Kroger And Walmart Try More Gimmicks To Thwart Amazon; They Will Fail...Again

Over the summer, we argued that the grocery business in the U.S. is, and always has been, a fairly miserable one.  From A&P to Grand Union, Dahl's, etc., bankruptcy courts have been littered with the industry's failures for decades.

The reason for the persistent failures is fairly simple...razor-thin operating margins that hover around 1-3% leave the entire industry completely incapable of absorbing even the slightest financial shock from things like increasing competition and food deflation. 

Meanwhile, if these retailers have difficultly absorbing even the slightest changes in competition and food inflation, you can only imagine how the efforts of Amazon to slash in-store employee headcounts, a line item which Kroger spends roughly 17% of their revenue on, might impact the fragile industry.  Unfortunately, at least for the traditional grocers of the world, a completely automated shopping experience may be closer than they had hoped just a couple of years ago.

All that said, the likes of Kroger and WalMart hardly plan to cede their grocery market share to Amazon without a fight.  So how do they plan to compete against a technologically superior new entrant that can offer all the same services but with a small fraction of the employee overhead...well, by adding more employees of course.

As Reuters points out today, both Kroger and WalMart are ramping up their "curbside pickup" programs which allow customers to place orders online then simply drive up to the grocery store and wait while an employee loads their order into the trunk. 

As Amazon.com looks to upend the U.S. grocery market with home delivery, some veteran supermarket operators are betting on a different strategy: curbside pickup. Americans have long loved the convenience of drive-through service for burgers and coffee. Kroger Co (KR.N) and Walmart Inc (WMT.N) are tweaking that formula for groceries.

 

The companies have invested heavily in online systems that allow customers to order ahead from their neighborhood store. Workers pick and pack the products, then run them out to shoppers in the parking lot, the grocery version of carry out pizza. For the retailers, the service is cheaper than delivery, because customers do the driving. For shoppers, it means skipping crowds and queues at their local market, and no worries about missing packages or melted ice cream if they are not at home to meet the delivery guy.

 

Tony Sacco, who lives in the Los Angeles beach community of Playa Del Rey, is a regular user of the service at a nearby Ralphs supermarket, owned by Cincinnati-based Kroger. Each pickup costs $6.95, but the time-crunched married father of three says it is worth it.

 

“This is easy. Time is money,” said Sacco, 47, as a worker loaded bags into his SUV on a recent morning.

Unfortunately, such programs don't implement any new technology but rather rely on an army of new "pickers" that run around the store fulfilling customer orders while adding a fortune in costs to the P&L.  And while these chains are presumably betting on market share gains to offset the higher per store employee costs, given that there are no barriers to other retailers implementing the exact same strategy, we're going to go out on a limb and bet that those market share gains will remain elusive on future earnings calls.

Of course, this is not to say that curbside pickup won't play a role in the future of grocery retailing.  In fact, Amazon is likely to implement such a strategy as well...the only difference is that your curbside order from Amazon won't be packed by a $15 per hour minimum wage worker but rather a robot that performs all the same functions but works works for free, doesn't require a pension and never takes a vacation day...

Comments

overbet malek Mon, 12/18/2017 - 22:23 Permalink

Most shit on AMZN you can get on alibaba or other sites. Here is what I do. I pay for prime, I know I know Im a sinner, but the trick is to order what you want check it out, sizes, styles, test run it. Send it back on their dime and order it elsewhere if it;s a keeper. 

In reply to by malek

LetThemEatRand Mon, 12/18/2017 - 21:49 Permalink

Just a thought from a stupid consumer who has no skin in the game.  I curtailed my shopping when I had to wait in line even on a slow day because you are trying to save a few bucks on checkout guys and gals making $7/hour, because management wanted the new Bugati.   Give us some customer service in lieu of executive bonuses and we'll pay an extra buck for coffee at the grocery store.  

Bigly Mon, 12/18/2017 - 21:48 Permalink

I would never buy groceries from amazon.I view my food prior to choosing. I suppose if one just ate prepackaged stuff in boxes however....

