, including A&P and Waldbaum’s, have a long and rich history in the Northeast. We are excited to see how the new owners of these brands will continue the legacy,” said Kalnit.

A few approaches could “continue the legacy.” The new owner could try, for a third time in about a decade, to fully resurrect the A&P business as a competitive grocery brand, perhaps leveraging its history and iconic branding as true differentiators within the space. This would require, however, a fast, nearly 180-degree turnaround to modernize the company to fit into today’s nimble, crowded and digital marketplace. Still, bigger brands have made bigger comebacks (see: Apple).

The new owner could also take a route similar to Virginia chain Ukrop’s, which exited the grocery business in 2010, but has since jumped into the prepared foods space. Some of the private label/organic brands under the A&P umbrella, such as Live Better or Greenway, could extend into a similar category on their own.

The Great Atlantic & Pacific Tea Company was founded in New York City in 1859 with a focus on tea. It opened its first small grocery store in 1912 and, by the late 1930s, grew into the biggest grocery retailer in the world with nearly 16,000 stores. The original supermarket chain is credited for changing the way we shop — offering consumers choices and control over their grocery experience outside of a corner store format for the first time and, eventually, expanding into manufacturing and wholesaling.

A&P’s demise has been blamed, at least in part, on the company’s slow response to accelerating market changes. Whatever its future, the company’s story should serve as a case study on why grocers need to evolve with consumer demands and changing technology.

Source: Food Dive

Frozen Food Sales Feel The Heat As Consumers Opt For Fresh

Lynn Smith was picking out frozen vegetables in a Los Angeles grocery store when she was asked if she bought much of her food in that aisle.

“No I don’t, as a matter of fact,” Smith responded, slightly perplexed.

Smith happened to have a coupon for frozen vegetables and figured they’d go nicely in the stew she’d planned for dinner. But Smith said she tends to buy fresh food, and that seemed true of most other shoppers there that day as well.

“As you can see, it’s kind of an empty aisle,” she said, gesturing toward the cases of frozen pizza, fish fillets and egg rolls.

Frozen food is a $53 billion a year business. That might sound like a lot, but it accounts for only about 6 percent of total grocery store sales. And frozen food sales have flattened or dropped by a percentage or so annually for the past few years.

It’s difficult to compete with the warmth and good smells of the deli department, which by comparison is carving out an ever-larger footprint in many grocery stores, adding pre-prepared delicacies such as sushi and chicken wing bars.

“Forty-six percent of shoppers on the typical trip, when they spend over a $100, they don’t even set foot in the frozen food department,” said Warren Thayer, who runs the trade magazine Frozen & Refrigerated Buyer. “It’s hard. It’s just an aisle. The best thing to do is curate your selection and decide, based on your local demographics, what’s best for the shoppers in your area.”

Other challenges are apparent to analyst Phil Lempert, of the food and health website supermarketguru.com.

“You are physically cold,” he said of the disadvantages of shopping for frozen food. Plus, he adds, much of the problem comes down to design, including the packaging — a predictable blur of black Lean Cuisine, green Healthy Choice and red Stouffer’s entrees. Then there’s the literal wall between shoppers and food.

“That glass door,” Lempert says. “It really creates a fence.”

TV dinners were a novelty when they first showed up in national supermarkets in the 1950s.

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Of course, there are no glass doors at Trader Joe’s. The company does not release sales figures, but “sales of our frozen products are doing great,” said public relations director Kenya Friend-Daniel in an email. The difference? The stores are known for their open cases, called “coffin cases,” that allow shoppers to reach in, rummage around and make discoveries.

“It’s fun to go through that case to see what you’re going to find,” said Lempert, who likened the experience to shopping in the produce department.

Lempert said you can find frozen food similar to Trader Joe’s at comparable prices at regular grocery stores, and he thinks those stores should be redesigned to make buying frozen food more enticing. For example, put frozen blueberries and strawberries in the produce department, he suggests, so when fresh fruit is out of season and shipped in from far away, it’ll seem more obvious to shoppers to grab a bag of berries frozen at their peak.

Just a few weeks ago, I went shopping in a small Whole Foods in Santa Monica and noticed the frozen food was in coffin cases — just like Trader Joe’s. So I asked Alison Bodor, the head of the American Frozen Food Institute, why more grocery stores haven’t followed that model.

“Probably because freezer cases are a high-cost item,” Bodor said. She added it’ll take real innovation by manufacturers and grocery stories to make frozen sales — well, hot.

Source: NPR

Kroger CEO talks grocery industry, Target merger rumors

The grocery landscape is constantly changing and Kroger has to stay ahead of what the customer wants, said Kroger’s chief executive.

