Grocery just got interesting
If you happen to be in the grocery space, then you know that regardless of the advent of Whole Foods in 1980, that the flow or merchandise on to the shelves has pretty much not changed in decades. There are layers of people who are taking a piece of the pie before the product actually gets to the shelf and there are very little differences of inventory between supermarkets chains. Having Amazon (Jeff Bezos) insert himself into the middle of the supply chain starting with step one of lowering prices is more than likely going to create a whirlwind, perhaps slowly but eventually it will happen.
For those who have not been in the know of how a new CPG product gets to your shelf at Whole Foods, I will give you a play by play. You create a new product. You go pitch the Whole Foods buyers as a group in the NY office who have quarterly meetings to see new products. They love your product and put you in a few stores. You think to yourself, I am on a roll but wait, Whole Foods NY does not represent Whole Foods in the other regions of the country so even if you blow out the door in those four stores, you are going to have to figure out how to leverage those sales to the other buyers. Then in order to get to those stores, you are going to have to use the trucking company(distributor) that they use for your products to get the merchandise on the shelves. That bleeds into your margin but you have no other choice. The products get there and your relationship with the buyer is now over because the distributor now owns that relationship. You do not get weekly numbers to tell you the sell through of your product. You must rely on the distributor. Then there is another layer of people you can hire to make sure that your product is fully stocked on the shelves for maximum sales because WF does not do that for you. Some of the stores are pretty good at keeping the shelves full but mostly it is these teams you hire to do it for you so that takes another bite out of your margin. Then WF wants you to come and give in-store presentations to the customers and by doing that you can probably sell more wares and connect with the end user. When they do that, they usually want you to give away coupons. The time they pick for you to be in the store and give a major discount would be when the customers would buy the item at full price anyway. For instance, discounting hot dogs and relish during July 4th weekend makes zero sense but it does at Xmas.
That is essentially an overall view of the brick and mortar supermarket business. It is frustrating as an entrepreneur. It is hard to build any business but food is the toughest. Low margins, capital intensive and selling to business models from a century ago.
Amazon is changing everything. Wise move. Everyone operates independently from the suppliers to the truckers to the buyers and only a powerhouse like Amazon can force change. That change is from the supply chain that brings us our food. We will see more private label, lower prices, delivery options, shifts in what each grocery carries and I am sure more new businesses built around a changing model.
Grocery just got very interesting.