Anteater VWAndy Mon, 12/18/2017 - 21:54 Permalink

I shop at Fred Meyers (Kroger), and it's always packed.I've started to go to WalMart. It's got awesome selection.Whoever reconfigured WalMart did a grandeloquent job! My friend lives in an Uber condo in Amazon land. He paysout the ying yang to live in AIVille. Food prices are insane.Parking is $10 an hour, if you can find a space. He's fleeing. Amazon is a train wreck. It's an AI version of Dollar Store.You only shop at Amazon to look for desperate resellers.Amazon is just Pay Pal piggybacked on eBay riding on UPS. But I did get an incredible deal on a blem-defect parka, lol.They don't tell you about the blem in the product description.So you wear it with pride. I GOT THIS BLEM ON AMAZON!!

In reply to by VWAndy

rejected Mon, 12/18/2017 - 21:50 Permalink

Let me ask this Tyler one question...Once you fire most all of the working people who is going to buy Amazons cheapo Chinese crap?I await your answer.In the meantime,,, here is my guess at what the answer will be... Free Government money!

MuffDiver69 Mon, 12/18/2017 - 21:53 Permalink

I know more then a few who order from local stores and it’s delivered now..These are professionals that both work with kids and they like the familiarity it seems..I have a wife, so whatever she does is what it will be..They can do dozens of de,iveries at a time though and it’s convenient it seems..That’s a niche automated wont fill..They also offer a wider variety as you can order from the distributor to local store..Most people like that are on a budget and stay with familiar staples/food groups though..Imcould see local farms getting in the pipeline..

cherry picker Mon, 12/18/2017 - 21:51 Permalink

What's Amazon profit margin?Amazon is over rated and publicized.  I don't know anyone who would order something like food online, unless it was one of those porkers who can't get off the couch anymore and needs to have food delivered in a truck to accomodate the volume intake.

BlindMonkey Mon, 12/18/2017 - 21:52 Permalink

So the new signs and graphics my local Target put up worked and they are now THE brick-n-mortar destination for the correct demographic brackets?  Well, then...Target is obviously out of the woods now and it is smooth sailing for them. 

yellowsub Juggernaut x2 Mon, 12/18/2017 - 22:56 Permalink

The experience from the local Aldi's around here is as if it was a state run supermarket.  It's dingy and depression to shop in there as well as all the weird product names. There was barely anyone shopping there that they just have one cashier that's not there half the time. I'd hope being that most of their food products come from Canada, that they are of better quality and do not use as much artificial and GMOs.

In reply to by Juggernaut x2

Bigly yellowsub Mon, 12/18/2017 - 23:32 Permalink

Some of aldi's frozen food comes from China...read the label.  Kroger has a low end store that is dirt cheap if it is near you and you have some fortitude. It's called FOOD FOR LESS and often they have the Ralph's brand on the shelves.If you are in LA you are already in hell so go to North Hollywood (or other locations) and check it out.  30-40+% off your bill...no coupons needed.

In reply to by yellowsub

Truthoutthere Juggernaut x2 Tue, 12/19/2017 - 00:08 Permalink

I'm a big fan of Aldi here in Oz.They sell hardly any Chinese food products(they did source their frozen fruit mostly from China until there was a food scare here with another retailer and they immediately switched to sourcing their frozen fruit from Chile).Wherever there is an Aldi store the local big chain retailers drop their prices.People who have an Aldi close by to them and who don't shop there are either too stupid or too rich.

In reply to by Juggernaut x2

LeftandRightareWrong Mon, 12/18/2017 - 21:55 Permalink

The DOJ can't figure out what to do with companies that use shareholder money and highly profitable unrelated divisions to set the umbrella so low in another biz line that competitors cannot afford to crawl under.

radiasian Mon, 12/18/2017 - 22:03 Permalink

Curbside pickup?!  Are you fucking kidding me?  That is the death wail of the next Circuit Cities and CompUSAs.  I'm not an Amazon fanboy from a company sense but I have all but stopped going to brick and mortar to wait in 2 checker lines open out of 20 with 8 customers each.  The groceries I get from Prime Now are often much less expensive and the same or better quality.  CURBSIDE PICKUP?!!!11  Dead men walking.