Rodney McMullen, chairman and CEO of the Cincinnati-based grocery giant, talked about some of those changes from the rise of organics, to the merger rumors to looming trade issues in a new interview with Bloomberg.

“The only thing that stays consistent is people keep eating, but the way they eat will constantly change,” McMullen said.

McMullen said one of those big industry changes is the more than 9 million shoppers that come to Kroger’s store each day want more natural and organic grocery products, like Kroger’s Simple Truth, which is over a $2 billion category today for the retailer.

Addressing looming threats of international trade disputes, McMullen said Kroger’s main concern would be if the company was at a competitive disadvantage.

“From a trade perspective, our competitors are going to have to deal with the same things we would, so we leave it up to the government officials because they have a lot more knowledge than what we would,” he said.

A month ago, there had been rumors of merger talks between Target and Kroger, which Kroger had declined to comment on.

When asked in the Bloomberg interview about the previous reports of merger talks, McMullen said with any type of merger considerations, Kroger is looking at how would it create new capabilities that neither company would have independent of each other.

“To me, we’re big enough at $120 plus billion that scale isn’t really what we need from merging with someone,” McMullen said.

Source: Dayton Daily News

Higher Grocery Prices Will Drive Diners to Chili’s, CEO Predicts

While some restaurant owners may not be thrilled about higher ingredient costs, Brinker International Inc.’s chief executive officer says it may be a good thing.

With commodity prices beginning to creep up for certain foods, grocery stores may have to raise prices, Chief Executive Officer Wyman Roberts said in an interview Tuesday. That would make it seem relatively cheaper to dine out at places like Chili’s or Maggiano’s, also owned by Brinker.

“There is this psychological thing that happens,” he said. “They start to feel the grocery check going up, and it gives them permission” to eat out more.

However, Chili’s customer traffic has fallen as consumers flock to newer restaurants and fast-casual chains. Same-store sales at Chili’s, which has 1,250 domestic locations, dropped 1.1 percent in the U.S. in its latest quarter.

Roberts predicted that the gap between grocery and restaurant price increases would continue to close in 2018, helping Brinker’s customer traffic.

While food inflation has returned, supermarkets have been reluctant to pass on higher prices to consumers. Competition has intensified due to the expansion of German chains Aldi and Lidl in the U.S. and aggressive pricing from Walmart Inc. Amazon.com Inc.’s purchase of Whole Foods Market last year has also impacted the industry.

“We’re going to start to see that difference going away pretty soon,” he said. “We like that.”

Source: Bloomberg

Busy consumers open to new ways of grocery shopping

Consumers are embracing new grocery shopping options such as online ordering/delivery and meal kits as they navigate in-store and digital channels, a study from media specialist Valassis reveals.

Of 1,000 U.S. adults surveyed, 7% of all shoppers said they order groceries weekly online. But that figure climbs to 14% for parents, 12% for Millennials and 15% for Millennials with children, according to the Valassis 2K18 Coupon Intelligence Report, released Monday.

Five percent of all respondents said that once a week they order a meal kit online that’s delivered to their home, compared with 10% of parents, 10% of Millennials and 14% of Millennials with kids.

Among those ordering groceries online, in-store pickup was a preferred option. Eight percent of all shoppers polled said they order groceries online from a local retailer and pick them up at the store, versus 17% of parents, 14% of Millennials and 20% of Millennials with children.

Six percent of all consumers order online from a local store and have their groceries delivered, a figure that rises to 10% for parents, 11% for Millennials and 13% for Millennials with kids.

“The path to purchase for grocery items is no longer a static and ritual journey,” Curtis Tingle, chief marketing officer of Livonia, Mich.-based Valassis, said in a statement. “From home delivery services to the growing presence of organic items, emerging channels and trends are changing the way shoppers buy and, in turn, how brands reach and activate their target audiences.”

In terms of shopping for food, 73% of survey respondents described themselves as an in-store shopper and 18% as an online shopper. Consumers seemed more apt to buy non-edible products online. Twenty-one percent described themselves as online shoppers for household goods, and 20% did so for health and beauty aids. Sixty-one percent and 57% of consumers, respectively, said they shopped in stores for those two categories.

“Consumers are turning to newer ways — ordering groceries online, using meal kits — to help manage grocery shopping and meal preparation amidst increasingly busy schedules,” the Valassis report said. “While in-store shopping still accounts for the majority of grocery spend, online shoppers are driving growth in the use of options such as meal kits.”

