What’s the most iconic American business model? Some would say franchising, the ubiquitous proliferation of identically formatted retailers and service providers that can be found in every city and suburb in the country.
Others might argue that the fast-food industry, a format that has been exported successfully worldwide, is the quintessential icon on the country’s business landscape.
I’m voting for the supermarket. Unlike franchises, which most people patronize sporadically, or fast-food chains, which are struggling to reinvent themselves to remain relevant, it would be challenging to find a single American family that doesn’t regularly spend hours each week guiding a shopping cart through their neighborhood grocery store.
Yet, as is true of all businesses, the supermarket sector is continuing to evolve, which to be honest, has been ongoing for more than a century now.
In a concise analysis of that process, Paul Ellickson, a professor of Economics and Marketing at the University of Rochester, N.Y., identified three major phases.
Briefly, the first major milestone he cited was the emergence of the Great Atlantic & Pacific Tea Company in the early decades of the 20th century. A&P leveraged standardization of product inventories, the introduction of private labeling and its economy of scale to dominate retail grocery marketing right through the 1940s.
In the postwar era of the 1950s and ’60s, the suburbanization of American led to the creation of the “modern” supermarket” with which we’re familiar. These ever-larger stores carried far more products than just food, introduced self-service as the key to controlling labor costs and capitalized on the availability of cheap real estate to dominate grocery retailing.
There’s no need to detail the third phase Prof. Ellickson identified, since we’re in the midst of its ascendance, and that is the impact of big box retailers — the Walmarts and Costcos that have taken such a huge share of the food dollar away from the traditional supermarket chains.
Now, since business never stands still, the question becomes, what’s next?
All things online
A partial answer might be found by monitoring the independent, specialty grocers—at least the ones that are still in business. An intriguing review of the issues facing those intrepid operators was summarized in a Herald (Washington) Business Journal story titled, “Small grocers face evolving challenges.”
Along with the pressures that higher labor costs impose on smaller operators — especially as states raise their minimum wage levels—and the competitive disadvantage that comes form not being able to source the basic commodities shoppers expect to find in a supermarket by the trainload, specialty grocers must conquer the final frontier in food retailing if they hope to remain relevant in the years ahead: Online sales.
Think back. Christmas wasn’t that long ago. How many of us sat down with our phones or tablets and merrily clicked on gifts to send to the majority of the family and friends on our shopping list? If not all of them.
But how much of the holiday foods we feasted on from Thanksgiving onward were ordered online? Not much — if anything at all.
Conventional supermarkets have already dived deep into online customer connections, with loyalty cards that trigger email coupons and “private” sales and special deals available only to shoppers online.
But buying your weekly grocery purchases online? That’s different.
Of course, the technology piece that supports online shopping is well-developed. There’s no problem rolling out a “Shopper App” that allows consumers to browse the virtual store aisles, with product inventories updated in almost real time.
The issue is deliver, and that is where smaller, more localized independent grocers might have an advantage.
As Mike Trask, a IGA retail operator and president of an independent retailers’ trade group the Washington Food Industry Association, noted in the Herald Business Journal article, “We believe that the Millennial [generation] is going to want online [shopping]. They can pick their food on their time frame and not have to be home.
“The millennials are going to re-shape our industry.”
To that end, Trask said that the two IGA stores he operates will be offering a “shopper app” this year that will allow people to shop from their smart phones. That will no doubt be greeted with interest by the under-40 population he’s targeting, but unlike the rest of the products we eagerly order online, perishable food products present a far greater logistical challenge.
Of course, Safeway already offers home delivery service in certain markets, Schwan’s has been doing store-to-door deliveries of specialty and high-end food products for decades and Peapod operates a home delivery service in such urbanized areas as Chicagoland, the New York-New Jersey metro area, Philadelphia and Washington, D.C.
It’s a lot tougher for any smaller, local independent to compete without the economy of scale.
But the thought of having to purchase the single most important products we need in life from one of two choices—massive, big box superstores without an employee in sight or a pricey online delivery services—is downright depressing.
Like the food supply itself, the standardization driven by size and scale does not bode well for the future.
Dan Murphy is a food-industry journalist and commentator