The online grocery wars are heating up and the stakes are far bigger than any battle between Amazon and Walmart. The real story here is the automation of grocery stores and the service economy more broadly.

Amazon’s Grocery Expansion

This week, Amazon announced it is eliminating fees for grocery delivery in the U.S. The move is just the latest in the company’s aggressive expansion into physical and online grocery businesses. The first shock waves came in August 2017 with its $13.7 billion acquisition of Whole Foods. Then, in Seattle, just five months later, the company opened the first outlet for a new automated convenience store format called Amazon Go. Amazon also appears near to rolling out of a new chain of supermarkets aimed at expanding beyond the upmarket Whole Foods brand. 

Amazon’s motivation for expanding into online grocery boils down to a large growth opportunity. The U.S. Department of Commerce estimates that consumers spent $513.61 billion online in 2018, or about 14% of the total $3.6 trillion U.S. retail market(excluding automobiles, gasoline stations and restaurants). The total retail groceries market in the U.S. is $655 billion, and of that, online groceries account for $20 billion, or just 3%. In other words, the percentage that online sales accounts for in groceries lags considerably behind other retail categories. Amazon, with its technical prowess, is well positioned to disrupt this market and grab a sizeable portion of the revenues in the process. 

Cost Cutting in Groceries

To understand the way this disruption is unfolding, it’s important to understand what has been happening in the traditional groceries market. Over the last few decades, competition from low-cost giants like Walmart, Target, and Costco has dramatically suppressed prices—and profits—among grocers. Between 2012 and 2017, more than 50 percent of the economic profit of publicly traded grocery retailers has evaporated. 

As consolidation sweeps through grocery retailers, the remaining giants invest heavily in automation technologies to further lower their operating costs. Logistics and inventory management are an important part of the puzzle, but as with all service businesses, the real opportunity to boost profits lies in reducing the cost of engaging shoppers. 

Automated Self-Service

The key to reducing these costs is automation technology that enables end users to serve themselves. “Automated self-service” is what automation looks like when it meets the service economy and the grocery businesses is no exception. 

In other words, what looks like a battle between Amazon and more traditional retail giants like Walmart is actually something much bigger. We are now witnessing the automation of the grocery business. This automation process looks very different from the huge combines and industrial robots that swept through the agricultural and manufacturing sectors. 

In the service economy, end users play a critical role in the value chain, since there is no shopping without shoppers. Traditional retail grocers served shoppers by employing aisle stockers, cashiers, baggers, and other staff. Early attempts to automate that work essentially just shoveling it onto shoppers through self-checkout machines. These machines didn’t work that well and even though many of us have grudgingly begun to accept this new form of “shadow work,” most of us don’t like it. 

For automation to really transform the groceries business, these processes need to be rethought. Simply automating old processes rarely works. Instead, new players like Amazon and Instacart and established players like Walmart and Target are disrupting and automating the retail grocery business by merging it with the online grocery business. By building a new generation of user interfaces, these grocer giants of the future are coordinating Internet-scale networks of shoppers in their highly distributed work of shopping for groceries. 

Automated self-service technologies are what enable this massive coordination of end user work. These systems are what enable the new grocery giants to amass the huge quantities of data needed to make their automation ever smarter and more efficient—and with minimal assistance from human employees. 

This is the future of groceries and the future of the service economy more generally.


About the Author

This article was written by Gideon Rosenblatt of The Vital Edge. Gideon ran an innovative social enterprise called Groundwire for nine years. He worked at Microsoft for ten years in marketing and product development, and created CarPoint, one of the world’s first large-scale e-commerce websites in 1996. The Vital Edge explores the human experience in an era of machine intelligence.

Recently Published

Key Takeaway: Airports often lead to unusual behavior, such as drunken brawls and flight diversions. The psychology of travel can influence this behavior, as the promise of vacation can shift our mindset into anticipation and liberation. The overwhelming noise, crowds, and constant hustle can overload our senses, leading to stress-induced irritability and unexpected outbursts. Airports […]
Key Takeaway: Over 8,500 shipwrecks from two devastating world wars pose a significant threat to marine ecosystems and coastal communities. These underwater time capsules contain up to 6 billion gallons of oil, munitions, toxic heavy metals, and chemical weapons. The degradation of these wrecks is accelerating due to rising ocean temperatures, increasing acidification, and more […]

Top Picks

Key Takeaway: South Korea’s cultural exports have surged to unprecedented heights, with the latest season of “Squid Game” solidifying its position as a global entertainment powerhouse. The “Korean Wave” or Hallyu, which includes TV series, movies, animation, and music, has generated approximately US$3.7 billion annually for South Korea through exports, consumer spending, and tourism. The […]
Key Takeaway: A study published in Nature Astronomy found a strong consensus among scientists that extraterrestrial life exists in the universe. The survey, which involved 521 astrobiologists and 534 non-astrobiologists, found that 86.6% agreed or strongly agreed that some form of extraterrestrial life exists. The study also found that 67.4% of astrobiologists and 58.2% of […]
Key Takeaway: Researchers are using genome-scale metabolic models (GEMs) to study the complexities of microbial life, offering innovative solutions to climate change and space challenges. GEMs simulate the vast network of metabolic pathways within living organisms, allowing scientists to test and predict microbial behavior across diverse environments. They provide a detailed framework for understanding organisms’ […]
Key Takeaway: The “Wirkin” bag, a $78 imitation of Hermès’ Birkin bag, has gained popularity on TikTok, attracting millions of users. The bag, a clever portmanteau of “Walmart” and “Birkin,” allows everyday consumers to partake in high-end fashion without the exorbitant cost. The trend reflects a broader shift in societal values, where symbols of wealth […]
Key Takeaway: In 2022, scientists achieved the “experiment of the century” at Lawrence Livermore National Laboratory, marking the first time a fusion reaction produced more energy than consumed. This achievement has attracted billions of dollars in private investment, particularly in the United States, to advance fusion technology. However, a myriad of engineering challenges remain before […]

Trending

I highly recommend reading the McKinsey Global Institute’s new report, “Reskilling China: Transforming The World’s Largest Workforce Into Lifelong Learners”, which focuses on the country’s biggest employment challenge, re-training its workforce and the adoption of practices such as lifelong learning to address the growing digital transformation of its productive fabric. How to transform the country […]

Join our Newsletter

Get our monthly recap with the latest news, articles and resources.

Login

Welcome to Empirics

We are glad you have decided to join our mission of gathering the collective knowledge of Asia!
Join Empirics