Online shoppers exhibited more time constraints and a greater affinity for convenience. Thirty-five percent of all respondents said they value convenience and saving time over saving money, compared with 70% of online shoppers. Likewise, 24% of all consumers said they don’t have much time to plan or do their shopping versus 52% for online shoppers.

“Approximately 20% of our respondents are primarily online shoppers. These consumers are more likely to be motivated by convenience and a need to save time,” according to the study. “On occasion, this need will even drive their brick-and-mortar store selection. For example, more than half of online shoppers say they shop retailers such as dollar, drug and convenience stores because they can quickly find what they need.”

Fifty-five percent of all those polled said they try to shop at local or neighborhood stores, and 36% shop at stores providing a unique or special experience — percentages that trend higher for respondents with children.

Thirty-three percent of all shoppers reported that they buy only or mostly organic and natural products, compared with 48% of parents, 50% of Millennials and 60% of Millennials with kids.

Looking at frequency of fill-in shopping, the study found that 6% of respondents make fill-in trips daily, 22% do so several times a week and 37% do so once a week. For stock-up purchases, 9% of consumers said they do such trips several times a week, 28% do so once a week and 31% make these trips once a month.

Shoppers, too, are taking advantage of a range of options to get more value, Valassis said. Overall, 69% save money with print, digital media and/or loyalty cards. Fifty-three percent said they use print coupons, 36% use digital coupons and 25% use loyalty cards.

Use of mobile savings apps has climbed steadily as well. Of those surveyed, 56% said they use grocery, drug, mass and/or supercenter savings apps, up from 51% in 2017 and 38% in 2016. Forty-three percent now use an in-store shopping rewards app, compared with 39% in 2017 and 29% in 2016.

“Consumers are increasingly looking for convenience and unique shopping experiences, as well as deals and coupons,” Tingle added. “Brands and retailers that offer these dimensions of value on a consistent basis across a multitude of channels will ultimately see the greatest ROI.”

Source: Supermarket News

Walmart leaves grocery market that is tougher than the U.S., for now

Walmart ’s reputation for low prices will be burnished by the sale of its U.K. business for—on paper—less than it paid for it almost two decades ago. In a tough market, though, this may have been the least bad option open to the U.S. retail behemoth.

Walmart bought the U.K.’s third-largest grocery chain, Asda, in 1999 for $11.4 billion, including net debt, outbidding a local rival. It is now merging Asda with Sainsbury, the U.K.’s second-largest grocery chain, to create a market leader. At current market prices, the deal values Asda at almost $11 billion. That is roughly 11 times operating profits, compared with 18 times when it changed hands in 1999, according to FactSet.

Specifically, Walmart gets almost £3 billion ($4.14 billion) in cash and a 42% stake in the combined entity. This stake was worth £4.3 billion when the deal was announced before the Monday open, but by midday was worth roughly £5 billion following a surge in Sainsbury stock. Walmart is tied into the stake for four years, but can reduce it to just under 30% after two.

So this is a partial Brexit for Walmart, bringing some cash now and the hope that a merger will transform the prospects of its remaining U.K. investment. It is reminiscent of General Motors ’ decision to quit Europe last year by selling its local operation to Peugeot in exchange for cash and share warrants.

Like GM, Walmart is under pressure from tech-industry rivals. Notably, Amazon.com ’s $13.7 billion purchase of Whole Foods last year triggered soul-searching among supermarkets. Walmart’s response seems to have been to focus on its core U.S. franchise and select growth markets. Judith McKenna, the new boss of Walmart’s operations outside the U.S., said the company was being “thoughtful” about its portfolio, “perhaps in a way we haven’t done before.”

The U.K. grocery market was comfortably profitable for the first decade of Walmart’s involvement. Then the big chains, Asda included, engaged in a “space race” to build new supermarkets. Combined with the aggressive expansion of German discounters Aldi and Lidl, this caused a collapse in profitability. Aldi and Lidl now have their sights on the U.S.

U.K. market leader Tesco fought back in 2016 by cutting prices and taking market share, mainly from Asda. It was Asda’s turn to cut prices last year. It has now reported four periods of like-for-like sales growth, but at the expense of profits. It is hardly surprising Walmart got tired of this fight.

The hope that the merger could help isn’t fanciful. Supermarkets are a scale game. Sainsbury and Asda have already identified £500 million of cost savings, mainly by comparing their sourcing books and taking the lower price for comparable products. That said, the deal will face a protracted antitrust review. And even assuming it goes through with minimal remedies, Tesco’s experience shows that market leadership doesn’t guarantee superior performance.

Walmart’s foray into the U.K. hasn’t been a success, but it still has a chance to avoid a disaster.

