Safeway/Kroger/Costco do not have direct third-party merchants, do they? They are just resellers. This is fundamentally different from what Amazon is doing.
I worked for Frito Lay as a salesperson and yes perhaps only 20% - 40% of grocery store inventory is maintained by the store staff. The rest was space that we were allocated to sell our stuff.
Stores would pay for the inventory, but we would rebate them for what would not sell as an incentive to make sure we put out products that actually sold.
But I would literally come in every day to the larger stores and put product on the shelf and argue with the manager about inventory and clean up our area.
None of the stores I worked at explicitly sold shelf space (I think), but our corporate worked with their corporate to determine how much space in each store would maximize their revenue. I am sure newcomers would have to do extra to guarantee they would make enough money for the stores to take risks on them.
Needless to say, they had all of our sales data when it came to developing store brands.
Also, continuing on, grocery stores are a very apt comparison. Foot traffic and purchase behaviors are very heavily tracked.
Firstly in an analogue ways - managers are always watching were customers are going/ what they are looking at/etc. The security team at a one co-op bragged that their cameras could read the time on your watch.
Secondly, there are all sorts of new tools stores are trying out to automate this. Software that analyzes footage to generate heatmaps. Or using the in-store wifi access points to generate heatmaps (even if you don't connect, your phone will give away your position when looking for networks). This is especially important in mall settings where they need to calculate foot traffic estimates as a way of pricing storefronts.
One thing I've always wondered is whether there's any interest in using in-store cameras for tracking the information people show on their phones, such as location, health, financial data, or even passwords.
Esp. since COVID I imagine a lot of people inputting their passwords in front of a camera at the register.
If you think that a supermarket buys products wholesale and then puts them on shelves for customers to buy, you don't understand how supermarkets work.
Agreed ;-). That's why I hang out on HN, hoping to gain some insight and knowledge.
The customer->FBA->merchant relationship is much clearer than in any supermarket I've been in. Maybe I'm really buying from a third party and the supermarket is just acting as the fulfillment center and payment processor, but it is well hidden. I'd love to know more about how the business end works.
Grocery stores are retailers in the traditional sense rather than a consignment shop or marketplace like Amazon. I think the person you’re replying to is alluding to “slotting fees” for new products and perhaps the more controversial “pay to stay” fees which are far more secretive and, from my understanding, are more of a grey area. Technically I believe the “fee” is considered a type of advertising expense: https://home.kpmg/content/dam/kpmg/pdf/2015/04/revenue-leafl...
Those fees might be an interesting factor but who bears the inventory carrying cost is what I suspect GP means. For FBA, it's not Amazon. It wouldn't surprise me if big vendors like coke/Pepsi who stock the shelves also own the inventory.
I'd love to read a good article talking about how inventory acquisition and management works at divergent super market chains... I suspect a lot of the interesting details are considered trade secrets though.
They take on the vast majority of the inventory risk, which is the fundamental detail everyone seems to miss. They own what they sell.
The complications come from trying to manage that risk - manufacturers who have better products or marketing can afford to pay for prime shelf space which also means it'll move faster.
I don't believe this is true in all cases. Maybe for some products, but at least other commenters here are confirming that some manufacturers refund the grocer for any unsold product. (So, Safeway only pays for the inventory that gets sold.) Seems risk-free for grocers on the products they have those sorts of deals with.
Not only in grocery stores. Bookstores can return books that don't sell, and since the books are heavy, the front page is often stripped only that is returned. That is why some pulp paperbacks have warnings to buyers to not purchase stripped books. In the world of fashion, clothes are often only paid for when they sell, and there are similar arrangements to book stripping.
Really the modern world allows many optimizations and creative contracts.
Yep they do that too but it's not risk free for physical stores because they take up shelf space. Anything that isn't moving off storefront shelves isn't making them any revenue - unlike Amazon they can't present every product through a paginated digital catalog while charging for warehouse storage.
Page space doesn't matter, at all. Anyone can produce more Amazon searches in 5 minutes than there are shelves in a retail store. Amazon makes money no matter which page you buy it from AND they charge all the merchants on page 30 for storing their goods in the Amazon warehouses on top of any commission. That's the exact opposite of inventory risk, that's an inventory gold mine. Retail stores can only sell stuff that is physical within arms reach of a customer.
We're talking about retail vs Amazon, not retail vs Alibaba reseller #39146527.
And also at the end of the day they take on liability for the products they sell. If amazon was liable for its 3rd party garage it wouldn’t be a problem
No they don't. Standard terms are suppliers get paid 90 days after Walmart takes delivery of the product. You also pay rent from the time a pallet arrives until it is broken down for delivery to stores - so if you deliver too many snow shovels in the middle of summer you might end up owing them money.
There is a whole industry of "supplier financing" that helps smaller players with bridge loans until the product sells.
This has been the model traditionally but retailers have been shifting to renting shelf/floor space to wholesalers and manufacturers. You may see certain fully-branded end caps in grocery stores, or kiosks in Best Buy, for example.
It's still not the same as signing up to creating your own store on Amazon though.
What is the difference between selling something on consignment and getting a rebate when the product fails to sell, or only getting paid for those units that do sell? Whatever distinction there is, I don't find it to be a meaningful one.
Sure, but if they are the actual customers of their suppliers, it doesn't seem like what Amazon does. I don't walk into Kroger and buy Doritos from Frito-Lay with Kroger just doing the fulfillment and payment processing, do I? I'm actually buying product that Kroger owns.
At least this is how I understand it. I am 100% open to being schooled in how it actually plays out. I'm just a software guy, but I like to learn.
If you're curious, The Secret Life of Groceries is a good (and interesting) read.
One tl; dr thing is that the supermarkets are a _supplier_ to both end customers and those with products to sell. They supply shelf space and customer reach, in the very literal sense that companies bid for things like endcap placement (the end of the aisle being better than being in the aisle, since everyone making an orbit through, say, the deli section will pass your goods).
Thanks! That is an interesting aspect. I had not considered that it could be a two-way relationship, rather than the store just buying what they want to sell and putting it on the shelf.
I guess it seems a little obvious in retrospect that there must be a bit of that going on, I've long noticed that some suppliers have a lot of responsibility in the store beyond delivering product. Like the beer guy pretty much runs the entire beer aisle. And it's one of the big names supplying all the beer, not just their own.
I've seen similar action in some stores by the soft drink vendors and even the bread vendor. Non-store employees on the floor putting stock directly on the shelf.
Some of the stock is essentially fully managed by third parties. If you see a bunch of Coke products in a store, there is likely to be a "Merchandiser" that visits and restocks it. It's a strategy by brands to get their product into more stores.
Safeway/Kroger/Costco do not have direct third-party merchants, do they? They are just resellers. This is fundamentally different from what Amazon is doing.