Freshening Up

Organic, non-GMO, free range, locally sourced, sustainably sourced, antibiotic free, vegan, and artisanal food preferences are all the rage for a sizable minority seeking healthful eating choices. This trend is one of several convergent forces impacting the grocery business that will ultimately change the supply chain operations of successful players.

It’s not just millennials or picky eaters driving the growth of the health food market. Conditioned by internet buying, no time to shop, and maturing millennial buying habits, I see another grocery growth trend in the making. I call it Farm-to-Mouth, where food buyers skip traditional retail activity and turn instead to Blue Apron, FreshDirect, and Peapod, which deliver natural edibles right to your home or office almost instantly, given demand-driven logistics practices and the Uberization of last-mile delivery.

Noting the profitability of Trader Joe’s, and the cachet of Whole Foods, traditional grocery chains and supermarkets such as H-E-B, Stop & Shop, Kroger, Wegmans, and Publix have accelerated their fresh, all-natural, and organic offerings. Those investments are paying off. Publix, for example, recently posted its best annual sales ever at $32.4 billion.

Monsters such as Walmart and Amazon bring a Godzilla footprint to their health food offerings. Walmart To Go and Amazon Fresh can out-spend and out-invest to gain share in the fresh arena. What’s more, they can bring to bear finely honed supply chain performance to outflank competitors. Neighborhood green grocers and local health food entrants will have to compete.

Competition like that has impacted Whole Foods sales slightly. But the food chain is determined to "be the hunter, not the hunted," says co-CEO Walter Robb. It introduced Whole Foods 365, promoted as a "chain for millennials." The new stores are one-third the size of traditional stores and use self-serve kiosks, electronic shelf labels, and robots to keep costs competitive. The company plans to open about 12 Whole Foods 365 stores in $15/hour minimum wage California, with technology and automation reducing store labor needs by a projected 60 percent.

Peapod is also responding to the competition by upgrading warehouses, investing in technology, and expanding aggressively.

Competition among market players in this low-margin business is not the only headwind. Minimum wage warriors, government mandates (ObamaCare), increasing regulations, interest groups, and government lawsuits play an increasing role in cutting margins further. Who will survive? That is uncertain. But demand-driven logistics and supply chain excellence will play a pivotal role in their success.

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