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Recent Investments by Amazon and FreshDirect Highlight the Growing Importance of E-commerce Fulfillment Operations

In late July, FreshDirect announced that it would be partnering with Fabric Robotics to build a micro-fulfillment center (MFC) in Washington D.C., providing same-day delivery to area customers. The online-only grocer has traditionally only done next-day fulfillment, but is planning to expand same-day throughout the Northeast Corridor. This comes shortly after Amazon’s announcement that they have now converted 6 Whole Foods locations around the country into dark stores to support E-commerce fulfillment (via Retail Dive and Progressive Grocer). These are just 2 examples of retailers recognizing the shifting channel dynamics and making investments in dedicated E-commerce fulfillment centers to keep pace.

In a new whitepaper (free for download Here), we explore the growing importance of efficient E-commerce fulfillment in the grocery sector and discuss the pros and cons of the 4 most popular E-commerce fulfillment models. Highlights include:

  • We discuss the backdrop of the global coronavirus pandemic and how it has led to massive increases in at-home food consumption and in grocery E-commerce demand and penetration.
  • We discuss the 4 most popular fulfillment options that grocers are using when it comes to servicing their E-commerce customers: in-store picking, dark store models, micro-fulfillment centers, and centralized fulfillment centers.
  • We explore the current tradeoffs of each fulfillment model when it comes to picking and labor efficiency, the order volume one facility can service, the SKU selection supported, last-mile delivery efficiency and cost, and CapEx requirements.
  • We explore the latest profitability estimates for each fulfillment model, how to choose the best model for your business, and the growing number of tech advancements that will continue to revolutionize E-commerce fulfillment.

To download this free whitepaper, follow this link.


Beyond the Pandemic: 4 COVID-related trends in food retail that are here to stay

The COVID-19 crisis has quickly swept over the US, amassing over 1.5 million cases and 90,000+ deaths through May 18 (NYT COVID Tracker). Consumers have responded with dramatic shifts in shopping and purchasing behaviors.  While some of these new behaviors are probably short-term responses to the crisis, we expect 4 key trends to persist in the mid- to long-term as we begin to establish a new normal.

Trend #1: At-home food consumption will remain elevated and grocery numbers should remain strong compared to the rest of the economy.  As the pandemic ramped up, US consumers spent on groceries and little else, and we expect this emphasis on grocery and in-home meals to continue.

Overall retail trade numbers show the importance of the Grocery segment. Looking at retail trade since the start of 2020, we can see Total Retail (dark blue line) began to drop precipitously in February as the number of COVID cases grew (orange line). Early declines were driven by Foodservice and Auto, the first sectors impacted by quarantining and economic uncertainty, but most other retail sectors followed with declines in March. In contrast, Grocery Store Sales (dark green line) grew +29% in March as consumers stockpiled food and necessities.

Grocery Store sales declined -13% in April from the March hoarding peak but were still up 13% compared to the same period in 2019.  Grocery is expected to remain one of the few strong US retail sectors in the short- and mid-term as:

  • Restaurant business is down in the US
    • Despite measures to increase food pickup and delivery, overall restaurant transactions have remained down between -30% and -40% all April (NPD webinar, 5.7.20)
    • Overall restaurant spend is down -55% in Q1 (Visa Q1 Earnings Call) and reservations are down -95% or more (OpenTable)
    • Even as state-by-state legislation allows some sit-down restaurants to reopen, most have strict guidelines in place to limit occupancy, curtailing their sales potential
  • Measures of in-home food consumption are up
    • 67% of respondents are cooking/preparing more meals. Most plan to continue this after COVID
    • 65% are consuming more groceries and buying more grocery items
    • Only about 1 in 3 respondents are ordering more restaurant takeout or delivery
    • (Source: Numerator webinar, 5.7.20)
  • In-home food consumption increases in recessionary conditions
    • In the 2008 recession we saw an increase in at-home meals and food expenditures when compared to food away from home. In the coming months, we are likely to face some of the same recessionary conditions and corresponding consumer behaviors as we did in 2008.

Numbers from the recovering Chinese economy show the importance of CPG and Grocery. Post-COVID consumption data shows that Supermarkets, Convenience Stores, and Food Specialized Retailers are doing relatively well when compared to Overall Offline Consumption (-21%) or Foodservice (-28%) vs pre-COVID conditions.

