The Grocery Fullfilment Conundrum

The local Auckland paper, the New Zealand Herald, recently published an article discussing supermarket pricing.  That in its own right is not a surprise, newspapers tend to pursue this topic when there is no other news about. This article differed though from others. In the first instance, the focus of the article was not the usual supermarket fare, food and FMCG consumables, but the journo offered opinions about the wisdom of buying typical non-supermarket items such as stationery, slug pellets and medicines from supermarkets.  The verdict? It could well be cheaper than buying those items where one would usually buy them. Ok, one would expect that though from a supermarket, wouldn’t one?  The question NOT asked is even more interesting. WHY are supermarkets moving into all sorts of other product? Answer – With consumers increasingly shifting towards online grocery buying, brick and mortar store operators need to figure out what else to put onto their shelves in order to keep the turnover going.
amazon feshSupermarket companies like Woolworths here in New Zealand may well be very successful with their on-line activities but they face a dilemma. Right now, on-line customer fulfilment occurs via a number of selected stores where ‘personal shoppers’ take the groceries from the shelf. The problem with that approach is that the goods come attached with the costs of getting them onto that shelf in the first place. Then adding the ‘personal shopping’ and distribution costs makes the whole process a fairly unattractive financial proposition. The smart solution is therefore to pick the goods at a distribution centre where the cost of getting into the store and the cost of the retail environment itself don’t figure in the cost of sales. The trouble with that approach is that individual unit fulfilment cannot be run out of distribution centres geared to dispatch goods by the pallet load. Pursuing that approach will lead to having to build dedicated distribution centres. Not the kind of thing you want to do if you already own stores which make money by stocking goods on their shelves for people to buy….and we are back to square one.

That’s why we need to sit up and listen very carefully if companies like Amazon suddenly decide to enter the grocery fray...particularly, the FRESH arena.  They are not encumbered by stores and dated paradigms.

There was another point of note in that article I mentioned at the beginning of this blog entry, but that will have to wait until tomorrow.