Tech Brew Ride Home - (Bonus) Is Ecommerce Gonna Kill The Grocery Store? With Joe Fassler

Episode Date: July 14, 2019

Remember that longread from Friday? I knew lots of physical retail was under threat from ecommcerce, but do we have to worry about the grocery store too? As I said, this was something I’ve never considered. So read the piece because I got in touch with the author, Joe Fassler to see what the story is. And yes, there are larger societal and cultural and even cyclical shifts imperiling the traditional grocery market, but yes, it’s tech and ecommerce too. A deeper dive into all this, plus at look at the star of Joe’s piece, the grocery store architect who is trying to blow up the grocery in order to save it. The man who’s going to save your neighborhood grocery store (The New Food Economy) Sponsors: CognitoHQ.com Stamps.com, click on the Microphone at the TOP of the homepage and type in RIDE Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to another weekend bonus episode of the Techmeme Right Home. I'm Brian McCullough. So remember that long read from Friday, the one about the supermarkets.

I knew a lot of physical retail was under threat from e-commerce, but do we have to worry about the grocery store too? As I said, this was something I had never considered. So read the piece because I got in touch with the author, Joe Fasler, to see what the story is with grocery stores. And yes, there are larger societal and cultural and even cyclical shifts imperiling the traditional grocery market, but it's also tech and e-commerce too, of course. A deeper dive into all of this, plus a look at the star of Joe's piece, the grocery store architect who is trying to blow up the grocery store in order to save it. Please enjoy.

So I mentioned your piece about the grocery industry in this week's long read segment. And the reason that it was fascinating to me is, like, before reading it, I had never considered that supermarkets were a category of retail that was imperiled. You know what I mean? Like, in the whole retail apocalypse, like, sure, Blockbuster videos are gone, malls are going to go away. Maybe people will still want to go to a store to try clothes on, maybe not. But I always assume that if there was one sort of cockroach that would be around after

the apocalypse, it was going to be grocery stores. And your piece made me think for the first time maybe that's not the case. Yeah, absolutely. I think you're right. I think when we think of the, you know, so-called retail apocalypse, it's Toys R Us. You know, it's a lot of these big box stores that just, you know, can't compete with Amazon. But the fact, and food has steady demand, right? It's not like something like Blockbuster Video where, like, the VHS tape or the DVS,

or the DVD can kind of just be outmoded. People are always going to need food. So in that sense, I think you're right that it's a little counterintuitive. But the fact is that the world of food retail is changing rapidly and the continued survival of supermarkets, at least supermarkets as we know them, is not guaranteed. Well, let me, because it is a little more complicated than, oh, everybody's got to buy their food online. So before we get into like the actual piece itself, can we just spend some time looking at essentially the way the supermarket industry in North America has been? Reading your piece, like, I'm reminded kind of of the way newspapers used to be.

Supermarkets kind of have had local monopolies for like the last hundred years or so. I'm thinking of like there's Meyer in the Upper Midwest, Publix and Florida, Hy-Vee, I could go on and on and on. Do you have any sense of why? the grocery market has, at least until the era of Walmart and stuff like that, maintained its sort of local flavor as opposed to being fully nationalized and chained up and that sort of thing? Yeah, it's a good question. I mean, I think, you know, A&P, for instance, it's not that there haven't been big dominant chains. It's just, I think that they have been more sort of regionally oriented, as you mentioned. So before Walmart, there was A&P, which is, of course, now out of

business, and that was seen sort of as the great mechanizer that was killing the mom-and-pop grocery shops of Yore. But, no, national chains really, really weren't so competitive in the grocery segment for a long time. And, you know, as you kind of mentioned, it was often, sort of by city or by region, and these stores didn't really have a lot of competition. They had competition in the sense that there would often be sort of a thrifty option, a kind of middle-brow option, and a higher end. Right, there would be local competitors, like the Pepsi to your Coke in most markets and things like that.

