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: Researchers have used mathematical models to simulate the spread of farming, focusing on human contact as the driving force. They adapted predator-prey models to simulate the overlap of farming and foraging communities. The study found that direct human contact, whether friendly or hostile, played a central role in the expansion of farming. Small-scale […]

Top Picks

Key Takeaway: A new study published in Nature Astronomy claims that the James Webb Space Telescope (JWST) has detected atmospheric signals on K2-18b, a distant world 124 light-years from Earth. The researchers found traces of molecules often associated with biological activity on Earth, including dimethyl sulphide (DMS). The scientists are 99.7% confident in the presence […]
Key Takeaway: Belief in the supernatural, including ghosts, spirits, astrology, and psychic powers, is more common than people might expect. These beliefs offer a sense of control, meaning, and comfort in the face of life’s unpredictability. They fall outside the boundaries of conventional science and include ideas like fate, spiritual forces, and life after death. […]
Key Takeaway: Brain-computer interface (BCI) technology is rapidly redefining human potential, with breakthroughs in artificial intelligence and machine learning enabling the translation of thoughts into action. The brain is a complex network of over 80 billion neurons, processing thoughts, memories, emotions, and sensory inputs. Advances in AI, miniaturized electronics, and neuroimaging have led to the […]
Key Takeaway: Antarctica’s tiny invertebrates, such as mites, springtails, and tardigrades, have developed strategies to survive extreme cold conditions. These adaptations, known as freeze tolerance and avoidance, allow them to survive below zero temperatures without damage. These survival mechanisms could inform future innovations in areas such as organ preservation and materials engineering. Understanding how these […]

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