The Great Retail Explosion of 2017

Amazon, discounters reshape the traditional grocery landscape

Fresh Thyme is noted as a retailer best suited for easy product browsing.

Within just a few days this past June, Lidl, the Germany-based discount food-retailing giant, opened its first U.S. stores, and Amazon announced its planned acquisition of Austin, TX-based Whole Foods Market. It was a one-two punch that promises to reshape the traditional grocery shopping landscape.

The events illustrate how the middle tier of the supermarket industry, historically a comfortable sweet spot for traditional operators who competed mostly amongst each other, is being stretched thinner and thinner. Industry experts see supermarkets being forced to evolve in order to retain sales that are being siphoned off by faster-growing alternative formats.

Bill Bishop, chief architect at Barrington, IL-based consulting firm Brick Meets Click, says he sees three broad types of food retailing emerging. One type will be led by the hard-discounters and other value-driven merchants attracting consumers who are willing to accept the trade-off of limited choice and lower service levels in exchange for low prices. At the other end will be retailers catering to consumers seeking high levels of service, as exemplified by Whole Foods and online specialists such as Fresh Direct, Peapod and Amazon.

“Both of those segments on the extremes are growing,” says Bishop. “Then, in the middle, you’ve got the traditional shoppers who basically are saying, ‘You know, there’s nothing wrong with the way we do it right now. We like to go to the store. We like walking down the aisles. We like private label and brand choice together, and we’re comfortable with that.’ Over time, that middle segment is bound to give up to the other two extremes, and exactly how it plays out, time will tell.”

A blueprint for how the growth of the discount segment might unfold in the United States can be seen in the history of the expansion of Lidl and fellow hard-discounter Aldi in Europe. In Germany, where the parent companies of both Aldi and Lidl are based, the hard-discount grocery segment has amassed what some analysts have estimated is about 50 percent of the grocery market share. In the United Kingdom, where Aldi and Lidl only began expanding aggressively in recent years, the two discounters recently surpassed 12 percent market share combined, according to Kantar Worldpanel data.

“My feeling is because the hard-discounters have changed what they’re doing to better accommodate the needs of U.S. shoppers, their market share will be higher than in the U.K., or at least they’ll get there faster,” says Bishop. “For example, Lidl is a smaller store in Europe, but in the United States it’s almost a 40,000-square-foot store, with a bakery. Aldi is becoming much more similar to traditional grocery stores. I think the grocery share of hard discounters will grow rapidly in the United States because they’ve actually done more to make themselves interesting to U.S. shoppers.”

Lidl has said it plans to have 100 locations open within its first year, mostly along the Mid-Atlantic. It also has been pursuing locations in Texas and the Midwest. Aldi, which has more than 1,600 stores in the United States, says it plans to add another 900 locations by 2025. Aldi is also in the midst of a major remodeling program in which it is enhancing its perishables assortments, among other changes.

In addition, the United States has its own hard-discount chain, Earth City, MO-based Save-A-Lot, which has about 1,280 locations.

A recent report by Boston-based Bain & Co. projects that the hard-discount segment will grow by up to 10 percent per year in the next four years, or five times the rate expected of traditional grocery retailers.

Aldi Modernizes Stores

Dick Spezzano of Monrovia, CA-based Spezzano Consulting Service says the most recent Aldi stores that have opened in California are impressive. “Aldi’s starting to modernize its stores,” he says. “Produce previously stacked on pallets is now on display fixtures. They have refrigerated space of about 20 feet, while [older] stores I visited in the Northeast probably had 4 feet of refrigeration, and the rest was dry, to keep costs down. They’ve made some moves to improve presentation.”

Spezzano says that while the Aldi stores might not carry the top brands of produce in any one category, they do offer well-known secondary brands. The company also features organic produce options among its limited assortment. Spezzano says he counted about 20 organic items among 75 to 80 total SKUs in the produce department at a local California Aldi. “They realize that’s where the consumer is going,” he says.