Trend #2: Grocery Ecommerce will remain important and keep growing

As consumption has shifted in-home, many consumers have pivoted to grocery delivery and buy online pickup in-store (BOPIS) fulfillment options. We predict these fulfillment options will remain important and continue to grow as consumers push for more convenience and safety while retailers improve their footprint and operations.

Grocery ecommerce exploded in Q1:

  • 3rd party grocery delivery orders are indexing at 250+ this quarter vs. last year (NPD Webinar 5.7.2020)
  • New users are trying grocery ecommerce options and plan to continue use after COVID
    • Only 35% of online order and 18% of BOPIS customers were regular users before their recent purchase, the rest were new or previously infrequent users.
    • 83% of new BOPIS users report they are likely to keep using this option after COVID.

(Source: Numerator Webinar 5.7.2020)

Online grocery visit frequency and spend has remained elevated in recovering APAC countries (MIYA Payments via McKinsey). Post-COVID, we expect grocery ecommerce to keep some of its share gains and continue to grow for the following reasons:

  • Convenience-driven trends have been a common thread across retail. Many new consumers will continue opting for grocery delivery and/or BOPIS due to their convenience.
  • Consumers will remain health-conscious and may avoid unnecessary trips to the grocery store or in shared/public transportation.
  • As time goes on, retailers will improve the efficiency, reach, and customer experience of grocery ecommerce, increasing consumer access and appeal.

Trend #3: “Stockpiling” shopping patterns will continue to some degree throughout recovery

During March, as cases rose and many states instituted social distancing measures, we saw some very clear signs of stockpiling behavior. Foot traffic peaked across all grocery channels (Placer.AI) while according to Numerator, basket sizes soared to 2.5x-4x their pre-COVID average size.  NPD data indicates that shelf-stable and frozen foods were key categories that over-indexed. Specialty Grocery lagged behind the Mass, Club, and Food-Only Channels as people shifted spend toward large pack sizes and household necessities instead of premium food.

During this period, NPD reports sales of stay-at-home related categories soared, e.g. cooking appliances, cookware and bakeware, office equipment, and puzzles, toys, and video games (NPD COVID News).

After the sharp drop in grocery shopping in the first 2 weeks of April, seen in both foot traffic and basket sizes, we have seen a blunted rebound. While some of the recovery in foot traffic comps can be attributed to certain states reopening and consumers returning to more typical shopping habits, there has been a concurrent rise in basket sizes (Numerator Webinar, 5.7.2020) and “stock-up” grocery channels are still greatly overperforming Specialty Grocery. This indicates that at least some consumers are continuing to stockpile, and the rebounds in foot traffic since mid-April are somewhat attributable to consumers restocking their diminished pantries.

We predict that stockpiling behaviors will continue as health and saving money remain top-of-mind. Despite being ahead of the US in terms of recovery, Chinese consumers are still making less frequent supermarket and grocery trips but buying more at once than they were pre-COVID (MIYA Payments via McKinsey). However, the degree to which stockpiling behavior will persist in the US is dependent on consumers’ perception of their own safety. News coverage, social media, and messaging from political leadership can have rapid and unpredictable impacts on this consumer behavior.

Trend #4: Grocery store foot traffic will have smaller peaks and valleys across the week

Pre-COVID grocery foot traffic tended to be much higher during weekends and certain times of day. We expect more parity in daily foot traffic across the week for the following factors:

  • Consumers will likely remain hyper-aware of health risks for the foreseeable future and seek to avoid unnecessary crowds during grocery store peak days and hours. The degree to which this is true will depend on mass perception and our success against the virus.
  • The number of full-time employees working from home has doubled (Gallup COVID Workplace Poll), and out-of-home activities are greatly reduced. Home-bound consumers have more flexible schedules, allowing them to shop for groceries at traditional off-hours.
  • Retailers have taken measures to space out foot traffic across the day (e.g. senior-only hours, externally-visible lines when busy, etc.)

Preliminary results show traffic is already evening out:

  • Daily foot traffic comps (versus the previous year) across retail are much lower on weekends than they are on weekdays (AI)
  • Transaction data from China show that weekend grocery shopping remains depressed at this point in recovery

As the retail industry shifts from Survival to Recovery, expert advice and perspective is more important than ever. Armed with decades of experience, an unparalleled commitment to your team, and play-making insights, McMillanDoolittle can help you win in a post-COVID world. To stay up to date on the latest retail industry news and insights, connect with us.


