Defining Disruption in the Grocery Industry
Certain changes, or disruption, present both challenges and opportunities for companies. According to the Innovator’s Dilemma, “Generally, disruptive technologies underperform mainstream technologies in established markets. But they have other features that a few fringe (and generally new) customers value.” Companies can choose to try to anticipate change and attract new consumers, or adhere to familiar tactics.
In the grocery industry, Amazon has conveyed an interesting take disruptions. The company both embraced new technology through online purchases, while also forging a new disruption by seeking to revolutionize brick-and-mortar stores.
Amazon, already a strongly established e-commerce site, embraced the disruptive technology of online deliveries. In 2007, it created Amazon Fresh, which enabled consumers order fresh groceries online and have them delivered in less than 24 hours.[i] This move spurred a drastic shift in the industry. The amount of consumers purchasing food online has increased steadily over the past several years.[ii] Large grocery companies such as Wal-Mart are now working to catch up and expand their electronic presence. Last year, Wal-Mart bought online retailer Jet.com in an effort to compete with Amazon.[iii]
Interestingly, Amazon’s response to Wal-Mart and other competitors was not focused on online delivery. Rather, Amazon spurred yet another disruption in the industry. This week, it acquired Whole Foods for $14 billion. [iv] The move to physical stores in and of itself seems, at first, to not be disruptive. It also appears to counter the trend towards buying groceries online. However, Amazon plans to implement several changes that could forever alter the industry. For example, it aims to eliminate checkout lines, allowing customers to scan items through an app and have money deducted from their Amazon accounts.[v] So, while brick-and-motor locations are not unique, Amazon’s vision presents a drastic change to grocery shopping, thus disrupting the industry.
Moving forward, it is difficult to determine exactly what will happen, especially with the changes to physical stores. The Innovator’s Dilemma stresses that “markets that don’t exist can’t be analyzed.” Other grocery companies, such as Wal-Mart, would need to have a culture, strategy, and leadership team that embraced uncertainty if they tried to follow Amazon’s lead. It will be interesting to see if the industry’s major players focus on revitalizing brick-and-mortar stores or continue to focus on online deliveries.
[i] Amazon Fresh. Amazon: Our Innovations. Accessed June 18, 2017, via https://www.amazon.com/p/feature/tvannkowwtff9zo
[ii] Daniels, Jeffrey. Online Grocery Sales Set to Surge, Grabbing 20 percent of Market. CNBC, January 30 2017. http://www.cnbc.com/2017/01/30/online-grocery-sales-set-surge-grabbing-20-percent-of-market-by-2025.html
[iii] Bose, Nandita and Jeffrey Dastin. With Whole Foods, Amazon on Collision Course with Wal-Mart. Reugers, June 18 2017. http://www.reuters.com/article/us-whole-foods-m-a-amazon-com-walmart-idUSKBN1990HH