Because Aldi stores are relatively low volume — Spezzano estimates they tally in about $150,000 per week, compared with $500,000 or more at a supermarket such as Kroger — the threat Aldi poses to traditional supermarkets is not so much from a single store opening nearby, but from multiple locations, he says. “If you are a typical Kroger, and Aldi opens down the street, they might take $4,000 to $5,000 per week away from you,” says Spezzano. “That’s not much of a hit. It’s when they put one on the other side, take another $4,000 to 5,000 away, and then they put one on the other side of town, and all of a sudden you’ve got three of them, and now they’re taking $15,000 to $20,000 a week away from you.”

Lidl’s U.S. model is similar to Aldi’s in that it relies heavily on private labels and a limited assortment of product with no-frill displays, but its stores are more than twice as large and include in-store bakeries and large non-food sections offering in-and-out “treasure hunt” bargains.

Supermarket Advantages

Rick Stein, vice president of fresh foods at Arlington, VA-based Food Marketing Institute, says he believes traditional supermarkets retain an edge over the hard discounters because the wider assortment will appeal to a large segment of shoppers.

“They’re not going to be able to match what a traditional supermarket does in the produce aisle,” he says of discounters such as Aldi and Lidl. “The traditional supermarket has a tremendous amount of variety, and they put a rather large footprint against it.”

He also says traditional supermarkets have a longstanding reputation for produce quality that will continue to serve them well. According to FMI’sPower of Produce 2017 report, 89 percent of shoppers say the produce bought at supermarkets is safe, and 86 percent believe it is high quality.

“From the low-price, value-type retailers, all the way up to the high end, they are all very good, because they’ve been doing it for ages,” says Stein. “I see supermarkets being able to look their customers in the eye and say, ‘Based on what we offer versus all the discounters, we think we’re a better solution for you.’”

That being said, however, he concedes the hard-discounters do provide yet another option for some consumers to turn to for buying produce.

“Twenty-five years ago, you basically bought produce at a supermarket, and maybe at a roadside stand, and occasionally, maybe a specialty retailer,” says Stein. “Now you can buy produce at a gas station and at a drugstore — you can buy produce in a variety of outlets. Any time you’re splitting the pie again and again and again, it obviously has an impact because consumers have more choices where they can shop.”

Peter Larkin, president and chief executive at the Arlington, VA-based National Grocers Association (NGA), says independent supermarkets, in particular, will be well-positioned against the encroachment of the hard-discount format. “I believe there’s opportunity here for independent supermarket operators because fresh is where independents excel and differentiate themselves in the marketplace,” he says. “Perishables, particularly in the meat and produce departments, will remain an area where independents hone their focus on, and independents can win on presentation, variety, selection and service.”

“I believe there’s opportunity here for independent supermarket operators because fresh is where independents excel and differentiate themselves in the marketplace.”

— Peter Larkin, National Growers Association

Maeve Webster, president of Arlington, VT-based consulting firm Menu Matters, says club stores such as Costco, Sam’s Club and BJ’s Wholesale might also feel the impact of Aldi and Lidl’s planned expansion in the United States. Those chains “require huge purchases to achieve discounts, not to mention membership fees,” she says. “With smaller footprints, fewer categories and no membership required, I’m guessing these retailers could have a significant impact on the participation at the club stores.”

Webster also believes Aldi and Lidl will eventually be pressured to increase the variety of their assortments, “which will then create issues for their go-to-market strategy.”

The economy could also play a role in the future of these formats. While observers note the recession of 2007-08 and the subsequent slow recovery has instilled a lingering frugality among consumers, particularly the younger consumers, it remains to be seen if that attitude will continue to lead consumers to turn to discounters in the years ahead.

“I think the expansion will put to the test what American consumers really place a premium on — super cheap prices with no frills at all, or stores offering more than just cheap prices, even if the prices are a bit higher than at an Aldi or Lidl,” says Webster.

Kurt Jetta, founder and chief executive of Shelton, CT-based TABS Analytics, says he doesn’t put much stock in the potential impact of Aldi and Lidl on most mainstream supermarket operators. “They just don’t do enough volume per store to have this major disruptive effect,” he says. “The Lidl effect has been so extraordinarily overblown, it’s just ridiculous.”

