Published On Jul 07, 2017 in
Grocery and Retail Real Estate Industry
Undoubtedly, my commercial real estate peers have heard the news of Amazon's recent purchase of fresh-format leader Whole Foods. Although stealing the headlines, this comes along with news that Aldi will increase its footprint to 2,500 stores by 2022, and that Lidl has opened locations along the East Coast. This news has generated a large response by the industry and the general public. Among many questions, a major uncertainty is: Who will be the grocery store victors?
The acquisition of Whole Foods seems to have been a result of a perfect storm--the most digitally progressive company needed to penetrate the fresh-format grocery category, while Whole Foods needed a digitally progressive company to bring them up to speed with consumer demands like delivery, faster checkout, and click-and-pick. Amazon will also pick up the 365 Everyday Value brand, a value-priced private Whole Foods line intended to deliver quality goods to consumers at a lower price point. This line will be certainly be in direct competition with the discount prices at Lidl and Aldi, the rapidly expanding German grocers that have entered the U.S. market. Further, these value prices will also compete with Kroger, recently named America's Favorite Grocery Store (http://time.com/money/4765057/morning-consult-survey-kroger-popular/) due to their combination of service and excellent pricing. Kroger has also responded to customer needs with digital integration via their Kroger app, Clicklist, and partnership with Instacart. These are advantages in which Lidl, Aldi, and Whole Foods are falling short. How all major grocers respond to this increased competition will ultimately be a major win for consumers who will likely see better pricing, higher quality goods, increased customer service, and a better overall shopping experience.
Of course there are other questions to be begged following the recent grocer news:
- What will happen to Instacart? (Likely to become obsolete as grocers quit outsourcing delivery programs).
- Will Amazon convert Whole Foods locations into fulfillment centers? (Probably a small portion of each store, though no--these stores are strategically placed in prime retail locations and it would not make economic sense to turn them into warehouses).
- What will happen to Target and Costco's efforts to enter this highly competitive grocery market? (One option is to outsource grocery as Target has outsourced pharmacy).
But, my response to who will come out on top as far as the new and changing grocery landscape...
The ultimate judge and winner of the battle of the big box grocers will be the consumer. This is an exciting time for the retail world. The acquisition not only indicates how dynamic this category has become, but also emphasizes the importance of brick and mortar in a highly digital era. As a member of the commercial real estate community, but also as an active participant in the marketplace, I'm eager to see how grocers and digital platforms will navigate this complicated dynamic and respond to changing customer demands.