Walmart Grounds

Lost in the wake of Walmart’s blowout quarter (e-commerce sales up 74% and same store sales climbed nearly 10%) is the news that they are officially shutting down The news itself is not shocking: they have been telegraphing this for well over a year with executive realignments, staffing reductions and the relatively recent closure of Jet Black.

Still, it creates the opportunity to reflect on a $3.3 billion deal that was consummated less than 4 years ago and what it means for Walmart in the future.

From a dollars and sense perspective, this could be viewed as a costly misstep. was not making any profit at the time of the acquisition and likely continued to bleed profitability during Walmart’s ownership. Like other more premium acquisitions the company has made (Bonobos, ModCloth, etc.), Walmart hasn’t really proven they can effectively court a more premium consumer. No exception here.

At the time of the acquisition, I commented that this may be “one of the most expensive acquisitions of talent ever”.  Viewed from a different lens, and considering Walmart’s continued omni-channel success, this may have been exactly the right move at the right time., and the talent (and technology) that came along with it has been one of the contributing factors to Walmart’s emergence as a serious competitor to Amazon in the e-commerce space and the leader in omnichannel retail.

Consider what Walmart CEO Doug McMillon said at the time of the acquisition:

“We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that’s what our customers want,” said Doug McMillon, president and CEO of Walmart. “We believe the acquisition of Jet accelerates our progress across these priorities. will grow faster, the seamless shopping experience we’re pursuing will happen quicker, and we’ll enable the Jet brand to be even more successful in a shorter period of time. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Walmart.”

From this viewpoint, Doug McMillon looks prescient. While the platform was allowed to languish and eventually fade away, is thriving. The fact that Walmart built this infrastructure ahead of the pandemic has allowed them to be a clear leader in servicing the consumer today.

In my initial take on, I believed that “the synergies between Walmart’s merchandising, sourcing and financial muscle combined with Jet’s innovation could help further re-define e-commerce over the next decade”. Walmart has been able to make the right moves to be competitive today. While it is certain that all of this cannot be attributed solely to the acquisition, the end results are convincing enough.


E-commerce And Grocery: This Time It’s Real

There’s nothing like massive disruption to accelerate a trend that was already occurring in the market.  In this instance, a global pandemic the likes we’ve never seen before has caused significant change in the retail landscape. While grocery stores have remained open and fared better than any other retail segment during the crisis, e-commerce grocery sales have also accelerated at an unprecedented level that has changed the game, likely irrevocably for supermarket retailers.  For many customers, it is easier (or safer) to purchase on-line for delivery or contactless pick-up.

At the same time, e-commerce for grocery has also had an awkward coming out party. While services such as Instacart are literally hiring hundreds of thousands of new employees, the surge in demand has revealed significant cracks in the system along with the difficulty of scaling the business. Wait times for getting a slot for an order have sometimes exceeded four or five days and order fulfillment rates have been abysmal as supermarkets wrestle with out-of-stocks driven by the massive surge in demand. So, while more consumers are turning to e-commerce, they are also seeing it at its worst.

As I’ve written several times before, there are multiple reasons why the grocery category has historically been well under-penetrated relative to other e-commerce categories. Multi-temperature products, awkwardly sized and shaped products, product and SKU proliferation, delivery challenges, combined with razor thin margins have kept e-commerce penetration to around 3-4%. However, this penetration has likely tripled in the past six weeks and we are probably around 10% penetration today. And while some of these gains may be given back in a return to normalcy, it is also likely that the new normal will feature a much higher e-commerce penetration rate along with continued growth. While 15% e-commerce penetration for grocery used to have a “best-case” scenario of happening by 2025, this is much more likely to happen and perhaps several years sooner.

But, and it’s a big but, profitability and an excellent customer experience remain elusive. In-store, in-aisle pick (the primary method for Instacart and Amazon Prime Now) will always be less efficient and have poorer in-stock conditions associated with it than fully automated centralized solutions (as represented by the Kroger/Ocado partnership). But, that model is expensive and time consuming to build and takes time to maximize efficiencies.