While Jetta says he believes a market niche exists for these types of discounters, the impact will be largely felt by the lesser supermarket operators. “There are a few weak competitors out there that are going to probably eventually fall,” says Jetta. “But for the big guys, I don’t see that there’s going to be much impact at all. If anything, they tend to grow stronger as some of the weaker guys get shaken out.”

Impact of E-Commerce

According to Peapod’s Tony Stallone, vice president of merchandising, “every order has more than $20 worth of produce on it.”

In addition to the growth of the hard-discount format in the United States, supermarkets are also adjusting to the merger of technology with food retailing, largely in the form of grocery e-commerce.

Supermarkets have applied a variety of solutions to serve customers who are seeking to buy groceries online. Some chains, such as Kroger, Wal-Mart and Target, are approaching this channel from multiple angles, offering combinations of home delivery and “click-and-collect” services that allow shoppers to select their orders online and pick them up at the store. Others are partnering with third-party delivery firms such as Instacart, which contracts with freelance shoppers who select and deliver items for customers, often for same-day delivery.

Supermarkets are battling for a share of this segment of the business not only against each other, but also online-only grocers such as New York-based FreshDirect and Seattle-based Amazon Fresh.

Nearly a quarter — 24 percent — of all consumers regularly purchase some goods online, according to Brick Meets Click’s Bishop, up from 22 percent two years ago. “If you took a look at the percentage of people who’ve ever bought something online, that’s already more than 50 percent,” he says. “So you’ve got a gradual evolution here toward people starting to go online buying one-off activities, and then maybe spending more online.”

“What we’ve seen in Europe is e-commerce actually manifests itself equally in both suburban and rural areas versus urban, but it manifests in different product models.”

— Diana Sheehan, Kantar Retail

Bishop says he believes traditional brick-and-mortar retailers have been increasing their market share in grocery e-commerce. “There are signs that because of the more aggressive activity on the part of the brick-and-mortar retailers, they’re actually gaining share over Amazon in certain categories,” he says. “It’s become more of a dogfight, and the brick-and-mortar people are not getting rolled over.”

Online Sales Strong

The growing swell of grocery e-commerce has not left produce behind, says Bishop. Brick Meets Click recently concluded a benchmarking research effort in which it analyzed the e-commerce sales of about 200 brick-and-mortar retail stores operating under 25 different banners, and found that 85 percent of the transactions included produce.

“I think while there is a significant number of people who still want to squeeze the melons and look at banana colors and things like that, when people start shopping online they start shopping online for produce, too,” he says.

Consumer interest in buying produce online is corroborated by results from Peapod, the U.S. online grocery division of Netherlands-based grocery operator Ahold Delhaize.

Tony Stallone, vice president of merchandising for Peapod, says the company’s customers actually buy “a lot more produce online” on a per-order transaction basis than do customers in the company’s brick-and-mortar stores. “Our metrics show every order has more than $20 worth of produce on it,” he says. “We over-index compared with brick-and-mortar when it comes to produce. It speaks to the quality of the produce we offer here at Peapod, and it also speaks about our customer.

“I remember years ago people said we’d be able to sell cans of peas and soup, but no one will ever trust (enough) to buy produce online, but it’s really just the opposite,” says Stallone. “Customers trust you until you violate that trust, but then you are going to lose a customer. That’s why we put a lot of effort, and spend a lot of time, making sure that we deliver a quality experience in produce for our customers.”

Peapod offers a 100 percent money-back guarantee for the produce it sells, and invests a lot of energy providing an offer it knows its customers want. For example, Peapod’s online customers index about three times higher for buying organic produce than do customers in the brick-and-mortar locations, according to Stallone. “It is important that you know what your customers are looking for; that your assortment meets those customers’ needs, and that you are curating your website in a fashion that presents it to the customer in an easy way for them to click and buy,” he says.

