Why Are Supermarkets Still Around?

Why Are Supermarkets Still Around?

Almost weekly we see a media story or food blog proclaiming that “The Supermarket is Dead,” and furthermore, tech is the new grocery store. A recent example is this from Wired: “The Supermarket Must Die. App-Fueled Services Can Kill It“. Red Tomato Founder and Evangelist Michael Rozyne sees a different story between the lines:

What’s curious about this perspective that “tech solutions” like apps and meal delivery services are changing the food system, is that it makes you think this non-supermarket food world of the future is antithetical and even a replacement for industrial agriculture, instead of a new way of relying on it. And that it solves problems of global proportions, such as food waste and the inefficiencies of small-scale production and distribution (which all of us in the local food movement struggle with). The tech world is driven by venture capital; venture capital seeks investment in companies that can scale fast and disrupt whatever industry they are in; and VCs expect a high return in a short period of time (SHORT, that is, by farming standards).

The hype in this kind of story asks us to believe that the models at hand (Fresh Direct, Farmigo, Instacart, Quinciple, etc.) are part of some other world. And that they can behave in relation to growers exactly as they choose, simply because their business models are unique. It’s not that these companies are evil or corrupt or without values—in fact many of them share a vision of a more sustainable, local food supply–but they are under severe pressure to scale and provide returns, meaning they will have to seek efficiencies and increasingly lower costs. The pressure dictates what they pay farmers and what they pay their own employees, for example–and what they must charge their customers in order to compete against, well… supermarkets, and one another. For more than 100 years, that kind of economic pressure has tended to travel upstream to the source of all fresh produce—to the growers–who number in the tens of thousands, while facing a highly concentrated market of just a small number of buyers.

Supermarkets have been losing market share for decades. In 1992, supermarkets accounted for 82% of retail grocery sales (produce, meat, packaged food, etc.) in the U.S. By 2007 it was down to 62%. In that period their biggest loss went to warehouse clubs and supercenters. Now, the internet threatens to push supermarkets further toward the edge. But it’s not the likes of Farmigo, Good Eggs or Quiciple that pose the biggest threat. It’s the larger and more conventional players like Amazon Fresh. And those more conventional players are not planning for social impact that improves farming practices or provides food access for all people. Their investors won’t tolerate results that come at the expense of their return. In addition, rural areas are expensive to serve efficiently. Even major cities have been a tough efficiency challenge for home delivery services as they expanded beyond hyper-dense New York City, let alone sparsely populated rural areas which simply don’t figure in this Wired model of the future.

I continue to be provoked by the arrogance of the tech world as it enters the food “space.” It underestimates the centrality of logistics. It overestimates its ability to use technology to solve basic food industry challenges around inefficiency, perishability and waste, especially in relation to smaller scale producers. As the article states, the supermarket “with its bins of megafarmed produce” operates at a scale that requires “a vast supply chain, with goods transported to multiple distribution centers before they arrive at stores. This comes with costs, most notably in food loss,” as if, somehow, the likes of Fresh Direct and Farmigo will be able to operate efficiently, competitively, and at a scale and level of profitability that satisfies their investors, without relying on that same vast supply chain and multiple distribution centers.

Like so many things, tech itself isn’t the game changer. It’s the values and practices of users of tech that can make the difference. If it’s sustainable farming, regional farms, and good food for everyone that you care about, it’s not time yet to throw out supermarkets and turn food distribution over to apps. Red Tomato is itself a great example of a mission driven organization bringing fresh, local produce to markets including Whole Foods, Hannaford Supermarkets, bfresh, Roche Bros AND even a few food-tech purveyors like Purple Carrot.

Read those accounts of supermarket demise with a grain of salt.