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Ryan Caldbeck @ryan_caldbeck
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1/ Had a fun dinner w/ CEO of a large US grocery chain last night. We got into a 3 hour discussion about the future of grocery in the US. Here were some takeaways.
2/ There are 4 dimensions grocery competes on.
a)Price
b)Convenience
c)Experience
d)Assortment

Note that b & c are especially intertwined (and to some extent they all are). Still lets try to separate those 4.
3/ [This is connected to an earlier TS I did but taken a few steps further.]
4/ CEO believes price is a death spiral. First -the industry is already a “penny industry” (1-3% margins). Some retailers that are willing to run at a 0 or negative margin on products because they have ancillary profit drivers (i.e. Costco’s membership. So price (4a) is out.
5/ Convenience can mean many things. This was a 30 minute conversation on its own. It can mean:
a) location of stores
b) location of products in the store
c) in store pickup (after online selection)
d) delivery of products.
6/ We agreed 5a and 5b have had armies of smart people for decades trying to optimize. The phrase “Location, Location, Location” has been around since at least the 1920s. I’m not sure there is a lot of blood left to squeeze out of that stone. (or whatever the expression is)
7/In store pickup and delivery seem like the future. BUT – I think it is table stakes. I foresee every grocery chain needing to nail in store pick up or delivery (depending upon how pricing shakes out, which will be driven by adoption curve and where else margin can be stolen)
8/ So if we (me and the CEO) are right then 2b (convenience) becomes necessary but not sufficient for success.
9/ 2c – experience- was something he was more bullish on than I am. Let’s acknowledge that experience can mean a lot of things and can be complimentary to 2b (convenience) or contradictory. Meaning a wonderful lounge in the grocery store isn’t really in line with grocery delivery
10/ He spoke to experiences like cooking your food for you in the grocery store after you buy it (for free).

I’m not convinced that people will value experience enough to outweigh the other factors. But I could be wrong.
11/ We did both agree that assortment (2d) will be the key driver of success and differentiation for the next 10+ years in grocery. Assortment is the products you put on your shelf.
12/ If everyone is selling the same products then 2a-c are all that matter. But we both believed the opportunity to nail assortment offered the best path to healthy growth.
13/ Ahhhh- but then what? What to do if assortment is key?

His first answer was that a path to succeed is to hire the right buyers and send them around the world to find the most interesting products. Manually picking products.
14/ I’m not convinced of that path. A grocery store needs to have 5-50k products at the national level. That number goes up meaningfully if you want to offer people different things in Portland, Maine v. Portland, Oregon
15/ We came to data. His first reaction: “current data providers like XXX are complete crap.” His issue? They don’t help him identify innovation. They help him know how Coke and General Mills products are doing, but not to find innovation that give him an assortment advantage.
16/ He wants a data solution that a) targets the long-tail, b) isn’t commoditized that can give him a competitive edge on assortment.
17/ Here is the thing that gets me excited. Unlike convenience, assortment seems to be the edge that can continuously grow and change. What customers want today is different than tomorrow as products, brands, people, and our culture evolves.
18/ So if this CEO, or any grocery store, can turn assortment into a true machine – a systematic advantage – then that advantage may be able to persist over the long-term because of how dynamic the industry is w/ consumer tastes, product innovation etc.
19/ I’m doubtful that can happen if the advantage is hiring buyers and flying them to Italy to pick coffee. Just not much of a barrier to entry there.
20/ To build that systematic data advantage it will require real visionary investment. That advantage will take time to build but if done correctly it will help determine the winners in grocery.
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