A Publix supermarket near Murfreesboro, Tennesee. Publix has been partnering with companies like Instacart, which provided either delivery or fast pick up, to better compete with offerings by Amazon.

A Publix supermarket near Murfreesboro, Tennessee. Publix has partnered with companies like Instacart, which provided grocery delivery or fast pick-up. Self-scanning and other technologies are also being tested.

The first quarter of 2017 was emblematic of the transition facing traditional retailers, which are challenged on the margin by e-commerce. One segment of the retail sector, however, is going strong: grocery stores. In May, Amazon made a bet on the sector in buying Whole Foods, but an enormous amount of movement was already occurring in the field.

Regional chains like Publix and Wegmans are expanding into new markets and European brands Lidl and Aldi are entering the United States. With its growing population and generally strong economy, the Southeast is home to particularly dynamic changes on the supermarket front; a resident of North Carolina’s Raleigh/Durham area can choose from newcomers like Sprouts, Wegmans, Publix, Fresh Market, and Lidl, as well as longtime brands Kroger, Harris Teeter, and Walmart. “I don’t know if there’s a more competitive market than North Carolina for grocery stores,” says Joel Murphy, CEO of Atlanta-based New Market Properties.

In large part, the expansion is driven by the fact that fresh produce is one of the few categories in large-scale retail that has not yet been disrupted by online options. Banks and investors realize this, says Murphy, whose company focuses on grocery-anchored shopping centers. “Grocery stores are bankable and developers have started migrating to it,” he says. In fact, he adds, some struggling malls are considering using supermarkets—particularly big-box stores like Costco and Walmart—as anchors.

It also doesn’t hurt that as American shoppers become more health- and label-conscious, higher-margin items that line the outer edges of stores—things like produce, meats, cheese, bakery items, and prepared foods—have become far more important. Meanwhile, the middle of the store, with processed food and commodities like Brawny paper towels that are the same everywhere, is shrinking in importance. That reconfiguring of priorities has forced supermarkets to change and compete on new playing fields, leading to a shifting landscape.

Some analysts have predicted that as the amount of square footage dedicated to groceries grows, the industry is increasingly vulnerable to the same kind of crash that is currently affecting traditional retail. But a January report by the Food Marketing Institute and Nielsen found that the sector could grow by five-fold over the next ten years. How much of that will occur online is unclear, but Murphy points out that in 2018, online sales are expected to amount to only 2.9 percent of total grocery sales.

As the environment transforms, three categories are evolving as distinguishing characteristics for food stores.


Grocery stores have been striving to take advantage of online shopping, and analysts agree that Amazon’s purchase of Whole Foods will likely force continued changes in that area.

Amazon itself has struggled to figure out how to deliver groceries to consumers. The solution appears to be Whole Foods’ collection of 431 existing shops near residential areas that will allow customers to pick up groceries in the stores. And those who want to pick out their own produce can simultaneously do so.

“I think Amazon has seen that that’s the solution to the last-mile problem,” says Murphy. “It will force change in the grocery business. My guess is the [supermarkets] with good market share will amp up their game with electronic commerce.”

Already, most large supermarkets have some omnichannel business: Harris Teeter has ExpressLane, which combines online ordering with in-person pickup; Kroger uses ClickList; Walmart is testing an automated grocery kiosk pickup service; and Publix has partnered with Instacart to deliver groceries. But Amazon could put real pressure on that function.

The retailing giant could also encourage changes in how purchases are made. “We’re seeing a huge impetus for grocers nowadays to get customers in and out faster. I think Amazon technology will impact the design in a Whole Foods store to make that checkout experience a lot smoother and faster and tech-driven,” says David Sheldon, a vice president with Retail Design Collaborative, a retail-focused architecture firm with headquarters in Long Beach, California.

Currently, both Amazon and Walmart are testing new apps that let customers skip the checkout line. Amazon Go was unveiled at the end of 2016 at a single store in Seattle; it uses sensors that allow customers to scan their own products and automatically pay using their smartphones or an Amazon card, then simply walk out. Meanwhile, Walmart just brought back its discontinued Scan & Go app that does almost the exact same thing.

More convenient and quick checkouts are on the horizon for just about everyone, says Bill Rose, first vice president of Marcus & Millichap’s National Retail Group. “Everyone’s out there working to replicate Apple Pay. You hit your phone and boom. It’s very convenient.”


A rendering of Erewhon, a project by Retail Design Collaborative, based in Long Beach, California, which is designed to be more of an experiential grocery experience, including outdoor seating.


But not all grocery stores have to have the latest and greatest technology to be competitive. Some can simply offer a superior experience.

“We are working with a very high-end grocery in California: Erewhon,” says Sheldon. “In contrast to Amazon or Whole Foods, they bank on everything being about the customer experience.” The stores feature skylights with vast amounts of natural light and open-air patios, and offer a huge array of prepared foods. “It’s almost like a restaurant with a food market, rather than the other way around,” he explains.

Among many consumers, particularly those at the younger end of the spectrum, grocery shopping is no longer seen as a mind-numbing job; it is an experience that includes the delight of finding new ingredients and considering different products.

In response, most supermarkets are paying far more attention to their fresh and perishable goods—not only the products themselves, but also how they’re presented. That is true even for companies like Walmart and Costco. “I think consumers are craving that in the age of commoditized e-commerce,” says Sheldon. “If I had to guess, in five years I’d think that when you walk into a Ralph’s [owned by Kroger], you’ll experience a much more unique perishables section that’s a little more thoughtful from a design context, with better lighting and better brand design.”

And, of course, grocery stores have been evolving into one-stop shops for some time, starting with the partnership between Starbucks and Kroger. Nowadays, many food stores have restaurants built into them—with the concomitant design changes that one might see in a restaurant like better lighting and seating, and an improved consumer interaction with the space.


Of course, price plays a key role in consumers’ food shopping choices, but some companies specialize in appealing to the value-oriented consumer. That is true for German imports Aldi and Lidl, which appeal to budget-conscious shoppers. But those companies aren’t just resting on their low-price laurels; both produce high-quality products under their own labels, and Aldi in particular has developed a clean, modern look for its stores.

Still, price will continue to determine which companies survive this time of intense churn. “The most important thing for all of these retailers is fine-tuning their margins,” says Rose. “Grocery already operates on a very thin margin. They’re all looking for ways to cut costs of operation. It’s important for them to think about that; otherwise they won’t make it.”

And that is particularly crucial in this era of competing against Amazon. After all, the company made its reputation by delivering products cheaply to the customer; it is a good bet that cost will remain a focus for the company in this new market. And that will up the ante for everyone.