June/July, 2016

From the Editor

Differentiating Food In An Online World

For decades now, the gatherings of the industry at the International Dairy-Deli-Bakery Association’s (IDDBA) annual convention have been affairs both productive and pleasant. How could it be otherwise? After all, it has been the perishable departments that the very top supermarket executives have looked to for differentiation and none more so than deli.

The storyline was written: As Wal-Mart rolled out across America, conventional supermarkets would not be able to compete on price, so they had to compete by being better than Wal-Mart where they could: the successful stores would have more service, more organics, more local and, most of all, more fresh foods.

And no department has been more transformed by this imperative than deli. Pizza programs, sandwich shops, wing bars, olive bars, wok stations, chicken both fried and rotisserie, soup stations, salad stations, coffee bars and more. With the integration of prepared foods and additional in-store seating, the literal transformation of what was once a relatively simple business selling sliced meats, cheeses, smoked fish and wet salads into full blown restaurants truly made the deli/prepared foods/retail foodservice department into the central hope of the supermarket.

And, to a large extent, it worked. Lots of supermarkets are still here, and it turned out that Wal-Mart couldn’t match the cornucopia top retail delis delivered. It meant not only could these fresh departments be profitable, but they could draw in the consumer, and many of these consumers also would buy Tide and Coke and central-store items just because they were in the store, even knowing they could be bought elsewhere less expensively.

Yet this may well be yesterday’s battle. Now there are new obstacles, and it is not so clear that deli, perishable foods or any product will be at the center.

We have been talking about the threat of online ordering for a long time, and most attention was paid to the comprehensive shopping services — to Webvan back in the beginning, and now on to the services such as Peapod, Flesh Direct and Amazon Fresh. But these direct assaults on supermarkets may not be the way the battle is fought.

It has been two years since CNN’s Chris Isidore made this claim:

Brick and mortar chain stores died this week, after a long illness. Born along Main Street, raised in shopping malls across post-World War II America, the traditional store enjoyed decades of good health, wealth and steady growth. But in recent years its fortunes have declined. Survived by Amazon.com and online outfits too numerous to list.

If the obituary was premature, it may still have been prescient. Not so much in food, so far, but department store sales keep going down, while online sales keep going up. And Wal-Mart is investing $2 billion-plus to build a national two-day delivery network.

Investment in food keeps rising, but much of that is foodservice, where consumer interest in food quality can be indulged without much work.

At retail, it is tougher… already Amazon’s Pantry is allowing its Prime consumers to stock up on an awful lot of dry groceries, health and beauty aids, etc., shipping a large master box that holds many items with only a $5.99 shipping fee. No perishable items are included, but that may not be the point. If the convenience of buying things in a store because you are there to get fresh foods is diminished because consumers can have these pantry items delivered to their door, that reduces the value the supermarket realizes by drawing in consumers via its foodservice offerings.

But the very nature of choosing where to buy something may change from an everyday decision to a once-in-a-very-long-time decision. Amazon’s Dash comes in two versions: One is a brand-specific Dash button that you can put next to where you store your Gatorade or Doritos and you just push the button when you want a reorder. Another, by invitation-only right now, is a Dash device that you talk into and can order anything on Amazon. WiFi connected, it eliminates the whole idea of buying things for price or convenience.

Amazon is not stopping at shopping. Amazon Echo is a kind of personal assistant that you can talk to, and it will play some Bach or the Beatles as you ask, turn off the lights, let you know your favorite team’s scores, order Dominos to deliver a pizza, Uber to send a car or Amazon to send over whatever it sells, which is increasingly becoming everything.

What this means, of course, is that there is no business at all for parity products. The person who wants Tide will have his automated assistant order it from his dedicated vendor, which means the only opportunity in the food segment is for businesses to make the kinds of food that consumers value enough to specify – we need consumers to say, “no, Dominos pizza isn’t good enough, I want Wegmans.”

Retailers still grow — look at Aldi or Trader Joe’s and think of Lidl, about to burst on the scene. But each retailer constantly innovates, and whether it is proprietary flavors or deep discounts, each offers a reason not to just press the reorder button. When the industry walks the floor at IDDBA, that is what buyers need to ask vendors: “What can you offer that my customers will want so badly they won’t just press the reorder button?”        DB