As I’ve discussed before, a number  of technology companies are deploying efforts to find a middle ground. Referred to as MFC’s (micro-fulfillment centers), they combine robotics and automation in a much smaller space. This allows them to be less costly to build, be located in a back room of an existing store or dark store which provides closer consumer access, either for delivery or pick-up. Takeoff Technologies, one of the leaders in the field, just published a white paper entitled “How to Win in Online Grocery” that discusses the trade-offs between price, variety and speed that retailers will need to balance to win. They argue that MFC’s optimize that relationship. Along with Takeoff, other technologies include Autostore, Alert Technologies, and Fabric. While all have pilots underway, expect an explosion in the use of this technology as grocers gear up for the new level of e-commerce sales.

At the same time, while delivery has been the dominant way to get groceries to the end consumer, the cost and complication will have limitations. Led by Walmart, we would also expect curbside, contactless pickup to grow significantly as customers and retailers adapt to new realities.

The ways that COVID-19 will impact the world of retail are just beginning to be felt. Long-term social distancing, restrictions on customer counts and a less comfortable shopping environment will hasten even further e-commerce adoption.


Brandless Shuts Down: A Victim Of Outsized Expectations

News reports today indicate that Brandless, the SoftBank Vision Fund backed start-up, will shut down permanently. This news follows a tumultuous few years for the once promising start-up that offered high quality, “brandless” goods for a single fixed price point of $3.

Brandless was an e-commerce based company that I first wrote about a year or so ago when they opened (surprise!) a pop up store on Melrose Avenue in Los Angeles. At the time I commented that the store was an effective way to introduce consumers to this remarkable new brand, one that promised an extensive line of high quality products (with attributes such as organic, vegan, FSC, gluten free…) at remarkably low prices. The company even calculated the “brand tax” that consumers would have paid for the branded option.

The company received a reported $300 million in VC backed funding but that wasn’t enough to help them pivot to a profitable business model. A few observations:

  • Some business models are too good to be true. There was little wrong with Brandless from a consumer standpoint but the low price points and high cost of customer acquisition created a puzzling (and money losing operation).
  • Like most D2C brands, there was the recognition that brand awareness and customer acquisition is difficult to achieve. The pop-up store was wonderful, but not nearly enough. The company, just months ago, indicated that they might open Flagship stores and make deals with retailers to place product in their stores. While this was announced, I did not see it executed.
  • Price points are clearly an issue. It is difficult to profitably sell a product for $3 online. The company abandoned the $3 price point, added products at $6 and $9 and recently featured a wide variety of price points including CBD products at $60+. Their goal was to raise the average order size, but this likely occurred too late.

Undoubtedly, there will be value in the Brandless name, customer list and products they developed. As a standalone company, it appears that this might be the end of a very short three year run. It’s likely there will be a second life for Brandless in the future. For SoftBank, which has gained notoriety for funding high fliers (and crashers) like WeWork, this is another blemish on their record. Pouring money into a flawed business model is almost never the answer.


Where Retail Is Headed: What Can We Expect In The Roaring 20’s?

Greg Foran, the former CEO of Walmart U.S. said that “Retail Will Change More in the Next Five Years Than It Has in the Past 50 Years”. If he is even remotely correct, expect to see a rapidly shifting retail landscape as we enter a new decade on top of what has been a tumultuous prior ten years.

As the Holiday season of 2019 winds to an end, I am going to use this time to look back and to look ahead. The 2010’s were a transformative decade for retail. While Retailmageddon didn’t exactly come to pass, we saw a significant slowdown in physical brick and mortar retail growth and an unprecedented number of retail store closures.

In our decade recap blog, we spoke of five key trends that shaped the decade: 1. A full decade of unimpeded retail sales growth. 2. The rise of e-commerce and 3. The collapse of the middle and the rise of value driven retail. 4. Private equity’s outsized role on retail economics. 5. The power and influence of the consumer through social media and connectedness.

I asked our team to weigh in on what they thought the next ten years will look like. So here goes:

  1. Extreme retailing will define winners and losers. We have defined extreme retailing as the following:
    • Extreme Value. Retailers who deliver outstanding value to the customer will continue to gain share. Value can be defined as low prices (of course), accomplished through private label and augmented by a treasure hunt experience.
    • Extreme Convenience. Retailers who remove pain points from the customer looking for and ultimately buying and using products.
    • Extreme Experience. Retailers who energize the experience through great displays, provide reasons for customers to show up, change often and amplify product categories.
    • Extreme Engagement. Retailers who establish direct relationships with their consumers and encourage the ability to customize and personalize products, promotions and the overall experience.