Utopia Planitia Fiat Burner Mon, 12/18/2017 - 23:18 Permalink

A significant fraction of the crap you see for sale on the AMZN Website is actually provided by a 3rd party.  Bozos simply collects a fee for each such item sold.  So his cost of providing the "service/product" is very small.  Not true for crap that is actually carried by AMZN.  So some of the negative bottom line gets covered by his cut from selling other people's crap.I am amazed that AMZN still has any customers.  Their Website looks like it was thrown together after 3 drunk Web developers spent 2 hrs copy/pasting from the crappiest Website they could find.  I occasionally go on the site to see if they have made any improvements, and the answer is always NO.  It is barely above eBay or CraigsList (both of which are attrocious).  Somebody could get a good start on beating his brains in by doing a professional Website.  Of course in his setup he can stand to lose money as fast as Musk and not worry about it.  But people consider their time valuable, and it takes close to forever to find what you are actually looking for on AMZN.There is a Big Opportunity waiting for somebody who is ready to build a better mousetrap!  Just take his 3rd party business away and watch the walls start to crumble.

In reply to by Fiat Burner

BeerMe Mon, 12/18/2017 - 22:12 Permalink

Whoever wrote this doesn't know what the fuck is going on.  Kroger and Walmart need to hire more employees.  Keep the customer happy with quality service.  Online is nice but it doesn't really have a face.  I guess I'm crazy and enjoy human interaction.

HisBoyElroy Mon, 12/18/2017 - 22:21 Permalink

Deflationary spiral, pretty soon I’ll only have to work 20 hours a week to feed and clothe myself. What will I do with this new found leisure time?

Elites hate deflation.

mo mule Mon, 12/18/2017 - 22:32 Permalink

why does amazon continue to get free or low cost shipping from the US Postal Service?  Why doesn't Kroger and Wall Mart lobby congress to end this advantage? Why should the american taxpayer continue to support this?  

GooseShtepping Moron mo mule Mon, 12/18/2017 - 23:27 Permalink

USPS does not receive any federal tax money and Amazon pays USPS the standard parcel rate for the packages it ships. I am no fan of Amazon - in fact I hate them - but it does no good to attack them with canards like this. Numerous major retailers besides Amazon, (e.g. Macy's, Target, Espy, E-bay, Zulilly, HSN, Best Buy, and Wal-Mart itself) all ship with the US Postal Service, so there is no advantage to Amazon here.

In reply to by mo mule

GooseShtepping Moron Let it Go Tue, 12/19/2017 - 00:29 Permalink

No, this isn't true either. USPS delivers a normal parcel run on Sunday in addition to their Amazon commitment. In fact, a lot of the city parcels dedicated for delivery on Monday actually get delivered on Sunday for this very reason.But as for USPS taking a loss on their Amazon contract, this is probably true if you run the numbers all the way through. First class letter mail is the real bread and butter of the Postal Service, and once they re-learn this it will kick Amazon to the curb.

In reply to by Let it Go

whatswhat1@yahoo.com Mon, 12/18/2017 - 22:40 Permalink

Kroger, Walmart and others will dedicate less and less space to the shop-on-site customer. The shop-on-site customer will be enticed with high profit, impulse items, produce, dairy, and meat.  There will not be any need for twenty faced-out slots of corn flakes.  The remainder of the store will be converted into an industrial warehouse with robots picking items for customer pickup and shipping.  The customer cost of pickup will be slightly less than the shipping order.  If they execute properly (fresh by dates published on their website, etc.), they will be able to compete. 

NoWayJose Mon, 12/18/2017 - 22:44 Permalink

I am guilty of being an occasional Amazon customer - but Bezos has fallen fast in my book - and will join the NFL on my boycott list. I cut the cord on ESPN, stopped watching the NFL, and have placed my last order with Amazon.