Exactly, and they'd be sort of trying to hit different parts of the population. So you go to this place for your luxury goods. you go to this place for your deal. And there was that kind of thing. But for the most part, they didn't really face any competition in terms of, you know, external models or people who are trying to sell food in a different way. If you wanted to buy food from, you know, to cook at home, you pretty much had to go to a grocery store. So part of the big pivot that's happening right now is that their actual fundamental model is being threatened. It's not just like there are other stores to compete with. It's like grocery is no longer the only game in town. And not only was

grossly the only game in town, but some of the biggest companies in the world essentially were the ones drumming up the demand for what supermarkets did. So by that I mean, you know, you have Super Bowl commercials that are advertising Budweiser and Oreo and all of these brands. And, you know, where do you go to get those things, but your local supermarket? And so they really didn't have to do – supermarkets didn't really have to do much work to get people in the door. It was just kind of obvious. It was assumed. It was sort of the only option that you had. And that's been one of the biggest and most fundamental changes in recent years. Right. Actually, I'm going to come back to that one. But let's kind of go down the list a little bit.

So then, so the supermarket chains kind of have this sort of natural monopoly. They're not a lot of competition, really. But then comes the Walmarts, the Costco's, and then it's these super shopping centers where it's one-stop shopping for everything. You can get your vegetables and you can get a TV. And so, like, that's the first threat to them where someone comes to eat their lunch, literally by, you know, Walmart adding food and traditional. like vegetables and fruit and things like that.

Absolutely. And, you know, one of the things I talk about in the piece is for Walmart, the economics are completely different. Like, they can do things like discount milk so much that they're selling it below cost as a loss leader so that, you know, if you come in and buy a TV or you're buying clothes or whatever, you know, they're happy to give you the milk for free, essentially. And that's the kind of thing that has made the sort of, you know, hypermarkets, they're called such an existential threat to grocery stores is just

their, their model is completely different. So then there's other, like, secular trends, like a couple years ago, the numbers shifted so that now Americans dine out more for the first time ever than they eat at home? Yeah, that happened, I think, in 2010. And that was, I mean, you know, supermarket executives had seen that writing on the wall for, you know, since at least the 90s. They, you know, in addition to the encroachment of the Walmarts and the Costco's and that kind of thing, they had noticed that the balance was tipping away from them in terms of how were people eating, you know, dining out versus eating in. And that did finally shift in 2010, and it's continuing to go in the balance of, you know, eating away from home or meals prepared outside of

home, even if they're eaten in the home. And that's, you know, another big problem that they're really facing is people, you know, people have less time to cook. They're doing it, you know, less often. And that's a fundamental threat to the RISIS model. So then you do have the rise of e-commerce, which, you know, e-commerce is 20 years old or more at this point, but it has taken a while for the grocery component of it to be a thing. Like, in your piece, about 3% of groceries are currently bought online, but that could go up to 20% within like five years or so. So this is, like, the writing's on the wall for e-commerce taking a bigger piece of the pie. Yeah, supposedly. I mean, we don't really know what's going to happen, and it's worth pointing out that I think,

that the, you know, the current impact of e-commerce on grocery, I think, is very oversold. It's still, you know, only a sliver of groceries really are sold online. And there are a lot of kinks to work out before that becomes the norm. You know, not just like some of the issues that Amazon is facing in terms of, you know, if packages are being delivered constantly, you know, how do we make sure that they're actually getting inside people's homes and not just getting stolen off the front porch, but also things having to do with food safety, you know, when it's, when it comes to, you know, to meat and some highly perishable items, you know, what, what standards are really in place? A lot of the food safety

law around that, you know, sort of has yet to be written. So there are issues. But that said, commerce is increasingly moving online. You know, all those sort of prognosticators say that this is going to really become an increasing way that we all buy groceries. And there will be a lot of hybrid models too. I mean, Amazon and Whole Foods are already working with delivery, you know, and other grocers are really scrambling to do that as well. And to a degree that's not new, right? You know, people will talk about the milkman and how there have been models before for groceries being home delivered. So in some ways, it's a return to form.

