Covid-19 and the national lockdowns imposed across the world wrecked economies and swiftly eliminated millions of businesses. In South Africa – prior to the lockdown – loadshedding had already brought many businesses to their knees. The lockdown was the final straw that broke the backs of these businesses. A small number of businesses flourished, surpassing milestones that had only been set for years from now. Food retailers are among the businesses that have proved resilient. But they have had to change to stay in business. As this Wall Street Journal sets out, the next challenge is to get better at e-commerce. When lockdown started in March, life felt surreal. A visit to your local grocery store became an outing – a special occasion that members of my household strategically took turns to enjoy. While online grocery shopping is convenient, particularly in these Covid-19 times, another challenge looms for food retailers: e-commerce. – Nadya Swart
The coronavirus may forever change grocery shopping
By Alexander Hotz
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Few industries have been as impacted by the coronavirus as the grocery business. When lockdowns began, grocery stores transformed themselves physically to respond to safety concerns. At the same time, demand skyrocketed, pushing food retail sales to record highs and, in many cases, remaking entire supply chains.
Kelvin Rodriguez, who operates an independent family run grocery store, Billy’s Marketplace, in Ridgewood, Queens, said: “I’ve been in this business since I was a child. Covid-19 was something we’d never seen before”.
Bill Bishop, chief architect and co-founder of Brick meets Click, said: “Everybody has been affected and I think the industry will be remade in the future as a result”.
The pandemic has triggered a boom in online shopping. Instacart, the nation’s biggest independent grocery delivery service, reported that its order volumes are up as much as 500 percent year over year.
So what happens next? What will be the lasting legacy of Covid-19 for the food retail industry and its workers? Simply put, how will we shop in the near future?
Plastic shields, masks, social distancing markers. If you visited a grocery store anytime in the past few months, you’ve almost certainly encountered these new cosmetic changes. But what about consumer behaviour? Are we shopping differently?
Bishop, a veteran industry analyst, has observed that consumers are, first of all, going to the store less frequently. They are rushing through the shopping experience more quickly than normal. Browsing is not fashionable.
During the pandemic, people definitely started buying different things, noted Rodriguez, owner of Billy’s Marketplace. “Number one was paper. Paper products, a lot of non perishables, and they were buying more bulk,” said Rodriguez.”Before the pandemic, grocery stores in the inner city, I would say, were struggling a bit. There was a lot of competition. There were a lot of big box stores coming into New York”.
Before the pandemic, local independent stores like Billy’s Marketplace made up only about 11% of all grocery sales. Most Americans shop at the nation’s biggest chains: like Walmart, Amazon Whole Foods or Kroger.
Bishop stated that the retail grocery business is a huge business made up of many competitors, which makes it a hyper competitive, very low margin business.
To cater to the tastes of his mostly millennial customers, Rodriguez set up a beer bar and a coffee shop in the store.
“We wanted to create an experience, and that’s where we thought this industry was headed. We wanted to create where you could almost get everything in one. We know everyone that’s walking in through that door, and we have a relationship with our customers,” Rodriguez added.
But with New York still on partial lockdown, those offerings are simply not possible because of safety regulations. Fortunately, late last year, Rodriguez had the foresight to jump on the biggest trend in food retail – e-commerce.
According to Rodriguez, usually they don’t know the difference between an Instacart shopper and a regular shopper.
With such low margins, it’s impractical for smaller operations to create their own delivery services. Instead, if independent stores like Billy’s want to sell online, they have to look to third party companies like Shopify, FreshDirect or Instacart.
Rodriguez explains that previous to the pandemic, it was about 1%, (which you would say is pretty small). “After the pandemic,” he continues, “it doubled. It went to 2%”.
Although a 1% increase may not sound like much – in an industry with such low margins: 1% can be the difference between being profitable or simply breaking even. In a statement to the Wall Street Journal, Instacart wrote: “We believe the brick and mortar retailers are the backbone of the future of grocery. People want to shop from the grocers they love and trust and have gone to for generations”. Before the pandemic, online grocery shopping was a small fraction of all grocery shopping, but since then it has gone mainstream.
According to Bishop, the largest player in grocery would be Walmart.
Walmart has approximately 5000 US stores, which can be found 10 miles from 90% of the US population.
Tom Ward, SVP Customer Product at Walmart said: “We’ve been focused in this space for a while now, building up our curb-side pick up and capabilities that are in over 3300 locations as we stand today and growing each week”.
According to Ward, although the trend toward online shopping has existed for a while now, the coronavirus accelerated its adoption.
“We heard that customers felt more comfortable if they didn’t have to have a personal exchange,” said Ward. “In all of our curb-side interactions now – customers don’t even wind their window down, and the transaction is conducted inside the vehicle. Our associates load the trunk on the customer’s behalf”.
More than 38.6 million Americans have filed for unemployment since March, creating a new talent pool for those expanded operations. One area of growth has been a non-traditional gig work. Instacart, for example, relies on gig workers to shop for its customers. But like many industries that rely on gig workers, the sustainability of this delivery model depends heavily on the workers compensation and whether they are classified as employees. The long term benefits for retailers with an online presence lies in the data they can collect about their customers.
According to Bishop, if a retailer has your business online and offline, it gives you a complete picture of the household or a much more complete picture – which is very valuable.
The growth of e-commerce has also given rise to dark stores – the name of which can be misleading. Dark stores aren’t really stores in a traditional sense, because they’re not open to customers. They’re more like depots that serve primarily as a location for pickup or disperse delivery.
“It’s particularly important because it’s a route to profitability,” noted Bishop. “The cost of picking the order – what we call pick and pack – is substantially less in the dark store”.
Looking further into the future, a sign of things to come could be online only companies, like Ocado. Based in the UK, Ocado only does home deliveries from its warehouses.
Bishop added that Ocado is a standalone online service that is generally regarded as the absolute state of the art. “If a typical supermarket is fifty thousand square feet, an Ocado unit is 350 thousand square feet and it reaches tremendous efficiencies,” he said.
In a statement to the Wall Street Journal, Ocado said Kroger has licensed Ocado’s technology and will be going live with its first highly automated warehouses in the not too distant future. Back in Queens, Rodriguez remains confident that once the pandemic passes, his customers will still want the neighbourhood in-store experience that Billy’s offers.
“I’m really trying to get people here,” said Rodriguez. “I feel like if everything goes online, what kind of experience are you really going to have? You’ve got to get out of the house sometime. So, it’s almost to make people feel at home. That’s really what we wanted to do – make people feel at home at the store”.