Pre-cut produce is also a “huge, fast-growing category” among online shoppers, says Stallone. “People are not buying products any more. They are seeking solutions,” he says. “Anytime you can package convenience into a solution, customers will gravitate to it.”

Stallone says online customers tend to buy multi-packs of produce online — two- and four-packs of certain fruits, for example. That observation led the company to offer more multi-pack options. “We are now packaging multiples, and we see customer satisfaction and dollars per order go up,” says Stallone.

Trusting E-Tailers

Diana Sheehan, a director on the grocery channel research team at London-based Kantar Retail, says many consumers appear to trust that their online retailers can select high-quality produce better than they can themselves. “One of the biggest misconceptions is that people do not want to buy produce online,” she says. “From the people I have spoken with who are involved in grocery e-commerce, what they see over and over again is produce is actually one of the strongest categories online.”

Shoppers today, particularly younger consumers, tend not to have the kind of knowledge older generations have about selecting produce — in part because young consumers tended not to go grocery shopping with their mothers, like their own parents did, explains Sheehan. “If you’ve never been through that process, you don’t know how to pick out a good melon,” she says. “I think what people are finding is that you end up with better produce when you shop online because you have people who have been trained to pick out the good produce.”

She also notes many people have actually been ordering produce via catalog for decades — think of boxes of Florida oranges for the holidays, for example — so it’s not that big of a leap to believe high-quality produce can be delivered to one’s home.

Sheehan says she expects about 10 percent of all grocery sales to go through e-commerce channels in the next 10 to 15 years. “This mimics what we’ve seen in Europe, which is about a decade ahead.”

The United States has also begun to follow the pattern of Europe in other ways. Home delivery has become the preferred method of fulfillment in urban areas, while click-and-collect options have evolved as a more practical solution in more rural and suburban communities, where fulfillment of the “last mile” to the consumer’s home is more challenging.

“What we’ve seen in Europe is e-commerce actually manifests itself equally in both suburban and rural areas versus urban, but it manifests in different product models,” says Sheehan.

Jetta of TABS Analytics says there’s been an increase in the e-commerce efforts of brick-and-mortar retailers in the last year. “Everybody talks about Amazon, but the big surge is with Walmart.com, and Target.com, which have both also picked up, and then a lot of these regional grocers are really stepping up their game and getting broader penetration,” he says. “But, we’re still talking about a very small percentage of the market.”

Jetta notes packaged produce in particular has found an audience online. “There’s definitely a migration to more packaged perishable products,” he says. “To the extent that there are packaged produce products, the whole issue of that being a barrier to e-commerce just doesn’t seem to hold much water.”

Spezzano of Spezzano Consulting Service says e-commerce providers have become adept at merchandising their produce offerings on digital platforms. “It’s all about confidence,” he says. “If you order bananas or tomatoes, and you get them the way you like them, you get more confidence to try something else.

“Some of these online companies are very sophisticated in how they communicate to their consumers,” says Spezzano. “It can be kind of mouthwatering — they are showing you great pictures of beautiful fruits and vegetables to entice you to order those seasonal items, and those special items. That will steal more business away from brick-and-mortar, there’s no doubt.”

In-Store Experience

FMI’s Stein says the in-store experience will help brick-and-mortar retailers retain customers in an increasingly online world. “I think one of the things the supermarket has going for it is the three-dimensional experience,” he says. “Online, you get a two-dimensional experience. In the produce aisle, not only do you experience the ambiance of the merchandising and the quality of the produce, you also have knowledgeable associates.”

While a small percentage of shoppers might still prefer to buy produce online, the opportunity exists for retailers to lure Millennial shoppers who may have little product knowledge.

“The Millennial crowd doesn’t have a deep understanding of all the different types of fruits and vegetables. They don’t have a deep understanding of the nutritional benefits, nor do they have a deep understanding of how to prepare them,” he says. “The inability to do that online will send them, I believe, to brick-and-mortar stores where they can talk to knowledgeable associates, see a good variety, and learn more about their produce and experience it that way. The retailers who really excel at that experience will be the winners,” says Stein.

