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Readers weigh in on e-grocery’s obstacles

This week, IdeaXchange Xpert Neil Stern offered his take on a very hot topic in the grocery space in a post titled “Online shopping barriers slowly dissolve.” Neil pointed to Waitrose’s home barcode scanner, Instacart’s aggressive growth, Walmart’s pick-up service and the East Coast expansion of AmazonFresh as examples of how e-grocery is moving into the mainstream.

Several of our readers responded with some ideas of their own. Let’s look at a couple of those ideas in more depth.

Commenter PJ Stafford of the Honest Green Division of UNFI pointed out that Instacart marks up the prices on groceries, so the retailer actually charges more than $ 3.99 for a delivery.

While that may be the case, a recent report from BI Intelligence shows that may not matter much to consumers. The E-Commerce Grocery Report found that 25% of Millennials would be willing to pay a premium for same-day delivery. One fifth of urban consumers said the same.

In another comment to Neil’s post, Brian Numainville of Retail Feedback Group suggested that there are other competitors that retailers need to watch out for:

Finally, other models like NatureBox.com and Plated or Blue Apron are also akin to “category killers” and are filtering off sales that formerly came from others.

Similarly, Search Engine Journal recently delved into a few examples of online grocery and related ventures in Europe. Though the author’s analysis is a bit technical, the basic premise is that based on how consumers search for food delivery, e-grocery retailers are likely competing with many types of online businesses, from those that provide meal preparation kits to aggregators of restaurant delivery services.

Brick-and-mortar supermarkets have dealt with their fair share of non-traditional competitors in recent years so it’s no surprise that online grocers face similar challenges.

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Analysts weigh in on Whole Foods’ new pricing program

Whole Foods Market has lowered pricing in the perishable sections of its five Austin, Texas, stores as part of an effort to improve its value image, industry observers told SN — though they said it could take up to two years to change consumer perceptions and impact sales if and when the program is rolled out chainwide.

According to Kate Wendt, senior analyst with Wells Fargo Securities, San Francisco, “Price is still a significant barrier in the way people look at Whole Foods, and it will take awhile to change the ‘Whole Paycheck’ perception the company has. But lowering prices in perishables — the category where people shop most frequently at Whole Foods — could help accelerate a change in that perception.” 

Jim Hertel, managing partner at Willard Bishop, Barrington, Ill., said changing consumer perceptions about Whole Foods could take awhile. “Depending on the level of the pricing changes in terms of depth and breadth, it will take at least six months before it starts to have any impact and 18 months to 24 months before it has much impact on total results overall,” he said. “For investors, there are likely to be some challenges from a profitability standpoint until that happens.”

The price-reduction program “will take at least six months before it starts to have any impact,” says Jim Hertel of consulting firm Willard Bishop.Published reports said Whole Foods is lowering prices on 400 produce items. Chain representatives could not be reached for comment.

According to Wendt, it’s important for Whole Foods to change consumer perceptions, “because other than price, there are not a lot of reasons for most people not to shop at Whole Foods — it offers a great shopping experience, transparency, a broad natural and organic selection and quality values on its 365 label. 

“But the company has not seen as big a benefit from lowering prices on non-perishables as it thought it would get, so it’s shifting lower pricing to perishables, its primary sales driver, which accounts for two-thirds of total sales,” Wendt added. “Consumers tend to shop for perishables several times a week at Whole Foods, so the thinking is, they might notice the price changes faster there than they would in non-perishables — and perishables is also the section of the store where competitors like Sprouts and Natural Grocers are priced more favorably, so it’s not a surprise that’s where Whole Foods would lower prices.

“At this point the average consumer is probably not aware of what Whole Foods is doing, so by investing more in perishables pricing, it’s drawing more attention to a category that can help change its image.”

Wendt said she believes Whole Foods shifted some pricing investments from non-perishables to perishables “by studying price elasticity and determining which grocery items shoppers will buy regardless of price.” To enable Whole Foods to make sure it can offer lower prices in perishables without lowering quality, Wendt added, “it’s seeking cost-reduction opportunities — similar to what Kroger has been doing — to enable it to make that investment in perishables pricing in a new way that won’t hurt operating margins.”

Another analyst, who declined to be named, told SN that Whole Foods may have made some cost cutbacks in its Austin stores “to make the lower perishables pricing work,” though he said he was unable to pinpoint where it made any cuts.

“One area it could tap for cost-cutting would involve seeking better deals from suppliers,” he said. “Or it could lower its buying standards, given that one reason Sprouts has lower produce prices is it has lower quality standards. But would Whole Foods go down in quality?