Source: The Wall Street Journal

Instacart Is Fixing One Of The Most Controversial Parts Of Its Grocery Delivery Service

While people may love getting groceries delivered to their door, there’s been one problem with Instacart that has bugged both customers and its shoppers alike: tipping.

It’s a pain point that has plagued the grocery delivery service for years since it changed its checkout process and made the tipping option hard to find in the app. Not only was it difficult to find, Instacart had set the default to zero — a fact that rankled many Instacart shoppers who deliver the orders and saw their tip income decrease and for the customers who wanted to reward shoppers for a job well-done.

That’s changing on Tuesday, as Instacart finally overhauls its checkout process. The company is changing the default tip to 5% of an order total, up from nothing. It’s also lowering the service fee the company takes on each order to 5%, but is making it mandatory.

“We’ve been gathering feedback and working on ways to simplify the checkout process for some time,” Ravi Gupta, Instacart’s COO and CFO, told Forbes. “We’ve heard from some customers and shoppers that the current checkout flow could be better.”

The changes are a long time coming for a feature that has plagued Instacart in both headlines and public reaction. In September 2016, Instacart first removed the option to tip entirely and switched to an optional 10% service fee that was paid to Instacart directly. The backlash was swift, and the company quickly added the tipping option back, but made it hard to find.

Currently, when Instacart customers go to check out, they see a 10% service fee and an option to change or edit that number. The service fee goes entirely to Instacart’s coffers, and the company says it uses it to help pay for anything related to running the company, from background checks to customer support to insurance. The 10% service fee has been optional, meaning shoppers could turn it off and not pay extra. Many customers viewed the service fee as the equivalent of a tip for their driver, but that was never the case.

It was only if customers hit the edit or change button during the checkout that they’d see an option to tip their Instacart delivery person upfront — a default that was automatically set to none. Tech publication Recode accused the company of playing with its workers wages and predicted that it would suffer for it. Instacart also agreed to tweak some of the language as part of a March 2017 settlement agreement in an unrelated case.

Now, Instacart is overhauling its checkout process and bringing tips back to front and center. The service fee will remain a part of all Instacart orders, but will be reduced to a mandatory 5%. (Instacart Express customers, its membership program, will be able to continue waiving the fee through the rest of their contract.) Update 4/24/2018 at 2:43pm PT: Instacart confirmed it found a bug that has impacted some Express customers ability to waive the fee. It plans to issue credits to any impacted customers

Tips will also be added to the checkout screen and be set at a default of 5%, although customers will have the option to adjust it higher or lower as they wish.

Gupta says the changes are intended to make tipping on Instacart “as simple as possible.”

The changes will also hopefully reduce some of the friction between the startup and its front-line workers after their tumultuous past. Most recently, Instacart had announced in late February that it had accidentally been withholding some tips from workers while over-charging customers. The disclosure was a blow to the already thin trust between the company and its delivery workforce. Now, Instacart will have to wait and see whether bringing tips back to front and center will help it win over both its shoppers and customers.

Source: Forbes

A study finds nearly half of jobs are vulnerable to automation

A wave of automation anxiety has hit the West. Just try typing “Will machines…” into Google. An algorithm offers to complete the sentence with differing degrees of disquiet: “…take my job?”; “…take all jobs?”; “…replace humans?”; “…take over the world?”

Job-grabbing robots are no longer science fiction. In 2013 Carl Benedikt Frey and Michael Osborne of Oxford University used—what else?—a machine-learning algorithm to assess how easily 702 different kinds of job in America could be automated. They concluded that fully 47% could be done by machines “over the next decade or two”.

A new working paper by the OECD, a club of mostly rich countries, employs a similar approach, looking at other developed economies. Its technique differs from Mr Frey and Mr Osborne’s study by assessing the automatability of each task within a given job, based on a survey of skills in 2015. Overall, the study finds that 14% of jobs across 32 countries are highly vulnerable, defined as having at least a 70% chance of automation. A further 32% were slightly less imperilled, with a probability between 50% and 70%. At current employment rates, that puts 210m jobs at risk across the 32 countries in the study.

The pain will not be shared evenly. The study finds large variation across countries: jobs in Slovakia are twice as vulnerable as those in Norway. In general, workers in rich countries appear less at risk than those in middle-income ones. But wide gaps exist even between countries of similar wealth.

Differences in organisational structure and industry mix both play a role, but the former matters more. In South Korea, for example, 30% of jobs are in manufacturing, compared with 22% in Canada. Nonetheless, on average, Korean jobs are harder to automate than Canadian ones are. This may be because Korean employers have found better ways to combine, in the same job, and without reducing productivity, both routine tasks and social and creative ones, which computers or robots cannot do. A gloomier explanation would be “survivor bias”: the jobs that remain in Korea appear harder to automate only because Korean firms have already handed most of the easily automatable jobs to machines.