“Give me a reason to walk into the store, rather than just make a few clicks and have something delivered.”

— David Portalatin, NPD Group

NGA’s Larkin says the focus independent supermarket operators have on providing high levels of service will also benefit them as more of them offer e-commerce options for their customers. “I think you’ll see an expansion of online shopping, from large to small operators and everything in between,” he says. “This is an opportunity for independents to win because they excel in fresh and in service. We have seen many independents already in the e-commerce space and are the preferred e-commerce choice because they are winning on produce and exceeding customer expectations on service.”

Amazon Movies Quickly

Amazon’s acquisition of Whole Foods “will accelerate the evolution of the landscape,” says Bill Bishop, chief architect of Brick Meets Click, Barrington, IL.

Amazon wasted no time making its mark on Whole Foods. Within days of receiving approval of shareholders and government regulators, the online behemoth closed the $13.7 billion deal and immediately cut prices on a range of products, including many produce items.

The company also says its Amazon Prime membership will become the loyalty program for Whole Foods — which had only recently begun to test its own loyalty programs — and that Whole Foods’ private-label products will be made available through Amazon.com. It also plans to roll out lockers to some Whole Foods locations for in-store pickup of Amazon orders.

“We’re determined to make healthy and organic food affordable for everyone. Everybody should be able to eat Whole Foods Market quality — we will lower prices without compromising the brand’s long-held commitment to the highest standards,” says Jeff Wilke, chief executive of Amazon Worldwide Consumer, in a statement announcing the deal’s closing.

Although many observers say they believe Amazon’s pressure on pricing will squeeze out many smaller product vendors, John Mackey, cofounder and chief executive of Whole Foods, says it would continue to “support and promote local products and suppliers.”

“It’s been our mission for 39 years at Whole Foods Market to bring the highest quality food to our customers,” says Mackey in a statement. “By working together with Amazon and integrating in several key areas, we can lower prices and double down on that mission and reach more people with Whole Foods Market’s high-quality, natural and organic food.”

Brick Meets Click’s Bishop says the acquisition demonstrates Amazon’s commitment to the grocery industry. “Amazon’s decision to buy Whole Foods is one more indication that for it to grow as fast as it wants to in grocery, the company has to have a physical presence in the market,” he says.

Although Amazon says it will seek to make Whole Foods a more affordable option for mainstream consumers, Bishop says he expects the strongest appeal will be among consumers seeking a high level of service from their grocery retail experience. “It’s not going to affect all customers or appeal to all customers,” he says. “It will, however, accelerate the evolution of the landscape. Now every other retailer will face the possibility of competing with Amazon in a store down the street.”

Organics and Meal Kits

Jetta of TABS Analytics says he has been skeptical of Amazon’s ability to disrupt. One way Amazon could refashion Whole Foods to be more competitive, however, might be to loosen up the retailer’s focus on organic foods, he suggests. “You can still have natural and fresh and high quality, similar to the way Wegmans is perceived,” he says. “But, there’s just such a limited market for organics. Hopefully, Amazon will understand that to reach the mass market, you have to get past that.”

Although growth in organic product sales is outpacing growth in the grocery market overall, TABS’s research shows that only about 10 percent of consumers consider themselves to be regular organic shoppers — a proportion that “really hasn’t moved that much over the past three or four years,” says Jetta.

Menu Matters’ Webster says she believes the Amazon-Whole Foods merger could lead to the expansion of the meal-kit segment. “I think we’re going to see a lot more meal solutions or other similar kit options that will change the way consumers buy groceries,” she says. “It may not necessarily be the kit options we have now, but rather recommendations for sets of products that allow you to achieve certain goals. Online retailers can offer a bulk purchase that gets you everything you need for a goal, event, occasion, etc., which will change the way products are marketed.”

David Portalatin, food and beverage consumption analyst at Port Washington, NY-based research firm NPD Group, says the Amazon deal could accelerate the acceptance of buying perishables online. “The one thing Amazon has not been able to crack the code on as far as grocery delivery is those fresh categories,” he says. “If Whole Foods gives them a little more credibility in the space, and if it enhances their ability to take those categories to the last mile of delivery in a timely fashion, where consumers feel like they get the quality and the freshness, that could accelerate penetration in the fresh category.”

