While industries like fashion and travel are awash in digital, grocery has lagged in digital adoption. While the picture looked bleak following the dot-com era’s dismal failure with Webvan , that hasn’t stopped Instacart, Amazon, Google, Uber, Peapod, Safeway, Walmart, and FreshDirect from playing in the space and attracting capital.
Exhibit 1: eCommerce Grocery Players 
Business and Operating Model Rundown
These firms’ business models, and thus digitally-enhanced operating models , differ:
- A brick and mortar grocer may enhance convenience to supplement buyers’ existing habits and familiarity, meanwhile leveraging its logistics capability and physical presence. One method to bring grocers into the 21st century is “click and collect”, grounded in a branded website. 
- Instacart delivers value on convenience, speed, and selection, for which it charges a premium. Instacart had adopted a lower-cost model, has relied on the sharing economy, and has built partnerships with Whole Foods/Costcos to bring their selection and speed to fruition. 
- Walmart acknowledges the busyness of grocery shoppers, catering to parents who need a large load at low prices, without having to traipse through the aisles with kids in tow. Walmart uses pickup hubs to shift to a new mode of grocery uptake.
- Amazon has traditionally leveraged its image as the online everything store with a willingness to compete on price to win customers. Amazon leveraged successful tactics from its ecommerce business for AmazonFresh, with some flexing around perishables’ challenges. Last month, however, a Wall Street Journal article surprised the grocery and investing worlds by breaking the news that Amazon is reportedly exploring a convenience store model . You read right, Amazon in brick and mortar…!
Amazon’s Tactics to Leverage Digital
AmazonFresh uses digital to reach customers more directly, providing convenience, competitive pricing, and an intuitive user experience. Meanwhile, it tries to optimize logistics, minimize sales taxes, reduce warehousing, and control shipping costs to derive the greatest benefit versus the traditional grocery model .
Diverging from it’s pure online play into convenience stores is an interesting strategy. Specifically, it intends to introduce convenience store selling perishables, meat, and milk, with non-perishables available through mobile request . Amazon is also planning on developing pickup models to compete with Walmart, with license-plate reading technology to decrease wait times .
Through this approach, these stores can serve not only as “onramps to the company’s online grocery service” , but also as broadening mechanisms for their delivery network  using the back of the house as a logistics stopover closer to customers. Some believe that “harmonizing the channel experience for customers”  through an omnichannel approach is the key to winning in grocery, though most players seem to have some multi-channel approach. However, scale and reach can remain problematic if relying on a physical presence.
What Amazon Can Do More of
First, Amazon can leverage the fact that “he who controls the relationship with the consumer controls the game” . Second, Amazon can leverage the trove of data it collects, capitalizing on consumer behavior recognition . These pose a huge risk to brick-and-mortar grocers, even through algorithms suggesting other products of interest or through its product ratings. Third, Amazon can continue to attract the profitable customers who are more likely to end up online: dual-income earners prioritizing convenience .
First, online grocery may not take off. Amazon has only captured 1.1% of the food and beverage market based on 2016 projections . The primary barriers customers report are a preference for selecting their own goods, that traditional channels are not as inconvenient as expected, and that 61% find grocery shopping enjoyable [10, 11]. Additionally, delivery prices dissuade some buyers, yet they are not the main barrier to adoption .
Second, a sufficient ROI on capital investment poses a risk for Amazon’s new strategy. Webvan’s “costly business model of building and operating refrigerating warehouses”  stunk it. Interestingly, omnichannel strategies have been shown to be costlier at least for non-perishables.
Exhibit 2: Cost to Serve by Channel 
Third, “there is just so much variability in the grocery delivery model, that it’s always going to be a more costly delivery, and it doesn’t lend itself as easily to economies of scale as packages do” . For instance, previously successful strategies around timing box delivery to maximize full truckloads may not translate here, especially since “the logistics are nightmarish” for perishables .
Moreover, already “vanishingly thin”  margins may not be sustainable or worthy of the investment, especially if Amazon and Google and Walmart pursue a race to the bottom .
- Will online grocery will take off?
- Will Amazon capture this space? What strategies would make Amazon more successful?
- How different will Amazon’s operating model be from others pursuing omnichannel strategies (say Walmart)?
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