Source: The Economist

DoorDash makes a big push into grocery delivery through a pilot program with Walmart

DoorDash is about to make a huge move into grocery delivery, but instead of going all out as a delivery service on its own, it’s instead going to be working behind the scenes to power delivery networks for larger companies — with Walmart as its first big partner.

While Instacart looks to control the end-to-end customer experience for grocery delivery, and Amazon is off doing Amazon-y things with its Whole Foods delivery system, DoorDash is hoping it can build a network that any company that needs some delivery network can tap without giving up its direct relationship with their customers. DoorDash is rolling out grocery delivery with Walmart in Atlanta in the first of what may be a major move to become a back-end platform for companies like Walmart, which want a delivery button on their website but don’t want to build the entire network themselves. By doing that, it offers DoorDash a potentially nice neutral niche as grocery delivery heats up.

“You can use the term white label, but our drivers still will often wear the DoorDash shirt and have the DoorDash bag,” DoorDash COO Christopher Payne said. “But if you go to Walmart.com, and order from Walmart in Atlanta, you’ll have no idea it’s from DoorDash. We’re very supportive of that scenario, that’s the DoorDash Drive scenario. We’re excited to build a business with them and provide this capability.”

Payne said he hopes this will be one of the first of a major expansion of that DoorDash Drive initiative to become a tool that businesses can start tapping for local delivery. And while DoorDash may partly be giving up that direct relationship with users, it can start getting a lot more data when it comes to deliveries. That data then helps it become more and more efficient, ensuring that it can get deliveries done in the best matter and attract more customers, leading to the need for more drivers, and so on.

DoorDash also basically started the whole last-mile delivery business on hard mode with restaurant delivery, Payne said. What DoorDash loses in that direct user experience is paid back in data, Payne says, and that’s more than valuable enough. Walmart is also running a similar program with Postmates as it looks to get further into grocery delivery.

“It turns out restaurant delivery is probably one fo the hardest delivery use cases you have — you have to get a pizza somewhere in 20 or 30 minutes or it won’t be crisp, and you have to get an ice cream cone somewhere before it melts. Grocery delivery tends to be delivered earlier in the day, which is before dinner or before you go to work,” he said. “That works out perfectly for us, actually, because our drivers aren’t busy or are less busy than they would be otherwise. It’s a delivery window, as opposed to one that’s getting something to you at an exact moment and time. That’s actually much easier and less demanding than a real-time delivery.

It’s still a significant step beyond its core competency, which is restaurant delivery. But while that has the potential to be a big business, it’s also going to top out at some point. GrubHub, for example, has a market cap of nearly $9 billion — but Amazon, the backbone of how many consumers engage with physical goods through the Internet, is a $700 billion-plus company. If DoorDash is going to continue to grow, it has to start expanding into new lines of revenue, and figuring out how to take all the data and tools it’s built and bring them to new businesses is going to be critical.

Amazon changed the calculus of last-mile grocery delivery, and it pretty much did it overnight — or at least over the span of a few months, which is the equivalent of overnight for a $700 billion company. Amazon acquired Whole Foods, and all of its locations in major metropolitan areas, for $13.7 billion and very quickly began offering two-hour delivery for prime customers for Whole Foods. On top of that, the company quickly started offering a credit card with an absurdly good reward system that’s tied directly to Prime purchases and Whole Foods (assuming you stay within the Prime ecosystem).

That’s meant that larger companies find themselves trying to figure out how to make such an agile move, and do it as soon as possible. For Walmart, getting this partnership with DoorDash allows it to just add a small segment to its typical customer flow without having to build out a full-on logistics delivery system. The opportunity to expand that to other businesses is pretty natural, and that’s the theme behind the Drive platform, and in theory offers businesses a way to quickly ramp up a delivery network without having to hand off the customer relationship to DoorDash. That may, in the end, be much more palatable for businesses.

“One of the other advantages of partnering with a company like Walmart isn’t just that they’re a leading grocer in the US,” Payne said. “They’re in a lot of other lines of businesses. As they want to expand and deliver more to their customers, they have physical assets to do that, so it provides a nice solution for us to test other items in the future. I would say grocery delivery is very much in its early days, it’s roughly equivalent to where food delivery was four years ago. We’re all going to be learning together, and it also means there’s gonna be a lot of other competition as there is in food delivery. But we believe our merchant operational excellence and quality of delivery will set us apart, and that’ll be proven in time.”

Source: TechCrunch