Retail Evolution or Revolution?

Everybody knows that grocery eCommerce will become more popular in coming years. Many older Baby Boomers will prefer to order goods online; Millennials don’t like shopping in food stores; and youngsters will grow up believing that online grocery is the sensible alternative to trudging through the sterile center store.   

But nobody knows which companies will provide the service for consumers: Grocers themselves, outsourced companies on their behalf, or pure plays? Will we witness a retail evolution or revolution?

Let’s look at what’s happening today. It seems like every few months brings news of the launch of another niche online grocery service. Occasional news of Walmart and Amazon advancing their eCommerce programs concerns any grocer paying attention. Meanwhile, sprinkled around the country are occasional limited tests by traditional brick-and-mortar grocers looking to evolve their retail offerings to satisfy the lifestyles and shopping preferences of demanding consumers. But that might not be fast enough.

In the future, it's possible that grocers will be stuck in the middle. On one side will be powerful Walmart and Amazon with robust eCommerce offerings across the U.S. providing all of the center store, HBC and general merchandise products. On the other side, niche players will peck away at the supposed advantage of traditional grocers: produce, dairy, meat and fish.    

The biggest obstacle for traditional brick-and-mortar grocers is the cost of offering grocery eCommerce themselves. Who will assemble orders? How will they be delivered? How can timely delivery be ensured? There is a price tag to be in sole control.

Some grocers have outsourced these activities to companies that act on their behalf. That’s easy. But what if the vendor goes out of business in a few years? What if they raise their rates too much, and too fast? What if shoppers complain about the quality of service? Changing vendors is never welcome, so retailers need to choose carefully.

There are no simple and quick answers to any of these questions. But if grocers don’t evolve their business with enhanced in-store services and excitement, and a robust eCommerce offering, there will be a revolution throughout the grocery industry. That's not just my opinion. It's the subject of a disturbing new book by professors Rajiv Lal, Jose Alvarez and Daniel Greenberg from the Harvard Business School. The book, "Retail Revolution: Will Your Brick-and-Mortar Store Survive?," explores the strategic options that brick-and-mortar retailers face in the age of eCommerce. It advises retailers to rethink their stores or “many chains will quickly enter zombie territory.”

Zombie territory? How is that possible? Well, the authors predict that the future of retail will be determined by whether Walmart or Amazon becomes the dominant online player. If it’s Amazon, the focus of retail will be on convenience. Food stores will lose so much volume that many of them won’t be able to support their shopper base. If it’s Walmart with its focus on price, the world’s largest retailer will simply use supermarkets and dollar stores as mere eCommerce pick-up points.

The authors list three possible solutions for operators of physical stores that have not committed to a robust eCommerce offering:

• “Wind Down” in a process that continuously rationalizes the organization and its store base to maximize the generation of cash.
• “Shrink and Transform the Box” to cut the costs of overly large stores and focus on the unique values that the store can deliver to customers and brands.
• “Enhance the Value of the Box” by providing in-store services and education, merchandising private-label products, bundling products for use in do-it-yourself projects, and using online tools to direct traffic to the more experiential brick-and-mortar channel.

Of course, the authors could be totally off base, even if they are from Harvard. But it’s certainly something to think about.