Dive Brief:

• Amazon’s $13.7 billion offer for Whole Foods dominated headlines in the second quarter, but other retailers made notable efforts to reduce costs, innovate their stores and position themselves for future growth, according to a report from Planet Retail RNG.
• The research firm sees the growth of small format stores as a significant development that has implications for the future of grocery retail. Kroger, for instance, opened Fresh Eats Mkt in Ohio, while Lidl opened the doors on its low-price, small footprint model.
• The second quarter also saw key innovations in e-commerce fulfillment, including Walmart’s automated pickup kiosk, which it tested at a store in Oklahoma, as well as the retailer’s trial of order delivery by store associates.

Dive Insight:

According to Planet Retail RNG, Amazon’s acquisition of Whole Foods will make the online company an instant threat in click-and-collect grocery. By offering store pickup from the chain’s 460 stores, Amazon will be able to compete with Kroger and Walmart, currently the industry leaders in the channel.

That’s the low-hanging fruit for Amazon. From there, the research firm notes, the company will have to work hard to overcome Kroger and Walmart’s head start in grocery e-commerce. Walmart is rapidly expanding its store pickup service across its network of nearly 5,000 stores. And because a whopping 90% of the U.S. population lives within ten miles of a Walmart store, the retailer has the opportunity to become a convenient go-to for millions of consumers.

Walmart also has rolled out innovations that show, if nothing else, that it is working hard on becoming the most efficient player in both click-and-collect and last-mile delivery. Late last year, the company began piloting automated pickup kiosks that hold a customer's order and provides access similar to a bank ATM. Walmart plans to roll out 100 additional pickup spots, which Planet Retail notes help the retailer save costs and increase order capacity.

Around the same time, Walmart also announced it was piloting order delivery by store associates. It’s a model that raises many questions, and Planet Retail notes Walmart will need to have robust training and troubleshooting protocols in place before further expanding the program. But the creativity and cost-saving potential of the move are intriguing. According to the research firm, it shows innovation will play a large role in making last-mile delivery bankable. Amazon, for all its capital and logistics expertise, may struggle along with other grocers to crack the code of online order delivery.

For these and other reasons, one could persuasively argue that Walmart, not Amazon, is the biggest threat in grocery e-commerce.

The brick and mortar side of the business also saw notable innovations in the second quarter of this year. Planet Retail noted small formats took a few steps forward with the introduction of Lidl stores to the U.S. market, and the debut of Kroger’s latest convenience concept, Fresh Eats Mkt. Both concepts, while quite different in terms of scale and offerings, stand to capitalize on consumer demands for convenience, quality and a desire for a quicker shopping experience.

As with e-commerce innovations, both face significant headwinds. Kroger’s Fresh Eats Mkt must overcome steep operating costs by selling lots of high-margin goods. Lidl, meanwhile, faces a steeper barrier to adoption of its private label products than most realize, according to Planet Retail. However, those who buy into the chain’s low price, high quality promise stand a good chance of becoming loyal customers, the firm notes.