Grocers Fight to Recover Ground Taken by the Titans

Sept. 13, 2013
New online efforts by Peapod and others aim to make a competitive impact on Amazon and Walmart.

Before leaving for Park City, Utah, to cover Dematic’s annual customer conference early this week, I sat down to watch a new video Jim Tompkins put out called Amazon and Walmart: Facing the Titans. As you probably know, Jim is not only CEO of Tompkins International, but also a member of MH&L’s editorial advisory board. I knew that while I was in Park City I’d be sitting in on several sessions about retail order fulfillment—including one on Peapod, the online grocery supplier. I was interested in having some benchmarks in mind against which to compare those retailers, so this video seemed like a good investment of 20 minutes.

There are those who would say I’m wasting my time comparing other retailers to these “Titans.” After all, online isn’t for everybody, right? Tompkins asked a similar rhetorical question in his video and answered that it’s not about how much you sell online, but about the impact of online sales.” Even manufacturers who sell their products through retail channels are starting to view online as an important strategy.

“Just look at the growth of online sales with consumer packaged goods (CPG) companies,” Tompkins said. “In 2012, about 24% of CPG manufacturers sold product directly to the customer. This year, it is running around 40% and is expected to climb to more than 50% by the end of 2014.”

As I learned at the Dematic conference’s Peapod session, when Royal Ahold, the Dutch grocery chain purchased Peapod from the Jewel chain in 2001, the goal was to send out perfect orders. It worked with Ahold and sister companies Stop n Shop and Giant Foods to add click and mortar to their brick and mortar concepts. Their new model encompasses home delivery as well as offering 70 pick-up points for customers in the Chicagoland area. They developed a fulfillment system they could flex up and down. What’s the impact of this service?

“In this business, the worse the weather gets, the better business gets,” said Paul Huppertz of the Progress Group, the consultants Peapod used to equip its multi-temperature-environment fulfillment facility that was just completed in New Jersey. “On those cold, snowy days in Chicago nobody wants to go out on the roads, and we also needed to flex for holiday volumes.”

In his video, Tompkins characterizes these kinds of projects by grocery chains as a “strategic counter-offensive” against the Titans, as he calls Amazon and Walmart.

“We’re all playing catch up as they create benefits for their customers at a phenomenal rate,” Tompkins says in his video. “There’s no magic solution, but there are certain elements that all companies need to understand as they launch their own responses to the growing success of Amazon and Walmart. Shaping these elements into a strategy that uniquely meets their customers’ expectations is the real key.”

Tompkins cites five elements that every counter-offensive should include:

1. Omnichannel

2. Store Fulfillment

3. Same-Day Delivery

4. Planning-Execution

5. Demand-Driven Value Network

As Peapod and other competitors gain ground on the Titans by upping their value-adding prowess, Walmart and Amazon will have to work harder at maintaining Titanhood and avoiding Titanicdom.