But, yeah, that's going to be an increasing, you know, factor in the market. Well, your piece made me think of, like, my own purchasing habits. And this kind of comes back to what you were talking about, about how in the old days the consumer package good companies did the advertising for the, the grocery chains and they were, you know, tightly partnered and things like that. But, you know, anything that's in a box, I don't go to a grocery store anymore. If I need paper towels, if I need, you know. So in a sense, if that is the future, if my family's buying habits represent the trends, then, right, the only thing that the grocery stores still offer me are those perishable items. So that if that, if those problems that you're describing it's solved, then,

then right, then they're staring down the barrel of like, what do I need them for anymore? Exactly. So that's one of the things that I really talk about in the piece where that there's going to probably be this bifurcation of retail. And to an extent it's already happening where you go online for the things online does well. And that's being able to sort of price comparison shop among hundreds of different retailers and get the best possible deal. So things like, you know, paper towels, soap, even canned goods to an extent, you know, those are the kind of things that I think online will really excel in. But that's not everything. You know, do you want to really buy tomatoes online? Right. Or do you want to buy,

or brown beef, you know, do you want to buy cheese online? I mean, there's a certain, you know, kind of food that is highly perishable, you know, where we might want to select by attribute, whether that's taste or appearance or, you know, getting to sample it in the store, where online retailing is not going to excel at that. And so, and that actually probably isn't going to change in the near future. I think what people who really follow this stuff closely think is going to happen is you're going to continue to go to a physical store, a market of some kind in person to get, you know, your heirloom tomatoes. But that, you know, their, that your paper towels and stuff are you going to get online. The problem with that is that a lot of those, those packaged goods,

you know, whether it's, it's sort of like dishwasher detergent or, you know, cookies and crackers, that's where grocery stores make a lot of their margin. That's where that's where the markup often is highest. And so by losing that, they really need to, to, to, rethink the model. So, yeah, I mean, you're painting a picture of, like, the grocery, the traditional grocery store is getting it from all size, because they've already had to compete with Walmart for years on price and convenience, and now they have to be Amazon, they have to have an online component, and then, of course, Amazon is coming into their space with Whole Foods.

And so is the fear that a decade, a couple decades from now, again, like, has happened to other markets that there's only like a handful of players in how food gets on our table. And if that's the case, it sounds bad to me, but are there specific reasons why that would be bad? Is it just a concept of, you know, there would be a race to the bottom in price, which is good and also convenience which is good, but would quality and variety suffer in that sort of universe? Yeah.

So I think there's a number of different factors to look at that. But I think most of the research into monopolies shows that monopolies are not good for the consumer. And price tends to go up and people overpay. And so I think that you will, you know, with fewer and fewer players, you start to see that kind of thing. I mean, I live in Brooklyn, and there's really only one full service supermarket within, you know, walking distance of my apartment. And the prices there are just outrageous. And I think it's for a reason, right? It's because there's not a lot of other options in the area.

And so I think that's, you know, that kind of works as a metaphor for. for, you know, if there's fewer players in the industry, what can tend to happen. So I think a lot of it is an economic, you know, consideration. But it also, in terms of the variety of food, you know, if you have to be, you know, a huge agricultural conglomerate in order to sell at the scale that works for a Walmart, then that means that there's only going to be a certain approach to farming that's very sort of, you know, focused on, you know, commodities and, and yield, you know, and production being like the only factor that matters, that is increasingly the dominant thing.

And so if there are not stores that are more nimble and able to work with, you know, farms of different sizes and different approaches and different value systems, then I would argue that, you know, something might be lost in that as well. If only the very biggest can play, you know, that means our agricultural system and thus the actual land that we live on in the water that we drink is going to be a reflection of that. So that might give us pause. But just too, it's also sort of, you know, a personal ethical choice, I think. It's like food is so integral. It's so personal.

