As a financial planner people often approach me at parties and family gatherings to discuss the current hot business story. And let me tell you, people can’t hear enough about Amazon’s recently announced deal to acquire Whole Foods.
What ‘Whole Amazon’ might mean for the future of grocery shopping
At first, I was puzzled by the obsessive interest in this mega-deal. But now it makes sense to me. Food is a cornerstone of family budgets. Plus, we’re very emotional about what we eat. What’s more, there’s a real “Brangelina”-like celebrity sizzle to the story. Amazon and Whole Foods are rock star brands, to say the least.
So, how do I think “Whole Amazon” will impact our lives and the economy? Let me start by telling you a story about my recent experience.
A few weeks ago, the future of grocery shopping appeared at my front door in the form of smiling, energetic Rena, a personal shopper for an online grocery buying and delivery service called SHIPT. Rena and SHIPT did an excellent job with my family’s weekly food shopping. The experience left me with a positive outlook for the future of how we consume food in America and what it might mean for our rapidly changing economy.
Amazon’s announcement of the Whole Foods acquisition sent a shockwave through the grocery industry. News reports predicted the end of brick and mortar and the grocery industry suffered a massive drop in value. Kroger’s stock value fell by nearly 30%. That was no surprise given that Amazon is known for ushering in sweeping changes whenever it steps into a new retail category — just ask traditional sellers of everything from books to clothes to kitchenware.
But Amazon’s move, while bold, simply accelerates a trend that was already underway. Nielsen, a leading market research firm, has long been predicting that by 2025, nearly 20% of all grocery shopping will be done on-demand.
The trend toward online grocery shopping will have lots of ramifications. On the whole, however, I believe a rise in on-demand shopping could actually be net positive. It’s positioned to make life easier for families while creating an entirely new category of jobs.
If they play smart, traditional grocers will not only survive, but thrive, in this changed marketplace.
Back to Rena and her employer, SHIPT. I recently put SHIPT to the test to see if it could tackle buying a week’s worth of groceries for the Moss family. We went all in. Kale, hamburger meat, dinosaur-shaped chicken nuggets — you name it. All together, we ordered $290 worth of groceries through SHIPT. And they delivered.
Rena explained her job to me. She does as many as six to eight full-scale shops per day, earning both wages and significant tips. For Rena, it’s a perfect fit because she loves grocery shopping.
With the rise of personal grocery shoppers, we’re truly watching the birth of a new industry and a new high-value employment category. SHIPT says it already employs tens of thousands of shoppers across the nation. If, over time, busy families buy in to this new grocery model, it could create a significant number of new jobs.
So what does this mean for current grocery store employees? This is a classic case of “creative destruction” — where cutting-edge innovation wipes out existing jobs but replaces them with new employment opportunities and, in some cases, changes the responsibilities for the workers who survive the upheaval.
Automated teller machines are a perfect example of this phenomenon. ATMs first appeared in the 1970s, and between 1995-2010, the number of ATMs quadrupled from 100,000 to 400,000. What happened to traditional bank teller jobs?
Instead of shrinking, the number of bank teller jobs actually increased from 500,000 to 550,000. Why? When ATMs were implemented to handle routine transactions, they lowered the cost to operate a branch by reducing the number of tellers required. Banks responded by opening more branches, tellers became “relationship managers,” and there was a shift in this job. This is what creative destruction looks like.
So, how will the grocery industry be affected by the rise of on-demand shopping? Let’s run some numbers. Consider these points:
Today there are about 2.7 million jobs in the grocery industry, according to the Bureau of Labor Statistics (BLS).
Nielsen predicts that 20% of all grocery shopping will be done online by 2025.
Assume traditional food shopping drops, with store contraction resulting in a loss of 15% of the current grocery workforce (from executives to managers to stockers), and we have roughly 400,000 fewer jobs.
Let’s further assume cashier jobs across the board see a reduction of 40%. Right now, cashier jobs come in at about 750,000, meaning a loss of 300,000 additional jobs.
In total, we’re talking about a nationwide industry contraction of 700,000 jobs.
Yikes, right?
But remember the moral of the ATM story. When it comes to creative destruction, there’s light at the end of the tunnel. Job reduction doesn’t always spell a permanent void; new jobs rise from the ashes of the old ones. We already know what the new job creation looks like with on-demand grocery shopping. It looks like Rena — personal shoppers to handpick your groceries.
Now let’s run some numbers on the potential impact of the online, on-demand grocery industry:
There are approximately 120 million households in America.
If 20% switch to on-demand grocery shoppers, that’s 24 million households.
One full-time shopper can average eight major house deliveries per day, thereby serving 40 households per week.
That means we need about 600,000 full-time delivery jobs to fill the demand.
And consider this: Job creation doesn’t stop there. This new innovation will need infrastructure to deliver, likely in the form of new, smaller warehouses and grocery hubs. In theory, these hubs could be staffed by approximately half of the workforce of traditional grocery stores.
To offset the 700,000 jobs that fade away, we could see the emergence of 350,000 new warehouse or grocery hub jobs.
Combine the numbers and we’re looking at a potential creation of 600,000 on-demand grocery shopper jobs and 350,000 warehouse grocery hub jobs.
The grand total of job creation in the post-Whole Foods-Amazon deal? Almost 1 million jobs. Not too shabby.
But will the post-Whole Foods-Amazon grocery world bring these numbers to life? Maybe. And then again, maybe not. As with any area that undergoes creative destruction, old jobs will fall and new jobs will rise. But as you walk the aisles of your local grocer or click and add items to your virtual cart, keep the ATM revolution in mind. The lesson there makes clear that we shouldn’t be terrified of change.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
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