Walmart has been investing in online grocery delivery by expanding grocery pickup and delivery services to make Walmart the easiest place for value-driven customers to shop.

I can argue that the trends below will simply become more efficient ways to accomplish the above.

  1. Technology will lead the way. Having just left the NRF Big Show, it is abundantly clear that the implementation of technology will alter the retail landscape, both in the ways that we will do business and the tools available for the consumer:
    • AI is transforming the way retailers do business. Everything from assorting, pricing, displaying (in-store and on-line), replenishing is being changed by AI. It will also begin to more aggressively enter the consumer realm through anticipating and responding to consumer needs.
    • A gimmick today, applications like Siri and Alexa are gaining usefulness and will be embedded everywhere we live, work and play. This is going to impact shopping in the same way we have seen mobile devices transform the retail experience.
    • The end of the front end. It is not difficult to look ahead over the next decade and predict the end of human interactions at the beginning and end of the consumer experience. Automated ordering and automated checkouts will rule the day as technology, consumer preference and very real labor shortage issues will drive adoption of these technologies. The mobile phone and social shopping will likely become the new front end.
    • Robots and drones…maybe. Robotics will change distribution centers, fulfillment and automate certain retail tasks like inventory management and maintenance. However, I have not seen practical examples of how they will transform the front end of the consumer experience….yet.

      Amazon Go relies on technology and smartphones to link customers to their Amazon account, streamlining the customer experience.

  1. The battle for the Last Mile. The costs and inefficiencies of package delivery (and returns) to the home is already catching up to retailers who attempt to match Amazon’s deep pocketed and money losing approach. While consumer expectations for increasingly faster and still free won’t change, retailers must change their approach.
    • Access to consumer’s home. Along with smart technology, access to consumer’s homes, garages or dedicated “home lockers” will accelerate.
    • Consolidated lockers and pick-up points. Stores will reconfigure themselves as efficient and potentially consolidated pick-up points to reduce costs of the last mile.
    • BOPIS done well. Buy on-line and pick-up in store (or through a drive-thru) has real potential to both lower retailer costs and make it easier for the consumer. Largely, it is not being done well today. That will change.
    • Amazon goes full retail. Why? It is the only way for them to continue to efficiently grow and gain access to large categories like food. Retail might look quite different, with a lot less traditional space for inventory and much more space dedicated to omni activities (see above).
  2. Greentailing becomes mainstream…really, finally. I wrote Greentailing and Other Revolutions in Retail in 2008. At the time, there was ample evidence that the consumer was ready to embrace new behaviors in the way they live and shop. Then, the recession happened, and behavior shifted back to worrying more (understandably) about managing a budget. We seem to be at an even more pronounced inflection point today, driven by the next generation of consumers who want to shop and live more sustainably. This will have a profound impact on packaging, ingredient integrity, food waste and the rise of the rental and second-hand resale markets. And yes, taken all together, it could signal a shift towards less overall consumption. Companies who embrace these values will be well positioned for the next decade.

    Peloton’s Orange Showroom serves as a central hub for prospective members to test out the Bike and Tread firsthand, receive a personalized tutorial and learn more about the live studio experience that they can bring home.

  3. The shift towards an experience. We have been speaking about experiential retail for some time. It is often misinterpreted to be about “entertainment”. But, the real shift will be away from retail stores and toward shopping centers which focus on product and an increasing move towards services, food and beverage, health care, fulfillment and yes, entertainment. As “purchasing” continues to shift on-line, stores must rethink space, rethink assortments and rethink the purpose of a retail trip. The new Nordstrom Flagship in New York is illustrative of this shift, with less space dedicated to products and more space dedicated to services, food and experiences.
  4. The economy comes into play. Somehow, we managed an entire decade in the U.S. without a significant economic downturn. We won’t be so lucky in the next decade. With an inevitable downturn, expect a greater number of retailer casualties (bankruptcies, closures, downsizing) coupled with new behavioral shifts. Value retail and private label are examples of segments that thrive during recessions. If retail has been tumultuous during good times, imagine what changes a real recession will bring.

    Starbucks Reserve Roastery Chicago is the company’s largest retail experience celebrating the company’s heritage and paying homage to the roasting and craft of coffee.

So, what does it all mean?

