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I don't think that grocery delivery will be a major threat to brick and mortar grocery retailers. Aldi and Lidl are a much bigger threat to Kroger. Every new Aldi and Lidl store will cost Kroger business. So far it's not a threat for Kroger because Kroger can easily overcompensate such losses buy taking business from much weaker market participants. The grocery retail market in the U.S. is still extremely fragmented. The competition will become much more intense once these weaker market participants are out of business. Then it will not be possible to compensate the losses that occur when a new Aldi or Lidl store opens nearby...
One of Krogers advantages is their strong own manufacturing base. Kroger could form or expand (Ruler Foods) their own limited assortment / discount grocery banner with smaller stores. So they can directly compete with Aldi and Lidl. Selling larger quantities could bring the costs per item of Krogers private label ranges down.
But operating a low cost discount grocery banner successfully would mean to built up a store network of several thousand stores in the long run. And it would most likely require an own distribution network. It's unlikely that it's cost efficient to support these stores by existing Kroger distribution centers. The two large operator of traditional supermarkets in Germany (Edeka and Rewe) have both their own discount store network. But both chains are lacking behind Aldi and Lidl (much lower sales per sq ft).
A big concern for Kroger and other grocers may be the nature of the small format stores Amazon allegedly is planning for its Whole Foods build-out.
A Barron's article (subscription required) in this week's issue titled "Amazon and Whole Foods: Grocery Apocalypse?" suggests that the first target of Amazon's grocery attack will be the highly profitable middle aisles, full of non-perishable goods with the highest profit margins, such as spices. The limited selection of spices at discounters such as Aldi's already are much cheaper than at other grocers.
Amazon, like competitor Wal-Mart, is noted for leaning on suppliers, and among the biggest stock price losers on Friday where middle aisle brand name suppliers such McCormick's (spices) and General Mills (cereal). The Barron's article also notes that Amazon now will have available Whole Foods respected 365 house brand. I don't know if Amazon currently offers online grocery house brands, other than baby wipes mentioned in the Barron's article.
Barron's pronouncement in the article: "Amazon’s move looks particularly bearish for a beleaguered Kroger, which had lowered its 2017 outlook only a day earlier."
There is speculation in the Barron's article, and in the analyst community, that Kroger's may make a preemptive bid for Whole Foods to deny Amazon WF assets: "Meanwhile, Kroger and privately owned rival Albertsons could be desperate enough to lob their own big offers. That could make next week particularly exciting. “I wouldn’t be surprised if every grocery store has an emergency board meeting this weekend,” says Steven Wood, founder of GreenWood Investors, a deep-value shop that has a stake in Whole Foods."
Such a bid likely would be punitive for KR's immediate stock price, and, if successful, deny KR the financial resources to compete with AMZN grocery technology in the long run.
A key element of AMZN grocery technology likely will be its small format grocery offering, likely combined with a much larger pick-up center able to accommodate both perishable goods as well as nonperishable goods, perhaps including general Amazon pick-up. Many analysts believe a primary motivation of the WF acquisition is to lower AMZN's "last-mile" delivery costs by substituting robust pick-up options. Robust grocery options would dramatically increase pick-up volumes and pick-up center economies.
Unlike other grocers, AMZN already is a leader in automated pick-up centers.
Kroger and other grocery chains ultimately may become collateral damage in a battle for 21st century retail dominance between AMZN and Wal-Mart.
<<The stakes are highest for Wal-Mart. Amazon's move aims at the heart of the Bentonville, Arkansas-based retail giant's business - groceries, which account for 56 percent of Wal-Mart's $486 billion in revenue for the year ending Jan. 31....
Amazon is expected to lower Whole Foods' notoriously high prices, enabling it to pursue Wal-Mart's customers. The push comes as Wal-Mart is headed in the opposite direction - going after Amazon's higher-income shoppers with a recent string of acquisitions of online brands such as Moosejaw and Modcloth and on Friday, menswear e-tailer Bonobos....
Marc Lore, the Jet.com founder who now runs Wal-Mart's e-commerce business after selling a startup to Amazon, told Reuters in an interview that Amazon's move does not change Wal-Mart's game plan. "We're playing offense," he said.
