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: Alice Walton, a Walmart heiress, has a $1.5 billion philanthropic footprint, including a $390 million donation in 2023 to support the Alice L Walton School of Medicine. However, her philanthropic efforts raise questions about the societal costs of billionaire giving and the genuineness of her contributions. The broader social and economic costs of […]
Key Takeaway: CubeSats, affordable, lightweight satellites, are revolutionizing space exploration by focusing on single scientific goals like observing asteroids or tracking water on the Moon. They travel as secondary payloads, minimizing space debris and accelerating discovery. CubeSats are also unlocking mysteries of distant worlds, paving the way for humanity’s dreams of becoming a multiplanetary species. […]

Top Picks

Key Takeaway: Advancements in telescope technology have led to more discoveries about the universe than ever before. As new, groundbreaking observatories are set to launch over the next 20 years, they are expected to push the boundaries of cosmology even further. Chile is home to two ambitious ground-based telescopes, the Extremely Large Telescope (ELT) and […]
Key Takeaway: Artificial intelligence (AI) is transforming industries but also causing significant environmental costs. As AI systems require vast computational power, they increase greenhouse gas emissions, making it difficult for companies like Google to achieve net-zero goals by 2030. As traditional energy sources struggle with intermittency, tech leaders are exploring nuclear power, particularly nuclear fusion, […]
Key Takeaway: Hackers exploit everyday habits, such as giving personal information in stores or connecting to unsecured networks, to steal personal information and steal login credentials. These actions can be exploited by phishing and email-delivered malware, which are the leading cyberattack vectors. To protect oneself, individuals should use VPNs, use anti-phishing systems, and take basic […]
Key Takeaway: Hurricane Milton in Florida sparked a rise in extreme weather conspiracy theories, which often arise after catastrophic events. These theories aim to explain significant events by attributing them to the secret actions of powerful groups. However, these theories often require a plausible group capable of executing the secretive actions they propose. People embrace […]
Key Takeaway: Personality tests often suggest that personality is static, but modern psychology shows that traits can evolve over time. People can reshape their personality traits to align with their goals in life. Personality traits are not fixed and can evolve over time, with conscious effort and behavioral adjustments. Studies show that intentional effort can […]

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