Sheehan of Kantar Retail agrees Whole Foods’ reputation for quality will enhance Amazon’s image as a fresh foods retailer. “Amazon has a credibility issue,” she says. “Amazon Fresh is great, but it’s not exploding. Amazon is used to things exploding. Whole Foods immediately gives them credibility in the produce area, and that’s something they do need. Beyond that, Whole Foods has a very loyal and highly valuable shopper base that Amazon hasn’t really reached yet. So they should be seeing gains there.”

Sheehan says Amazon also brings some much-needed resources to help Whole Foods recover from its slump — its same-store sales have been fading as traditional retailers such as Kroger, Ahold Delhaize, Publix, Albertsons, Safeway, Giant Eagle and Hy-Vee have expanded their natural and organics offerings.

“Whole Foods is broken,” she says. “They have some things they need to fix within their organization, and Amazon can help with that. Amazon can help with prices, logistics, personalization and technology. Whole Foods has little in terms of digital couponing and things like that, and Amazon can help them there as well.”

Winning Retail Formulas

The supermarkets that emerge as the winners in the evolving supermarket landscape are those that will provide options for online shopping and a rewarding in-store experience, industry experts say.

“It’s become really evident that if a traditional retailer has been slow or sloppy in moving into e-commerce, that’s a negative,” says Bishop. “The only way they’re going to sustain their growth is by having an offering that combines both the store and the online shopping experience. If they don’t offer shopping online, that business goes someplace else.”

Retailers also need to think about how to make their stores better suited to new-product discovery. Stores that lend themselves to easy product browsing, such as Trader Joe’s, Fresh Thyme and Whole Foods, will have an edge over traditional operators, says Bishop.

“Your typical everyday combination supermarket isn’t very browse-able,” he says. “It’s overwhelming.”

He suggests supermarkets could create in-store destinations for specific types of products, such as new items or products grouped together as solutions.

Supermarket operators will also need to be responsive to the evolving nature of their competition, but in a calculated way that “allows them to control the performance of their business,” says Bishop.

In the U.K., by contrast, the major operators responded to the incursion of Aldi and Lidl with aggressive price positioning, which caused profitability to erode, he says. “They lost control of their business, and they had horrible performance. It’s only been recently they’ve kind of gained control back.”

NPD Group’s Portalatin says retailers and their supplier partners need to think creatively to define a purpose for their brick-and-mortar stores to exist. “I think you will see stores try to recreate themselves to be a little more experiential,” he says. “Give me a reason to walk into the store, rather than just make a few clicks and have something delivered. That’s what retailers need to be thinking about.”

Retailers have the opportunity to work closely with their suppliers to encourage more online produce sales, says Portalatin, by leveraging digital photography and other content that assist consumers in selecting quality fruits and vegetables.

New In-Store Services

Kantar Retail’s Sheehan believes retailers will begin to integrate technology in new ways that will enhance the customer experience. “Whether that’s self-checkout or digital technology to personalize things — whatever it is, I think it is going to be an integral part of the grocery store of the future,” she says.

She also says she expects expanded service departments offering prepared foods and cooking classes. “The grocery store is going to stop being just a grocery store,” she says. “Instead, it’s going to be a local food and drink hangout where you can get a lot of things covered all at once.”

In the produce department, efforts to enhance the in-store experience can already be seen with the addition of smoothie stations and “produce butchers” — specialists who chop, slice and dice produce to order and can also provide tips on product selection and usage.

“In the 1980s, Wal-Mart came in and said, ‘Efficiency is what matters most in groceries.’ And for that Boomer generation, it was,” says Sheehan. “What’s interesting now is the younger GenX’s and Millennials are saying, ‘I want it convenient, I want it fast, and I want to have fun, too. You’ve got to bring the fun.”

