Earlier this week, Walmart unveiled Alphabot, a product of Massachusetts-based startup Alert Innovation. Using 20,000 square feet in Walmart’s Salem, Massachusetts, store, Alphabot holds about 20,000 grocery items, including fresh, frozen, refrigerated and shelf-stable products. Alphabot’s robotic system will pick products from a consumer’s order for a human to review, pack and send off for pickup in the parking lot or delivery to a consumer’s home.
If Alphabot works, it solves a lot of problems. Today Walmart has over 40,000 pickers that select the grocery products consumers order online. But the margins in the grocery business are thin and don’t support the additional labor required to replace the product-picking that consumers always did for themselves in stores. Having so many pickers is a money-losing proposition; it’s futile to have so many employees and try to make money in the online grocery business. Alphabot solves that problem and, if it’s reliable, it allows Walmart and other grocers to address the next step of automating the quality control, shipping and delivering process that will allow online grocers to have a sustainable, profit-making business.
But if Alphabot works, it also lays bare a looming problem for the grocery industry. A study by the Food Marketing Institute for Nielsen says that online sales will reach 20% of total grocery by 2025. Whether that happens on that timetable or not, online grocery is coming in a big way at a point in the foreseeable future. The naysayers claim that the technology won’t allow it and consumers won’t adopt. But Alphabot’s development shows it can be done, and other sectors’ online adoption rates demonstrate that consumers will shop online for things that people previously thought could only be purchased in person.
Here’s the problem: If Alphabot or other related technology gives consumers what they want and they go online and Nielsen is correct about adoption rates, what happens to the value of a store when 20% of the customers stop coming in to shop?
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You’ve already seen the answer. In the last several years, almost every shopping center and shopping street in America has dark gaps of empty stores testifying to the benefits of online shopping. Today there is an enormous infrastructure of 50,000- and 100,000-square-foot grocery stores all over the country that the major grocery retailers consider to be among their great strengths. If you’re Walmart, Kroger, Albertson’s (which owns Safeway), Ahold Delhaize or Publix, what do you do when what you thought was your anchor becomes a ball and chain whose profitability has been sucked out by online shopping? I’ve heard many industry experts talk about changes in grocery but no one I’ve heard is talking about the economics of physical grocery stores and how they will change when consumers go online. If you take that revenue out of the store, it changes everything and it needs to be addressed starting now.
Many big grocery stores are going to have to close. That means that consumers who continue to shop in those big stores will drive further to get there. But most likely, if grocery follows the patterns of other product classes, consumers won’t be online-only or store-only customers—they’ll mix it up. That means there will be an opportunity for smaller, more local stores that will allow consumers to fill in between online orders. Those smaller stores will likely proliferate.
No one knows yet whether Alphabot will work on a large scale. But one thing about Walmart: The company is smart about technology. And if Alphabot isn’t the answer, its implementation shows we are getting closer every day. Walmart has gotten a lot of criticism for its acquisitions, an opinion I understand but do not share. What Walmart has demonstrated with its acquisitions, with the implementation of Alphabot and with its aggressive push into online grocery where it is now the leader, is that it is willing to experiment with money-losing operations while it’s strong in order to find the right mode to identify what a retailer needs to be in the future. That’s the right approach and it’s why Walmart is not a big, lumbering company that can’t find its way—it’s the retail leader willing to take chances to stay on top. That’s what retail, and grocery, needs now.
Owners of grocery real estate should worry. Changes are moving quickly now and over the next few years many parcels now allocated to grocery real estate will lose value. That will have an impact on communities they are built to serve and will have to find new purposes. Stores are going to close. It is only a matter of time.