So they’re here. The holidays. Everybody’s favorite time of the year. While it’s nice to break bread with family and friends in relaxed, festive settings, sometimes a surprise guest at the holiday dinner table can add a new, shall we say, dimension.
If you’re a food retailer, this year Amazon (AMZN) is that guest. Its acquisition of Whole Foods put traditional and non-traditional grocers, not to mention investors, on notice that the e-commerce giant was coming to their grocery aisles.
But food retailers haven’t been idle. In fact, many have been prepping for a new era in grocery shopping for some time. This week we highlight how food retail—once an area of the market that many investors may have overlooked—is in the midst of a disruption, along with some stocks that are working hard to stand out from the pack.
The AMZN in the room
And with that loaf of bread, now comes electronics. Recently, Amazon has been launching pop-up shops stocked with Echo speakers and Kindle readers in certain Whole Foods stores. On its third-quarter earnings call, CFO Brian Olsavsky seemed to confirm what many market observers had expected—that “there’ll be a lot of integration” across the company’s various segments.1
Helping to drive foot traffic to Whole Foods thus far have been some much-publicized price cuts. In August, Amazon lowered prices on key items like eggs and milk. And new price cuts to holiday staples like turkeys figure to keep shoppers happy. Deeper discounts for Amazon Prime members could also be seen as another peek into how Amazon plans to integrate Whole Foods into its platforms.
Traditional players adjust
A consumer discretionary stock by classification, you’d be forgiven for mistaking Amazon as a tech firm. Amazon spends an estimated 12% of its sales on technology annually, compared with most grocers at less than 3%.2 But in recent years, those in food retail seem to have taken a page or two from Amazon’s playbook by going in on tech to help them evolve with consumer preferences:
- Kroger’s been prepping. Shares of Kroger (KR) have struggled since the Whole Foods deal. But investments in data analytics have given Kroger several new toys, including an increased e-commerce presence, as well as store enhancements, such as equipment that can monitor food freshness. It’s also been working on apps that can help inform customers’ shopping.2
- Wal-Mart seeing results. Online grocery sales helped Wal-Mart’s (WMT) US e-commerce growth increase a robust 50% in 3Q.3 Market observers credit a strong buy-online/pick-up-in-store program. Strategic partnerships, including one in Asia with Chinese e-retailer JD.com, could be opening new data-driven channels as well.
A meal kit looks for footing
Meal-kit services have carved their own grocery niche. They exist in a bit of a sweet spot among consumers who still want to cook (with the help of easy-to-follow recipes), but may not have the time to shop for the ingredients. As with any recipe, though, sometimes there’s a bit of trial and error:
- Blue Apron’s experimenting. After leveraging data analytics to penetrate a traditional space, Blue Apron (APRN) has been finding its way as a public company. Factors negatively affecting performance thus far include increased costs from new operational infrastructure. Investors likely view Amazon as a threat too. But the company did beat revenue expectations in 3Q and showed continued strength in average revenue per user.4
Fruits and vegetables make for a healthy diet. There’s also a school of thought that they can make for a healthier food retailer. Surveys indicate that many shoppers still prefer to pick their produce themselves, rather than take what they’re given from an online order.5
But new signage and endcaps aren’t going to cut it today. Food players know that it will take more to keep foot traffic up. That’s why some retailers, like Kroger and Wal-Mart, see a place for blockchain technology throughout their supply chains in an effort to consistently offer the highest quality produce and fresh food.6
An already crowded grocery space is even more so now with Amazon taking a seat at the table and food techs knocking on the door. For investors, it may be worth a walk down the tech aisle to see how food players incorporate technology to help them compete, and to see what investment opportunities may come as a result.
1. Amazon.com (AMZN) Q3 2017 Results—Earnings Call Transcript. Seeking Alpha https://seekingalpha.com/article/4117120-amazon-com-amzn-q3-2017-results-earnings-call-transcript?part=single#question-answer-session
2. Haddon, Heather. “Grocers Imagine the Store of the Future,” The Wall Street Journal, 15 Oct. 2017. https://www.wsj.com/articles/grocers-imagine-the-store-of-the-future-1508119682
3. Boyle, Matthew. “Wal-Mart Surges After Sales Growth Hits Post-Recession High,” Bloomberg, 16 Nov. 2017. https://www.bloomberg.com/news/articles/2017-11-16/wal-mart-growth-reaches-post-recession-high-as-it-chases-amazon
4. Cao, Jing. “Blue Apron Expects Sales Slowdown After Beating Estimates,” Bloomberg, 2 Nov. 2017. https://www.bloomberg.com/news/articles/2017-11-02/blue-apron-sales-beat-estimates-signals-slowdown-at-year-s-end
5. Nassauer, Sarah. “Supermarkets’ Best Weapon Against E-tailers: Produce,”The Wall Street Journal, 16 Oct. 2016. https://www.wsj.com/articles/supermarkets-best-weapon-against-e-tailers-produce-1476670441
6. Roberts, Daniel. “Walmart, others turns to blockchain for food safety,” Yahoo Finance, 22 Aug. 2017. https://finance.yahoo.com/news/walmart-others-turning-blockchain-food-safety-115906494.html