  • Expect significant change in retail. Retail will change dramatically in the next decade, particularly in the ways in which we manage the business and the way that customers will transact on-line and in-store.
  • If you’re a retailer, supplier to retail, in retail real estate, etc., you need to ask one simple question: Are you ready for the next decade?

How you answer may well determine whether you’re still in business in 2030.


Five Trends That Shaped A Decade

As the Holiday season of 2019 winds to an end, I am going to use this time to look back and to look ahead. The 2010’s were a transformative decade for retail. While Retailmageddon didn’t exactly come to pass, we saw a significant slowdown in physical brick and mortar retail growth and an unprecedented number of retail store closures. From a macro-standpoint, I can point to these five significant trends that shaped retail as we know it coming into a new decade.

  1. Overall strong economic and retail growth. After a crippling recession in 2008-09, retail sales rebounded and drove sustained growth through the decade. Overall sales grew as the overall US economy flourished, driven by positive consumer sentiment and historically low unemployment. As retail sales approach nearly $5 trillion, retail (and consumer spend) has been the engine of the US economy.
  2. The rise of Amazon and e-commerce. If we look at the changes in the top 10 retailers over the past decade, there is one company in particular that sticks out. Amazon is now the second largest retailer in the U.S. and remains one of the fastest growing as well. While the rest of the top 10 remained constant (Walmart was and most decidedly remains the big kid on the block), Amazon’s meteoric rise has changed the complexion of retail. And with Amazon comes the subsequent growth of e-commerce. While now accounting for around 10% of total retail sales, its double-digit growth rate and disproportionate impact on key categories (books, electronics, apparel) has altered the retail landscape. As e-commerce approaches 20% plus of sales within a category, the impact on retail has been profound.                                                                                                                       
  3. The collapse of the middle—the everlasting move to value. Retail success has been disproportionally weighted to the extremes. Those companies who have demonstrated that they can provide real value for the consumer have been winners over the past decade. Walmart and Costco, of course, are demonstrations of this trend. If we look beyond the top 10, three retailers in particular stick out. TJX, Aldi and Dollar General all show up in the top 20 in sales and all continue to be on growth trajectories. The move to value is nothing new in retail but this decade exacerbated the trend, even during strong economic times.
  4. Private equity and its impact on retail economics. Private equity played a meaningful role in the past decade in the world of retail. And not necessarily to its benefit. Most of the notable bankruptcies during the past decade have seen a private equity component associated with it. Toys R Us, Sports Authority and Gymboree are three examples of retail bankruptcies during the decade that had significant private equity ownership. While private equity alone is not responsible for the disappearance of these chains, high debt levels and leverage makes it difficult for retailers to maneuver during difficult times. Private equity played a prominent role (and likely will continue to do so) in the flexibility of retail firms to survive during difficult times.
  5. The power of the consumer. In the end, the biggest influence on the world of retail over the past decade is the increasing power of the consumer to efficiently vote with their wallets. The conversation with the consumer has moved from a one-way advertising model to a holistic feedback loop. Purchasing is now fluid, no longer tied to a particular geography. This means that anyone with a good idea can sell to any consumer around the world. Direct to consumer brands can bypass traditional supply chain, distribution routes and channels to appeal directly to the consumer. The biggest drivers of this change are both technologies that began in the 2000’s but took off in the past decade. Smartphone usage boomed this past decade, with 265 million users in the U.S., four times what it was in the beginning of the decade. Social media usage also nearly doubled as a percentage of the population using various platforms as well as the time spent online. This has given customers new ways to interact and communicate with brands and retailers.

In the next blog, I will look at the future of retail. Where will we head in the next decade and what retailers will need to do to be prepared.


Amazon And Its Continuing Assault On Food Retail

There were two significant stories in the past few weeks involving Amazon’s incursion into the world of food retail. The first was the announcement of changes to pricing for the Amazon Fresh delivery service and the second was the recognition of what has been an oft rumored launch of a new grocery brand. I wrote about these rumors back in March 2019. While these are two separate stories, they really build off one another and offer clues to their future plans to dominate the grocery world.

