Labs, an AI-powered revenue management advisor, told me: “It’s easier to create the future than to predict it. … The majority of stuff will be sold by stores for as long as I can see.” Their thinking is sound, but they are in the minority.The grocery business is different from other retail in two important ways. First, it’s enormous: The volume of the industry is about $800 billion per year, outscaling other retail sectors. Second, it’s more competitive and has very small profit margins.
Narayan Iyengar, SVP of digital and e-commerce at Albertson’s, laid out the economics in broad terms at Groceryshop. He explained that big distribution facilities can work in densely populated areas because the picking cost is low. To be cost-effective, you need a nine-hour delivery radius that means you can’t deliver quickly. Iyengar said Albertson’s is not testing big, automated facilities.
B. Build an entirely new infrastructure, devoted only to servicing online delivery, using new technology to minimize costs and maximize efficiency? One of the ways to think about supermarkets today is as having two components: core and periphery. Core is staples that you find in the center of the store like breakfast cereal, mustard, salt, coffee, things you buy regularly for replenishment. Periphery is fresh items like perishables, bakery and other related items. We think of all these products as being of one type because we’ve been buying them in one place for generations, but in fact they’re different.
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