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The Death of the Supermarket

2013 June 12

Amazon is getting lots of press this week from its sort-of launch of Amazon Prime Fresh in Los Angeles. According to the Seattle Times, several undisclosed zip codes in Los Angeles can order from Amazon and get same-day or next-day delivery of perishables and other products from Amazon.

It’s interesting that the article makes a big deal out of the annual fee for those staying on past the 90-day trial period: $299 a year for free delivery. An analyst quoted in the article sees the fee going down or even away over time. I disagree; it will likely stay or even increase as customers see the value, and as Amazon begins to tally the cost of delivery in the LA market. Do the math and $299 a year sounds like a deal.

For those of us who remember the Webvan debacle (they spent their last few dollars repainting delivery vans), the idea of home delivery of groceries is not new, but success would be a novel concept. Other folks don’t see it quite that way. Matthew Yglesias of Slate.com says “If I were a supermarket executive, I’d be trembling in my boots right now.” Maybe.

Here’s the thing: it’s not that Amazon is getting into the food business per se. It’s that Amazon is investing in the future, and making big bets that likely won’t pay off for years, if ever. That’s what supermarket execs should be thinking about.

Lynn Stout, author of “The Shareholder Value Myth,” makes the point that the average lifespan of a Fortune 500 company today is about 15 years. At the beginning of the 20th century, it was 75 years. The reduction, she believes, is the outcome of short-term decisions looking for quarterly profits, rather than long-term strategic planning that will pay off in future years and keep the company strong. Satisfying Wall Street is too often done at the expense of long-term viability.

Amazon has no qualms about spending money now for a possible payback in the future, or just to learn. AOL founder Steve Case did an interview for The New York Times a couple of months back and talked about how companies get big and lose their appetite for risk. He separates the business world into two groups: attackers and defenders. Attackers are trying to change the status quo, while defenders are trying to minimize risk.

Small companies get bigger and lose their appetite for risk. They start worrying more about protecting what they have and less about gaining ground. That is when the wheels start to come off the wagon. Jay Chiat, of advertising agency fame, once asked, “How big can we get before we get bad?” It’s a question every successful company should be asking while it’s still successful.

Amazon—through the leadership of Jeff Bezos—has managed to stay hungry while growing at a breakneck pace. One feeds the other. Food retailers, for the most part, have been protecting their turf for years, all the while watching that turf disappear. Growth is measured in single digits, if at all.

I don’t believe the death of the supermarket is upon us. There is more to shopping and eating than pointing and clicking. Supermarkets will survive, at least some of them, but the survivors will be those that are willing to take risks and bet on the future. They will be those that focus on the benefits of shopping locally, being able to touch, smell and taste the food, and getting real advice from real people who love food.

Supermarkets have created the opportunity for Amazon to take over their turf by focusing on cost reduction and short-term, protectionist thinking. The best way to combat Amazon, dollar stores, and the myriad threats to business as usual is not to circle the wagons, but to go on the offensive and introduce new ideas that upend the status quo. The best way is to get back into the business of food, and out of the business of risk avoidance.

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