How online's "endless aisle" affects balance of power in grocery market

Given the imperative for supermarkets to maximise the productivity of their limited physical selling area, it's not surprising that suppliers have to fight so hard and pay so much to secure shelf space. The downside for consumers - and inevitably retailers - is that this can lead to product ranging being determined more by suppliers' ability to pay for the space, through slotting fees or promotional rebates, than customer preferences. This problem is exacerbated when buyers and store staff are not given sufficient training or incentive to properly understand the products they are providing to customers.

A recent meeting with a small, niche producer of fresh pasta to the UK market highlighted how the balance of power can shift once the selling area constraint is removed, as is the case with pure online grocers such as Ocado or Amazon Fresh. As warehouse space is so much cheaper than retail, these operators can make specialty products available to a far broader range of customers at marginal extra cost.

As Mark Garcia-Oliver, founder and MD of The Fresh Pasta Company, says "Online unleashes the power of the product, where the success of the product is defined by the end consumer and not by the retailer." Indeed, part of the attraction of Amazon Fresh's current offering on the West Coast of the US is its extensive selection of products from local specialty food suppliers, in addition to standard grocery items. This is surely good news for consumers and small suppliers, but could present new challenges for traditional food retailers, especially those that pick their online orders from stores.