“It could also reduce costs by cutting store hours or eliminating positions at the store or regional headquarters level. Whole Foods has a regional structure where different people run categories or departments in every store, every region and every city. While that helps make Whole Foods’ stores unique, it also results in a lot of redundancy relative to the competition.”


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Wendt said she believes the perishables pricing program in Austin, which is the company’s home market, is a test prior to a wider rollout “so Whole Foods can make sure it can get the return on price investment with higher unit sales,” she explained. Noting that the chain has said it plans to launch a national ad campaign later this year, Wendt said, “Initially that campaign is likely to emphasize the company’s quality standards versus other grocers, but it may also highlight its improved value offering as the lower perishables pricing program gets a wider rollout.”

In addition to lowering perishables pricing, Whole Foods is also offering more promotions in the Austin market, Wendt pointed out, “with better signage to do a better job of communicating in-store promotions.

“And looking ahead, the chain is likely to introduce more value items in produce — perhaps something like a $ 1 avocado — so it’s not lowering the quality but is offering an alternative to the larger, higher-priced sizes, to give customers more choices.”

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Courts begin to weigh in on PrimusLabs motions to dismiss

To date, three judicial districts have issued orders of dismissal of lawsuits filed against Santa Maria, CA-based PrimusLabs stemming from the 2011 distribution of tainted cantaloupes produced at Jensen Farms in Holly, CO. Motions to dismiss have been filed in a range of 10 to 15 cases.

During the 2011 Listeria outbreak, 33 people died and another 147 people were sickened in the United States. Eric and Ryan Jensen pleaded guilty to six misdemeanor charges of introducing adulterated food into interstate commerce in U.S. District Court on Oct. 22, 2013, and will be sentenced in federal court at the end of January.

A separate lawsuit originally filed by the Jensens against PrimusLabs was formally turned over to 26 victims in the case, who are represented by Seattle-based Attorney Bill Marler. Primus has also filed a motion to dismiss this case, which has been transferred to federal court.

Jeffrey Whittington, attorney with the law firm of Kaufman Borgeest & Ryan LLP, based in Calabasas, CA, is representing Primus in these cases.

“The lawsuits are essentially identical except for some personal details,” he told The Produce News Jan. 14. In the legal actions outside Colorado, Whittington said the motions to dismiss filed on behalf of Primus are “largely similar except for taking state law into consideration.”

Current dismissals were issued in California, Wyoming and Oklahoma, the latter two jurisdictions being federal court.

“The decisions have been 14 to 15 pages long,” Whittington stated.

At the outset, Whittington said courts will examine cases in a light most favorable to plaintiffs when issues such as breach of contract and negligence arise.

Whittington argued for dismissal based upon three considerations: Did Primus owe a duty to end consumers? If Primus did owe such a duty, was there a breach of contract with end consumers? And finally, assuming there was a duty and breech, did Primus cause the situation to occur?

“As an auditor, Primus has no control over sale or distribution of product,” Whittington said.

He is not surprised by the first three decisions, saying, “I thought those decisions were consistent with what we thought the law to be. The undercurrent of the law is very consistent.”

He was asked whether courts have the discretion to take prior rulings into account prior to affirming or denying motions to dismiss.

“The judge in Oklahoma was provided with the decision of the federal judge in Wyoming,” Whittington said. “He will still have to apply state law.”

Information about the Wyoming decision, while not binding upon the Oklahoma judge, was “considered to be persuasive,” he said.

The next round of hearings for motions to dismiss have been scheduled in Arkansas on Jan. 27, Oklahoma on Feb. 10 and Kansas on Feb. 14.

There are two separate sets of litigation occurring in Colorado. In addition to the consolidated lawsuit, separate lawsuits are also moving through the judicial system.

Whittington expects the consolidated lawsuit will be taken off the federal calendar as an amended complaint has been filed. That complaint is currently being reviewed, and Whittington expects the complaint will be placed back on the federal docket after the review is completed.

Whittington said the Jensen case brings the role of auditors into focus. That role, he said, “is to observe and report in conjunction with an auditee. It is important to understand a third-party auditor has no enforcement or reporting authority [because it is a private audit].”

Steven Weiner, an attorney with Kaufman Borgeest & Ryan LLP, based in Westchester, NY, said it would have been up to Jensen Farms to take the results of the audit and determine its next course of action.

“There has been a lot of focus on the audit score,” he commented.

Jensen Farms received a score of 96, and Weiner said that score was indicative that Jensen Farms should have addressed minor, major and total areas of noncompliance.

“The focus is on substance of what is reported in the audit, rather than the score,” Weiner stated.

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