Washington Insider: Grocers Chasing Amazon

The New York Times is reporting that the complexion of the grocery business changed recently when Amazon bought Whole Foods Market. The $13.4 billion deal set off a frenzy of deals and partnerships that continues to intensify.The Times details some of the shifts – Kroger announced a partnership with Ocado, an online grocery company, to use its robots to pack online orders. Target acquired Shipt, a start-up offering same-day delivery services, for $550 million. Walmart acquired Parcel, a start-up offering same-day delivery, and announced a partnership to use Alert Innovation, a small company that employs automated carts to fulfill grocery pickup orders at stores. It concludes that even greater changes for the sector are on the way.Chieh Huang, the chief executive of Boxed, asked the Times, “are technology folks like us going to figure out retail faster than the retailers figure out technology?” NYT noted that on Tuesday, Boxed announced that it had sold a minority stake to Aeon Group, one of the largest retail chains in Japan. Alongside investors including Alpha Square Group and CDIB Capital, Aeon invested $110 million in Boxed. The deal values the start-up at $600 million, according to a person familiar with the agreement.Food shopping is one of the last major holdouts to online retail. There are reasons: groceries are perishable, fragile and heavy. And, the customers often shop at the last minute, like to see the food they are about to eat and don’t want to pay high delivery fees, the Times says.Even Amazon, with its Amazon Fresh online grocery service, has struggled to gain ground in the business. The company’s Whole Foods deal, paired with Walmart’s 2016 acquisition of Jet.com, underscored that the future of selling food and household items requires cooperation between the digital natives and the old-school retailers.Grocery companies “are realizing that with Walmart and Amazon moving at their pace, you need to pick yours up, too,” said Greg Spragg, a former chief merchant at Sam’s Club, the wholesale retailer owned by Walmart, who now consults at GrowthWise Group. “I wouldn’t call it fear. I would call it a wake-up call.”Global food retailing is a $5 trillion business, with just 3 percent of that online last year—but online grocery sales are expected to double over the next four years, reaching $334 billion by 2022.Phil Lempert, a grocery industry analyst, predicted store closings for chains that do not evolve to meet the changing needs of customers. Stores offering curated selections, specialty items, cooking classes and the option to buy online and pick up in person will thrive, he said.“The bulk of stores — they haven’t been doing exciting things for a long time,” Lempert said.Josh Hix, chief executive of Plated, a meal kit start-up, said the Amazon-Whole Foods deal had immediately changed his discussions with grocery chains. Meal kit companies have a checkered record. But the grocery companies saw an opportunity to use Plated’s data and research on recipes and taste preferences.“The pace of follow-ups went from ‘This is interesting, and we’ll be in New York again in five months’ to ‘This is really interesting, and how’s tomorrow at 9 a.m. look for another call?’” Hix said. After years of not being taken seriously, “it was very cathartic.”Huang also fielded numerous acquisition offers for Boxed, creating a harrowing few months. Most of the big grocers “have wanted to kill us, partner with us, invest in us or buy us — all probably in the course of the same conversation,” he said.Huang, who previously founded a gaming company decided that the opportunity was too good to sell now but he has joined other technology companies in the Aeon Group, one of the largest retail chains in Japan.This ownership structure allows Boxed to license its technology to its retail competitors in the United States as they try to become more digital. The company says it is in talks with 10 or so potential partners for various pieces of its technology. They include mobile app technology, personalization software, a packing algorithm that maximizes space in shipping boxes, software that tracks item expiration dates, order management software and warehouse robotics automation.Boxed, which is based in New York City and has about 250 full-time employees, sells food and other everyday essentials in bulk.Grocery delivery is difficult to do affordably, but tech-driven efficiencies like those developed by Boxed, Amazon and others are forcing change on the industry, the Times says.“Consumers want convenience and will pay more for it,” said Michael Pachter, an equities analyst at Wedbush Securities. “Once they stop going to grocery stores,” he added, “grocery stores are going to have a problem.”So, change is coming rapidly to food retailing, a shift that is especially important because retailers are in a position to observe consumer preferences rapidly — and to make sure that producers and wholesalers comply when markets shift. The retail sector changes are a trend that producers need to follow closely as they intensify, Washington Insider believes.