Yes Virginia, You Get Your Milk from a Dairy Cow, Not Amazon

By Julie Murphree, Arizona Farm Bureau Outreach Director: If you pay any attention to business news, you already know that Amazon announced its intent to purchase Whole Foods for more than $13 billion, just another sign of the changing times in the competitive U.S. grocery market. The Amazon announcement came in the wake of last week’s lower earnings forecast from the nation’s biggest supermarket chain, Kroger Company, sending its shares down 19%.

Stay Fresh. Industry experts suggest grocery stores that stay focused on fresh produce and less-prepared  but convenient food products are one way to keep the local grocery store competitive in a market being disrupted by online merchants, discounters and meal-kit delivery services.

Kroger said that its sales at longstanding stores fell for the second straight quarter, increasing competition hurt earnings for the year, and both resulted in their steepest one-day drop in more than 17 years last week. Shares of other big food retailers also fell after the Kroger announcement. When Amazon announced its intent to buy Whole Foods just one day later, grocery stocks, including Kroger, plummeted even further.

Many market analysts describe it as the latest blow to big grocers battling volatile food prices on one front and stiffer competition on another. More and more, consumers purchase their groceries outside of traditional grocery stores and supermarkets. Online merchants, discounters and meal-kit delivery services are grabbing market share.

These online food merchants, discounters and meal-kit delivery services are to the local grocer what Lyft and Uber are to the yellow taxi. Within this new normal exists our continued role in agriculture: It’s even more imperative that we connect with the public so that individually-wrapped tomatoes or cuts of beef from meal-kit provider Blue Apron, for example, are not their only experience with farming and ranching.

A deeper dive into buying trends reveals even more. Todd Hale, market research Nielsen consultant and principal at Todd Hale LLC, gives current and future views of food shoppers today. He suggested during the industry’s State of the Industry Summit recently that while economic indicators are improving, headwinds remain from aging Baby Boomers, low population growth, health care and education costs, and a low working rate.

And, maybe these demographic shifts partly explain first quarter food and beverage sales at brick-and-mortar stores in America. They were off nearly $3 billion, or 2.5%, from a year earlier, market research firm Nielsen says. Grocery-store visits rose just 0.5% over the past year. Nielsen does highlight some grocery sellers are making gains. Trips to deep-discounters are up 2.9% over the past year and online grocery orders have risen 6.8%. So, it makes sense that Amazon wants Whole Foods.

Some of these market challenges are not just found in your local grocery store. Farmers markets and community supported agriculture (CSA) anecdotally are showing somewhat of a slowdown in growth. The June 15, 2017 National Farmers Market Directory, hosted by the United States Department of Agriculture’s (USDA) Agricultural Marketing Service, lists 8,686 U.S. farmers markets. In August 2015 the number listed was just over 8,400. Previous years have shown greater than 3% or 4% growth rates (some of this could be not having enough retail farmers and ranchers to serve their local farmers market too).

And, two of my own local retail farmers in Arizona told me they were losing CSA members to either meal-kit services like Blue Apron or the newer Natural Grocers stores that have been popping up around the valley. Said one retail farmer, “Our highest number was in 2006 at 1,400 [CSA] families per week. It is probably now half of that total.”

Even Farmers Markets are not immune from the disruptions of fast, convenient service from meal-delivery services. 

Disruption Functions …

Of course, market disruptions can overwhelm. But, free markets constantly disrupt. And, often their outcomes can be brutal on the traditional players. Or, you must simply know how to pivot on market change. Nielsen’s Hale suggests four “winning the future” strategies to help grocery stores, farmers markets and even our retail farmers.

  1. Stay fresh. Consumers demand for fresh produce and products will continue. Products must have the appearance of being less prepared, more convenient and experiential.
  2. Keep health and wellness central. Food transparency isn’t going away any time soon, nor should it. Grocery stores that highlight this and farmers and ranchers that promote the health of their products will benefit from this ongoing trend.
  3. Enhance both the in-store and out-of-store experience. It might include the local grocery store offering more delivery service.
  4. Manage the negative and positive impacts of e-commerce. Shift from mass marketing to niche marketing among a diverse population and the digital age. Some of Arizona’s retail farmers and ranchers have actually succeeded quite well in niche marketing. I can highlight some unique product niche from one wine-grape grower to the next. Or, highlight one of my retail beef producer’s distinctions from another either because of a heritage breed or packaging.

The Germans are Coming …

And more competition is coming to America. Germany-based chain Lidl opened its first 10 stores in the U.S. last week. At a store opening in Wilson, North Carolina, last Thursday, a line of more than 100 people snaked around the block ahead of time, an industry analyst reported.

Rival German chain Aldi, which has operated in the U.S. for decades, plans to invest $5 billion over the next five years to open nearly 900 stores and remodel hundreds more.

Price, value and convenience, and in that order, are the industry buzzwords based on consumer trends.

Whole Foods Market has been under pressure to reverse a nearly two-year decline in same-store sales that has halved the specialty-food chain’s share price and now we know was an obvious target of Amazon. Wal-Mart Stores Inc., the largest U.S. food seller, continues to cut prices to keep up with competition from Amazon. Target Corp.’s food-and-beverage comparable sales continued to fall in the latest quarter.

Ultimately, farmers and ranchers have the same challenge today we did decades ago. Unless we are a retail or direct-market farmer, we are still the unseen link in the food supply chain. Yesterday, your neighbor used to say, “I get my milk from the grocery store.” Tomorrow, they may say, “I get my milk from Amazon.”

Come on people, it’s from a dairy cow.

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