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'Grocery', the Amazon-Whole Foods Deal and Higher Ed

Why Jeff Bezos has given us a new reason to read this excellent book.

June 21, 2017
 
 

Grocery: The Buying and Selling of Food in America by Michael Ruhlman

Published in May of 2017.

Just as I was finishing Michael Ruhlman’s excellent book Grocery: The Buying and Selling of Food, news broke about Amazon’s $14 billion bid for Whole Foods. I’ve been trying to figure out how I would relate Grocery to higher ed.  Jeff Bezos solved that problem.

If you read Grocery with a higher ed lens - and in particular in light of the Amazon purchase - you might draw a few conclusions.

We learn from Ruhlman’s book that the grocery business is really a terrible business in which to be. Margins are incredibly low. Most grocery stores earn around 1 percent profits on their items sold.  Many departments in the supermarket, such as the deli department and prepared foods, actually lose money.  

The move of Walmart into the grocery business - they are now by far the largest grocery seller in the US - has proved disastrous to traditional supermarket chains. The logistical prowess and sheer buying power of Walmart, coupled with its ability to spread sales over many non-food items, makes it difficult for businesses such as Kroger, Safeway, Publix, Albertsons, and Giant Eagle to compete.

In Grocery, Ruhlman profiles the Cleveland based Heinen’s, a chain of 23 stores (19 in Ohio, 4 in Illinois), that has been family owned and operated since 1929. Ruhlman, a chef and food writer, grew up in Cleveland.  His investigation of Heinen’s is as much an effort to understand his grocery store loving deceased dad as it is to make sense of the supermarket business.

What we learn in Grocery is that supermarkets are not only difficult businesses to run, they are also slow to change and people-intensive enterprises. Raising productivity for grocery stores has proven difficult, even with the introduction of checkout scanners and self check-out, the number of people it takes to staff a supermarket has not gone down. In fact, shoppers expect an ever larger number of amenities - such as a greater variety of items to choose and more options in prepared food - all of which require more employees to purchase, stock, and prepare the merchandise.

Now with Amazon buying Whole Foods, traditional retail supermarkets may be in for an even more challenging future. Amazon can afford not to make money on the traditional grocery business of Whole Foods, and instead drive profits through using the physical stores as distribution centers for digital orders and for selling even more Amazon Prime subscriptions. 

Kroger needs to make money selling groceries. Amazon can make money by collecting data on its Whole Foods shoppers, and then providing even more targeted marketing for its full range of online goods.

Thinking about the Amazon Whole Foods purchase, and reading Ruhlman’s Grocery, leads to thoughts about how the higher ed business could be similarly impacted by an external force.

What would be a similar game changer in the higher ed industry as Bezos’ purchase in the grocery industry?

Can we imagine an Amazon getting into the business of postsecondary education, say, by buying one of the big online program management (OPM) providers such as 2U?  What would it mean for a company like Amazon (or Google or Microsoft) could integrate their scale and technological prowess, (not to mention their monopolistic pricing powers and large cash reserves), with the traditional business of postsecondary education?

Perhaps a better way to look at the Amazon / Whole Foods deal from a higher ed lens is not in thinking about Amazon buying directly in to the education business, but rather as a warning that new competitors can come from unexpected places. 

Life must seem very insecure about now for traditional supermarket chains. Could they have done anything to insulate themselves from new entrants such as Walmart, and now Amazon?

Even if you don’t buy my argument that we can learn something about the higher ed industry by learning about the grocery industry, and if you also think that the Amazon / Whole Foods deal has very little to say about the future of higher ed, I still recommend reading Grocery

After reading this book I no longer think of my weekly trip to the grocery store in the same way.  I see how grocery stores are becoming more like restaurants, with an emphasis on experiences over commodified shopping.  I have new empathy for the hard work of the cashiers, and the impossible position that the managers of grocery stores find themselves in. 

From now on, when I shop at a supermarket I’ll understand the history of how buying and selling food has changed in the US.  And I'll retain a heightened awareness that the way we shop for groceries tomorrow may be very different than how we shop today.

What will change faster in the next 20 years, the higher ed industry or the supermarket industry?

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