Will big tech eat food retail?

12 January 2018

What impact will big tech companies’ moves into grocery retail have on the food chain? Our Director General Amanda Long joined a discussion on the BBC World Service’s Food Chain programme to discuss the impact of companies like Alibaba and Amazon on how we shop for food, what we eat and also on privacy, pricing and competition.

In this blog, our Advocacy Manager Anna Glayzer explores the key issues that were covered.

Amazon and Alibaba’s expansion into food retail

Large international tech companies are buying into food retail. Last year, Amazon bought food retailer Whole Food Markets which has nearly 500 stores in the US, Canada and the UK. This was closely followed by Alibaba’s purchase of a stake in Sun Art Retail Group, one of China’s biggest supermarket chains. But these are not the first moves either have made into the offline retail world.

Since 2014 Alibaba has bought shares in a department store, an electrical appliance retailer, two supermarkets and a distribution company and also set up Hema – a hybrid on/offline store which it plans to grow to over 2000 stores across China in the next 5 years. Amazon has physical stores too and has already tested grocery home deliveries through Amazon Fresh.

A shop for the world?

What is driving these two e-commerce giants to expand into food retail?  Neither company has made a secret of their plans, nor of the ultimate scale of their ambition in retail and beyond. Both think long term and neither business limits themselves to any particular category of product or service. Amazon makes TV shows, runs web services, B2B procurement services, builds devices, is a smart home hub and a point of sale tool.  Alibaba runs: Alipay (online payments); Aliyun (cloud services); Aliyun App store (mobile apps); Taobao (C2C e-commerce); Tmall (B2C e-commerce).

Both of these companies are increasingly bringing the online and offline experience together into a more seamless one. Terms like ‘e-commerce’ will start to become redundant as companies become more like ‘digital wrap around services.’ For example, the Amazon Key allows delivery couriers to drop packages inside homes by linking a smart lock to Amazon's Cloud Cam, so customers can use their phones to remotely grant access to say, a dog walker or cleaner. This has led some commentators to suggest that ‘integration’ is the real Amazon product, not online ordering and delivery.

Former Amazon strategist, Brian Ladd agrees:

The reason for having to have a physical presence in grocery is that the vast majority of consumers want to inspect and select groceries before they buy them. They want to be able to touch the apple… to squeeze the bread and so forth; so, the movement of Alibaba and Amazon into physical grocery is really to meet the needs of the consumer.

Consumers do still want to physically select their food, with 70% of shoppers globally preferring to buy groceries in a store. China bucks this trend however, with an overwhelming 65% preferring to buy groceries online.

More choice but longer term lack of competition?

Clearly the ability to select and receive an ever-expanding range of groceries (along with other goods and services) in myriad ways represents new heights of convenience and choice for consumers. The 90 million Amazon Prime subscribers in the USA (who can access the full range of Amazon shopping services in one place) rose from 25 million just four years ago and are testament to the appetite for this kind of service.

Given that both companies have flourished by delivering goods and services cheaply, consumers are likely to see lower prices in the short term. However, if either starts to enjoy the same dominance in food as in other markets, gains made for consumers in terms of widening the selections of goods available will be offset by the fact that they only have one place to go to buy those goods: one choice is no choice. 

Is the real product data?

Whatever goods and services Amazon and Alibaba are selling, it’s their ability to continually collect and analyse vast amounts of data about consumers that will continue to drive their success and profit. Amazon can collect data about shopping habits, behaviours, preferences, and make inferences about propensity to pay and personal circumstances from multiple sources like Amazon Echo, Amazon Prime TV, Amazon Dash Button and Amazon Kindle.

Many think the prospect of marrying the data from 90 million Amazon Prime subscribers with Whole Foods customer base was key to the acquisition, as well as the opportunity to collect more. The insights that can be gleaned from food shopping habits, combined with what the Amazon and Alibaba already know, can offer a wealth of correlations to other products, services and content that fit a consumer’s broader lifestyle. These can be used to create ever more personalised communications and offerings to individual customers, optimise stock management, track large scale trends and refine pricing strategies.

Are we swapping our privacy for convenience?

In short, yes. Short term gains in terms of convenience could have major long-term implications for the information about ourselves that we would prefer to keep private. Amanda Long sums it up:

What we’ll see going forward is new retail that’s a combination of online and offline sales and logistics; and it’s about finding a way to serve customers and give them better service and choice but also to reach much more into their lives, understand much more about them, what they do, what they eat, what their habits are and, in doing so, feed very large data machines which then underpin a much broader ambition.

People do worry about this, although this is not always reflected in behaviour. A recent global survey found over half of consumers said they had decided against buying something online due to privacy concerns. The same survey found 82 percent are not comfortable with the sale of their data to third-parties in exchange for the speed, convenience, product range, home delivery and price comparison that online shopping offers

Consumers are also worried about how safe their data is. A survey by Consumers International last year found 68 percent of consumers are worried that their digital payments are unsafe, fears which seem reasonable given the amount of high profile data hacks in recent years.

Will we see a change in eating habits?

There has also been speculation that Amazon’s acquisition of Whole Foods could end ‘food deserts’ in USA where currently over 23 million people live in urban and rural neighbourhoods where fresh fruit and vegetables are largely inaccessible to residents.

Amazon does have the potential to boost availability of fresh food – and its reduced Prime membership for low income consumers could signal it will target this segment of the market. However, it may not prove as easy a target as the more affluent consumer segment. Lower participation in e-commerce; living situations not suited to package delivery; and low vehicle ownership inhibiting parcel collection are all patterns we see in low income communities that make them a tough target for growth.   

Given the potential of data analytics to shape habits, there is also the possibility we could see big tech companies suggesting healthier diets for people.

It should be kept in mind however, that access and affordability are not the only barriers to eating healthily. We are in the grip of a global crisis of diet related ill health: worldwide obesity has tripled since 1975 and the number of people with diabetes has risen from 108 million in 1980 to 422 million in 2014. Meaningful change in diets for consumers is going to take action on multiple fronts. Nutrition and cooking education for children and adults, better provision of food in public institutions, local planning measures, fiscal incentives, and controls on unhealthy marketing are all going to be needed.

A taste of the future?

The temptation to make long term predictions about the trajectory of either Amazon or Alibaba should be resisted. Digital transformation of the global economy is still at a relatively early stage and there is plenty of scope yet for new players to emerge and for incumbents to fight back. There is huge inequality around the world in levels of access to digital markets, not just in terms of internet access but also to the infrastructure needed to sustain digital economies including payment systems, and transport and delivery capacity.

What we can say for certain is that data really is key, and that food is a different prospect to books, clothes, or electrical products. Everyone has to eat in order to survive – and eating unsafe or unhealthy food can damage our health or even kill us. Furthermore, how we eat is deeply ingrained in our location, level of wealth, culture, age, gender and so on. If they can understand our eating habits, big tech companies will have far greater insight into our lives than they have ever had before.