First, Amazon announced that they will no longer charge for their Amazon Fresh service for Prime members. Amazon Fresh, launched back in 2007, offers proof that not everything Amazon touches turns to gold. This service has slowly expanded without much fanfare, and is now offered in twenty-one metro markets in the U.S. It has been slow to take off and shows the immense challenges associated with delivering fresh groceries to U.S. households. When launched, this service was priced at $299/year. They later changed to $14.99/month in addition to the cost of a Prime membership. Now, it’s free (with a $35 minimum purchase) with Prime but the pricing strategy changes illustrate a core problem of grocery delivery—it is expensive to execute, with the costs of warehouses, trucks and drivers and the trickiness of getting fresh and frozen products into consumers’ homes. In addition to Fresh, Amazon has also been focused on growing their Prime Now program, which delivers from Whole Foods. In fact, there has been so much focus on growing this “instant” delivery service that many Whole Foods stores are becoming overrun with Prime pickers, interfering with the retail customer’s shopping experience. And, of course, you can still order directly from Amazon with Pantry and Subscribe & Save. Confused? It’s a good bet that consumers are as well.  Nevertheless, this relentless pressure on growing delivery has implications for others who are trying to compete (and trying to make money) in this space.

The second story is Amazon’s confirmation of their first “Amazon branded” (name unknown) grocery store that will open early next year in Southern California. The 35,000 sq. ft. store is in a former Toys R Us (irony is not dead) and will offer a glimpse at Amazon’s latest attempt to penetrate the grocery world. The obvious question is why do they need this, given that they already own Whole Foods and have launched Amazon Go?

I’ve had a chance to look at the floor plans and here’s what I suspect we will see:

  • It will be “omni” from the start. Rather than convert Whole Foods space into efficient picking and distribution points, these stores can be optimized for an omnichannel experience from day one. The store’s plan indicates that it will have significant space to accommodate in-store picking and substantial holding facilities.
  • It will be focused more on mainstream grocery products rather than the natural and organics offer of Whole Foods. This will be aimed at slightly lower income customers and for those looking for Coca Cola, Oreos, Tide or any of the mainstream CPG products Whole Foods doesn’t offer. This is where the larger market share is available.
  • It will likely be more price competitive. While they have tried to mitigate Whole Foods’ high price reputation through reduced prices and Amazon Prime promotions, it is an uphill battle. An Amazon branded store can be more price driven out of the gate.
  • It can be more private label driven. Amazon has continued to grow its private brand presence and while new technology will likely be employed in the store, don’t expect Amazon Go checkout free technology….yet. There are plenty of traditional checkouts (likely self-service) planned. I suspect that the technology is not scalable at this point.

This will likely be the most anticipated new grocery store since Tesco opened Fresh & Easy and Lidl debuted a few years back. It’s worth noting that Fresh & Easy is a footnote in grocery history and that Lidl has yet to gain serious traction. While it would be foolish to discount Amazon’s potential impact on the industry, gaining success in grocery is a lot harder than it looks.


Walmart’s Glass Is More Than Half Full Heading Into The Holidays

Walmart’s performance in the third quarter should serve as a powerful reminder to the retail community that the world’s largest retailer remains a formidable competitor even as Amazon continues its assault on the rest of the market.

Comparable store sales were up 3.2% in the U.S. with a combination of traffic gains and higher transactions. Although comps marginally slowed year over year, this is now the fifth year of consecutive comp increases. Not bad for a mature retail company no longer being helped along by a fleet of younger stores.

Online comps were up 41% this quarter. The company attributes much of that growth to the grocery business. Online pick up is now available in over 3,000 locations and home delivery called Walmart Delivery Unlimited through about 1,400 locations. Walmart is attempting to match Amazon in both speed and price around home delivery.

Results and guidance suggest a healthy Holiday season as impacts to date from tariffs have not materialized and U.S. consumer confidence remains strong. If there are any warning signs on the horizon, they would be in the following areas:

  • Sam’s Club’s performance was comparatively weak, with comparable store sales only rising 0.6% in the latest quarter. As Sam’s former CEO takes the helm at Walmart, his replacement has just been named. Kathryn McLay. She was most recently Executive Vice President at the 700 unit Walmart Neighborhood Market and was Senior VP of Supply Chain prior to that.
  • There is a growing cost associated with rising e-commerce sales. The company is locked in a war with Amazon, who raised the stakes last week by eliminating the fees associated with Amazon Fresh for Prime members. Walmart acknowledged that they need to grow (higher margin) general merchandise sales to drive increased profitability.
  • The loss of Greg Foran as Walmart U.S. CEO has yet to be felt and the tensions between the e-commerce and brick and mortar divisions continue. For a company of Walmart’s size, driving innovation and profitability will be a core challenge.