Jetta of TABS Analytics says mainstream retailers need to stop trying to emulate Whole Foods and accept that there’s nothing wrong with having mass-market appeal. “Embrace who you are, and that’s a mass-market retailer that offers the things that people like. People like brands,” he says. “Grocery chains like Publix, H-E-B, Wegmans and ShopRite all earn very strong scores in feedback from consumers. If it ain’t broke, don’t change it. You can evolve, but so many of these companies are trying to get caught up in the trendy concepts.”

However retailers and suppliers choose to cope with the new era of food retailing, they need to be ready to face new and unexpected challenges, particularly now that Amazon has entered the battle on the brick-and-mortar front. The fact that two of the most successful innovators in modern business — Mackey, Whole Foods founder and chief executive, and Amazon founder and chief executive Jeff Bezos — are now working together portends significant change, says London-based Kantar Retail.

“Whole Foods started a movement 30 years ago and has never looked back. Amazon started a movement 10 years ago and has never looked back,” says Kantar Retail’s Sheehan. “You’ve got two of the founding fathers of innovation coming together in the e-commerce space, and there’s going to be some exciting things to come. This is what we know because of what we see. There’s also going to be a lot more that we just couldn’t even imagine.”

Supplier Opportunities

Bill Bishop, chief architect at Barrington, IL-based consulting firm Brick Meets Click, says suppliers need to think about approaching the two ends of the value spectrum that are growing — the low-price specialists and the high-service and online retailers. “Vendors need to establish and then grow their business with the hard discounters,” he says. “Aldi sells tremendous volumes and is very easy to deal with. People like working with them. I think you’d be surprised how many people rate Aldi as one of their top customers, not only volume-wise, but just because of ease of working with them. Unfortunately, a lot of the bigger companies are still covered with barnacles and aren’t as easy to work with.”

He also lauds the chain’s packaging and displays. “There is some really good produce merchandising going on at Aldi.”

Dick Spezzano of Monrovia, CA-based Spezzano Consulting Service agrees suppliers should establish relationships with the hard discounters. “As Lidl comes into the Southeast and Northeast, they will need local suppliers and national suppliers. You want to be one of those people.”

He says vendors should be mindful these retailers might be interested in value packaging, such as 2-lb. bags of apples instead of 3 pounds, or perhaps bags of six small avocados in place of larger bulk avocados.

Maeve Webster of Arlington, VA-based consulting firm Menu Matters, says produce suppliers need to think about how their produce can best be merchandised via e-commerce platforms. “Produce vendors, first and foremost, need to think about how they can convince consumers of the freshness and quality of an item they won’t touch,” she says. “Second, they should consider how best to package sets or solutions of produce similar to the kits to drive larger volume purchases that make sense and provide additional value.”

Technology Opportunities

Diana Sheenan, a director on the grocery channel retail team at Kantar Retail, says retailers will need to work at finding the right balance of technology and in-person service to maximize the consumer experience. “If people want that quick, fast, convenient trip, they’ll go online to buy groceries. Then if they want a little bit more, they’ll go to the store because it’s truly different.”

In fact, Whole Foods could become a testing ground for a range of technologies Amazon is developing, such as the self-checkout Amazon has been experimenting with — reportedly with little success — at its Amazon Go store in Seattle.

“I can see them using Whole Foods stores as a way to test new ideas in grocery,” says Sheehan. “I think there are going to be changes for both Whole Foods and Amazon that ultimately lead to further innovation in grocery. We don’t know yet until they start testing some of these things in stores what might stick and what might not.”

Bill Bishop, chief architect at Barrington, IL-based Brick Meets Click says there may be opportunities for technology innovators to improve self-scanning systems, particularly when it comes to produce. Although some retailers have been hesitant to embrace self-scan systems because of the perceived potential for theft, consumers who have learned to use the devices enjoy them, he says.

The self-scan systems pose challenges for produce, however, because of the random weight of many of the products. “As a shopper, there is a fair amount of more work that needs to be done when buying random weight versus fixed weight products. Somebody’s got to simplify that in terms of the interface between the random weight scale, scanner and POS system.”

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