Wal-Mart is offering curbside pickup of online grocery purchases at 700 locations, with 300 more planned by year end. It also is testing same-day fresh and frozen home delivery from 10 of its stores. "We see an opportunity to do a lot more of that," Lore said.>>
Amazon likely will introduce other new technologies, such as automated check-out and perhaps even time-of-day pricing (likely to be horribly unpopular with consumers, who already grumble at such practices at gas stations), according to the Reuters article.
<<Ladd, who left Amazon in March, said Amazon will seek to eliminate checkout lines by using technology that automatically scans goods as customers add them to their shopping carts. It will select merchandise based on Amazon's vaunted customer data, and potentially expects the use of technology to change prices during the course of a day....
"Amazon will reduce prices and change the assortment of products carried in Whole Foods stores to attract a larger customer base," said Ladd. "Kroger and Wal-Mart will be impacted as their customers will defect to Amazon.">>
Now consider that Amazon almost certainly will tightly integrate online grocery ordering with its Alexa artificial intelligence devices. Perhaps Apple will offer AI devices to serve relatively technology starved corporations such as Kroger in order to help level the playing field against competitor Amazon.
I know several persons who use AMZN currently for non-perishable items, because they don't have to be at home at the delivery time. Some of these persons live in major cities and don't own a personal vehicle and don't want to carry large amounts of groceries on mass transit.
Older, live-at-home individuals who no longer drive and the disabled may certainly be candidates for home delivery, including for perishables.
Online shopping doesn't always mean home delivery, as in Kroger's digital offering. This report was written before AMZN's Whole Foods acquistion.
<<Around a quarter of American households currently buy some groceries online, up from 19 percent in 2014, and more than 70 percent will engage with online food shopping within 10 years, according to "The Digitally Engaged Food Shopper" report. It also found that of those who will buy digitally, 60 percent expect to spend about a quarter of their food dollars online in 10 years. >>
This cincinnati.com article basically outlines the bruising fight ahead for Kroger if Amazon completes the Whole Foods acquisition:
<<
"We believe this is most negative for food retailers, including Kroger," Stifel analyst Mark Astrachan wrote Friday in a note to investors. "We believe Amazon’s acquisition of Whole Foods will greatly accelerate penetration of online grocery. Online grocery’s advantages in convenience and cost have already begun to shift consumer shopping habits as it has become increasingly more commonplace."
Astrachan added that Amazon will likely lead to price cuts in Whole Foods stores, forcing other brick-and-mortar stores to follow suit.
"This could further accelerate the existing price war in retail, led by Walmart," Astrachan wrote. "Amazon has famously foregone profits to drive sales, and we believe the company’s push into brick-and-mortar through Whole Foods is likely to reflect that mentality as the company looks to build its grocery scale and take share from traditional grocery retailers.">>
There is speculation in the Barron's article, and in the analyst community, that Kroger's may make a preemptive bid for Whole Foods to deny Amazon WF assets: "Meanwhile, Kroger and privately owned rival Albertsons could be desperate enough to lob their own big offers. That could make next week particularly exciting. “I wouldn’t be surprised if every grocery store has an emergency board meeting this weekend,” says Steven Wood, founder of GreenWood Investors, a deep-value shop that has a stake in Whole Foods."
Such a bid likely would be punitive for KR's immediate stock price, and, if successful, deny KR the financial resources to compete with AMZN grocery technology in the long run.
WR - Before I get into anything else, I want to commend you for all the information you're pulling about the events surrounding AMZN/WF/KR. If the local fishwrap and broadcasters showed half as much initiative they'd go back to actually making money and serving their audience.
That said, I actually laughed when I read the speculation that KR or Albertson's would or could make a bid for WF. I can't imagine two more different corporate cultures than KR and WF (like wearing brown shoes with a tuxedo), let alone paying for it under their current financial condition (as noted in the 2nd graf). They've never been shy about acquisitions, but that would be an epic failure. They might 'talk' taking a run at it to make Bezos pay more but otherwise it's just nonsense. If this were 10 or 15 years ago, Albertson's (or rather Cerberus, Yucaipa, Bob Miller or some combination there of) very well might have taken a shot at it and well might have succeeded but that was then and this is now.