It's literally what sustains us. And you have to ask, you know, as a citizen, like, is that a good situation to be in? if really only a handful of the most powerful companies on earth are the ones kind of calling the shots about how we eat and what we eat and what's available and how much it costs, is that something we feel good about? And I think that that's certainly a set of questions that are motivating the main character in my piece, Kevin Kelly, who is an architect, who's really a kind of supermarket ghostwriter and he's trying to save the grocery store. And I think what keeps him up at night is, you know, grocery stores have traditionally been a very, very diverse industry, you know, where every town and city has its own options. And, you know, compared to something like, you know, the movie industry where there's a sort of handful of big, you know, production companies, it's incredibly diverse. And in his view, that's been an extremely important thing for American commerce. And he fears that going away.

So, yeah, I think those are all things that are really worth considering. So, as you're saying, the piece mostly focuses on this grocery store architect, Kevin Kelly, or the firm is, it's something else Kelly, somebody else, Kelly. Shook Kelly, yeah. His partner, Terry Shook. So it's shook Kelly. So his strategy, and it's funny also because reading the piece, it reminds me of so many other stories like this where it's like he's trying to convince these old white dudes that they have to redesign their stores in a different, like, emotional way.

And he's like trying to reinvent the wheel for these guys, essentially. But what is his basic, if you could sum it up, like his basic philosophy in his mind, how the supermarket could be reimagined to remain relevant? Yeah. I think if I had to sum it up in two words, I would say that he would say, stories matter or storytelling matters. Because for years, supermarkets didn't have to make the case for themselves. You know, everyone needed food. It's here, come get it. If you build it, they will come. Exactly. And it truly was, you know, put up a store and people would come buy food there. And now that's no longer a given. And in fact, it's an uphill battle. And so what he's trying to convince his customers, you know, many of, I mean his clients, many of whom are third and fourth generation grocers, is that that's no longer enough and they have to make a case for what they're doing. And it has to be such a strong case that people are actually going to show up.

So what he's trying to convince them to do in it, and it has been an uphill battle to an extent, is to make their stores more like movie sets, you know, where you're getting aisles out of the way and you're creating these kind of experiential spaces, you know, with a lot of kind of, yeah, almost like, you know, movie sets and sort of slogans on the wall that subtly reinforced, perception and artwork and all of these things that, you know, are not just aesthetically appealing, but actually make the case for a set of values. And for each store, it's different, right? Like some of the stores are the store that I profiled, Harvest Market, which is in Champaign, Illinois, is all about, it's kind of like, it's a bit of like a Republicans' vision of Whole Foods. It's very much about like, you know, American agriculture, and there's pictures of combines, and it's just got this real sort of homespun, folksy vibe, but it's doing really excellent work in getting products from the local, you know, farms into the store, to the extent that there's actually

something I've never seen before, an in-house butter churner. where they buy all this sweet cream by the gallon and actually sell bricks of fresh made butter there in the store. And so that's a cool product, right? But it's also about storytelling. I mean, there's this like Willy Wonka-esque contraption, and you can watch it work, and you can taste it. And that's something where it's all, you know, in the service of making the case for like, here's what we do, here's the kind of food we sell. It's delicious. There's values behind it.

you can believe in it, you can taste it. And guess what? Amazon actually can't do any of those things. So in Kelly's view, if you're really, if you're telling a good story that actually has legs and actually has products that can back up the story, then you are doing something that, you know, e-commerce may never really be able to do in quite the same way, and that's how they're going to stay alive. But it means changing everything, you know, and grocers, I think, are really afraid of that. It's not just experiential, though, because it's like, again, you're getting things like fresh butter and milk, like literally fresh, as opposed to, you know, something you can get in a box. But also adding these things like the pre-made meals, the delis, the butchers, the cafes, the things where it really is, it's like leaning into the things that can't be put into a box, the things that can't be turned into an online sort of thing. Exactly. So if you go to Harvest Market, it's incredibly unusual. I mean, they have a restaurant, you know, with maybe 40 or 50 seating areas. You know, it's not, they don't have like a wait staff, but, you know, you do order at a counter. But it's, you know, you can have breakfast, lunch and dinner there. There's a, there's actually two different bars in it. There's kind of a beer-based bar and then upstairs, which, first of all, how many grocery stores have in upstairs? There's, there's a wine bar. There's a family room with like couches and games.