Even picking holes in the performance, it is hard to bet against Walmart. They are navigating a treacherous retail environment as well as anyone and providing a roadmap for other retailers. Walmart was first out of the gate for earnings. It is still too early to read whether their success translates to the rest of retail and the U.S. economy, but they have set a high bar for others to hurdle.


Global Digital Retail Innovation From Walmart China And More

“Change (in China) is so dynamic”

Walmart’s SVP of Cross Border Trade, Ben Hassing set the tone for the sixth annual Global E-Commerce Leaders Forum (GELF) NYC program. Hassing’s keynote presentation, “The Local of Global Ecommerce” shared his experience as the head of Ecommerce and Technology for Walmart in China, and how China is on the frontlines of digital retail innovation. One key theme of the GELF NYC program was the “inbound-to-the-US” strategies that recognizes the US is no longer the center of the digital retail universe. Retailers and brands need to look overseas for innovation—to be applied to other markets, including domestically. Hassing’s insights on challenges and solutions in the Chinese market—not only for Walmart but other foreign brands too—reinforced this need.

2019 marks the sixth annual GELF NYC conference, and 13th overall since its inception in 2014. The community is comprised of digital and international executives from global brands and retailers, disruptive digital natives and solution providers to global and cross-border ecommerce.

Hassing’s keynote covered a range of issues he faced as the executive in charge of Walmart’s Chinese ecommerce and omnichannel strategies over a four-year period. He joked that in the five weeks since he left China, the digital retail world has already changed. But his on-the-ground experience was a highlight for most of the conference delegates. Insights he shared included:

  • The evolution of digital retail platforms – a key finding in the soon-to-be-published 2019 GELF China research study, where US-based brands are now managing the complexity of a multi-platform world (e.g., Tmall, WeChat, JD, Little Red Book, TikTok and more).
  • How foreign retailers like Costco and Aldi have entered China via an ecommerce presence on Tmall, before opening physical stores. And the very high expectations of Chinese consumers when it comes to the experience and value they seek—foreign brands or domestic.
  • Chinese Platform-Native brands are starting to open stores (e.g., Three Squirrels, Keepland, Elf Sack). The concept of building a brand, starting as a seller on a marketplace should continue to emerge in China and export to other markets.
  • WeChat’s central role in the lives of consumers, as demonstrated by a video of a 10-year old child navigating a mobile-based purchase and store self-checkout. Equally important to the daily tech immersion is the affordable customer acquisition costs via WeChat, as the rising cost of acquisition is a global phenomena and China is not immune to these business challenges facing all brands.
  • Walmart’s challenges of operating smaller format stores to adapt to rising real estate costs; balanced with the growth of O2O (online-to-offline) ecommerce orders fulfilled through stores. With over 3,000+ orders per day being fulfilled through WM stores in China, Walmart is building strategically placed inventory depots (aka, warerooms) with roughly 3,000 high velocity skus, in order to achieve a 30-minute delivery window expected in a tier one city like Shanghai.

Other highlights of the GELF NYC program included topics that have been growing in importance for many brands in recent years. Online marketplaces continue to garner a growing share of brands’ digital commerce attention, yet brand control remains challenging. Comparisons were made between Latin American marketplaces such as Mercado Libre and Amazon-dominant European markets, and what brands can do to retain price control, and work with marketplace operators to manage unauthorized sellers that are damaging their brands. Southeast Asia was the focus of a “next-generation market” session, featuring two brands who have an international following of customers (Chinese Laundry and MZ Wallace). PVH Corporation shared how they established ecommerce shared services to work across their portfolio of brands, driven by their focus to get closer to their customers and enhance the customer experience. More than 30 speakers shared their experiences with international ecommerce, and a half-day workshop on China provided in-depth conversations among many global brands in attendance.

The next GELF conference will be February 13th in Los Angeles, at the Directors Guild of America Theatres in West Hollywood. For more information about speaking, sponsoring or attending, contact Jim Okamura,

Is global ecommerce a topic of discussion among your management team? Ask us about our management briefings and workshops—whether a one-hour or full-day program. We help all types of retailers and brands understand the rapidly changing digital retail landscape; and the strategies they should consider.