WR - Before I get into anything else, I want to commend you for all the information you're pulling about the events surrounding AMZN/WF/KR.
Thanks. It's a fascinating, revolutionary development.
Mostly, I'm just trying to decide what to do with my KR stock position.
I'm thinking that KR may have better results for the remainder of the year before the longer term implications of the AMZN invasion take hold.
Also, other retailers such as Macy's should be happy with this development. It's hard to believe that AMZN can fully support all of the balls that it has in the air, especially if Oracle, Google, and Microsoft start to take hunks out of AMZN's cloud services business, thereby deflating AMZN earnings growth.
I'm still fascinated that analysts and investors ignored AMZN's 10 percent decline in Q1 operating income.
Kroger's suddenly this morning joined Macy's on the list of troubled U.S. retailers. With the entry of Amazon into the grocery space, and likely more importantly, the rapid expansion of European discounters such as Aldi and Lidl, Kroger's challenges arguably are unprecedented.
...
I heard Kroger's CFO Michael Schlotman interviewed on CNBC this morning, and he seemed to blame all of Kroger's problems on general food price deflation or disinflation, without focusing on the reality that this deflation/disinflation results from the aggressive transformation of the grocery space by Kroger competitors. I detected no sense of urgency about slashing costs to remain competitive in the grocery space.
1. Macy's is a dinosaur. Lazarus back in the 1970's and 1980's sold nice stuff both on the high end and the low end. They gave away their hardlines business and Nordstroms took their customer for better goods. All they have now is overpriced "designer" clothing that in most cases is pretty ugly to a person like me who likes classic designs and polyester ghetto clothing.
Macy's sucks! They should have kept Gold Circle!!!!!!!!!!!!!!!
2. Walmart is a great store on the department store side. Their grocery store, however, is just an oversized Sav-A-Lot. Kroger is in the right space where they are the reasonably priced traditional grocer. Most conventional grocers are high priced. They don't have to be the lowest because they're a lot better than what Walmart has to offer.
3. Price deflation is mostly a function of lower commodity prices, particularly corn. The price of corn was bid up when gas prices were $4 a gallon. (Has to do with the commodities markets and how they work.) Now that gasoline is in the $2 range, the price of corn and soybeans has fallen commensurately. Hug your local fracker and thank him for his service.
Side note: I was in a Dillon's division store over the last week or so. It was kind of cool to see the same Kroger decor and Kroger products mostly on the shelves. There were a few Dillon's brand items there, but mostly it was all Kroger-label products. The Dillon's store had much better pre-made sandwiches than what they offer here.
You're really concerned about 1 store opening with a retailer with $110 billion of annual sales and $22 billion of net income??????
Yes for one BIG reason: Kroger has gone from leasing real estate to owning real estate. Now in our personal lives, OWNING is usually better for an individual or small business owner. For a big company to own real estate, they become takeover bait. I hope they have some high-end corporate governance to keep these vulture funds away. They were almost decimated in the 1980's by KKR.
Quote:
Originally Posted by flashes1
NO ONE has learned how to make money selling groceries on-line. AMZN will one day get there---but it's years away. Many many challenges including 1) how do you get perishables like milk and produce to people's front doors without it spoiling (how do you get milk to a house in Phoenix when it's 110 degrees?) What if no one's home? You can't leave it on the front steps, can you? Consumers still want to pick out their own produce and many other groceries.
Let's be honest here, online ordering may be great for prepackaged items, but I don't want some dipsh*t picking out the bruised bananas, not the freshest bread on the rack and fatty gristly meat. I know what i want and I doubt they'll ever pay people enough to have the type of employee who can shop critically like I do.
Walmart has a much better system going than Amazon. Walmart is going to give them trouble in the future. The key with Walmart's in-store pickup is that you also pick up a few more items while you're in the store.
Last edited by PerryMason614; 06-20-2017 at 10:57 PM..
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Grocery apocalypse? Pick-up center turf war?