There's an educational center where they do cooking classes and other things of that nature. So it's really functioning kind of almost like a community center. And it's really, really different from what most grocery stores offer. And I think that's very threatening to people. I mean, you know, the business has been done a lot. You know, it's been done the same way for a very, very long time. And I think some of his clients have a hard time, not only just learning new skill sets, but just branching out from what they've always known.

So that's one of his central challenges is saying, like, your store can be here. It can exist in the 21st century, but it's going to mean changing the way you do business. And he always says, you know, if you're not in the restaurant business in five years, you're going to be out of business. Right, the restaurant business as opposed to the walking down the aisles business. Because, like, the analogy that I thought of was like it's sort of like the the Apple store where instead of, you know, learn how to do Photoshop, it's like learn how to cook. And then also you're describing like in the cafe, there's people sitting there on their laptops for the whole afternoon and hanging out. So it's like the Starbucks or, you know, bookstore sort of model as well. And it's all about like, like you said, it's a place. It's that third place where people can hang out where it's not just get in, get out. It's almost the exact inverse of those Amazon sort of cashierless stores. Exactly. It's very different from that. So there's a metric in the industry that they use called dwell time, which is basically, you know, it's a fancy way of saying how long people spend in the store. And basically the sort of logic around that is if you can increase dwell time without increasing frustration. In other words, if people are staying in the store longer, but it's not for an annoying reason, like the lines are too long or moving too slowly, then they'll buy more and they'll return more often.

And so these are all ways of trying to, you know, increase dwell time, of getting people to hang around, of, like, making it kind of their home in a place that's where they're willing to go to, not just to shop and complete a chore, but to like experience an aspect of life that they enjoy, whether it's eating or gathering with friends. And that's very different from the kind of frictionless Amazon experience, which is about getting in and out kind of as quickly as you can. So I should say it's a little more complicated than that because part of the Amazon store model, what it has going for it, is a novelty. So part of it, too, it's not just that it's easy and you go in and out, but it is its own form of storytelling. And it's a story about, look how exciting our technology is, look how futuristic it is, isn't it cool, that you can just leave without paying, aren't we sophisticated? And so it's not to say that those stores don't have their own narrative that they're going for it and aren't a kind of movie set of their own, but it's just a very different kind of story. Well, you're talking to a fellow Brooklynite, so shout out to expensive as hell union market

and Steve Seatown. So before I let you go, this piece turned me on to the new food economy, which I was not aware of. So just real quick, tell us about the new food economy and what you guys are up to over there. Sure, yeah, I'm happy to. So we are a nonprofit newsroom covering, you know, American food, basically, is our beat. And we're a bit different from most of the other food publications, you know, and that, you know, we don't do restaurant reviews, and we're not kind of like, you know, ranking the best burgers in the U.S. What we're really doing is looking at the way politics, economics, and culture shape how and what we eat.

And so that will, you know, we cover a lot. I mean, we cover, we cover restaurants, we cover grocery stores, we cover farms, we cover logistics and warehouses, we cover, you know, politicians. But it's all through the lens of how does food intersect with these larger ideas about labor and the environment and race and income inequality and taste and delight as well, you know, like. cow food intersects with culture. So that's what we do. We're based in New York, but we have freelancers from all over the country. And so we, you know, we're trying to do as good a job as we can covering the totality of American food in all its vastness and complexity. Well, in tech, you left out tech. Joe, you'll have to come back. Of course. I mean, that's one of the most exciting things about it. Yeah, it's just so much changing

so quickly, whether it's, you know, lab-grown meat on the horizon or we've done pieces of about Amazon's delivery drone blimps that they have patents on and all this stuff. So it's an incredibly exciting time to be on this beat. Well, then hopefully you'll come back and talk about food tech again with us sometime soon. Thanks, Joe.