The U.S. grocery industry is evolving, and that creates a major problem for chains that don't have endless money to invest as Walmart (NYSE:WMT), Amazon.com (NASDAQ:AMZN), and Target (NYSE:TGT) seem to do. It's hard to predict what the ceiling will be for delivery, curbside pickup, and even nonexistent ideas like drone delivery. All sorts of technologies are now available, but not every company will make the right bet.
In this segment of Industry Focus: Consumer Goods, host Shannon Jones talks groceries with contributor Dan Kline. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Sept. 17, 2019.
Shannon Jones: What do you consider right now the biggest challenge facing any grocer that's not named Walmart, Target, or Amazon?
Dan Kline: Where do you put your money? You're looking at all these different things. Curbside pickup is an investment. Delivery is an investment. Something we haven't talked about is RFID tags. That's literally little, tiny microchips that let you know where all your inventory is so you can automate ordering and the process. Which of those are going to win? We don't know the answer. If you're a smaller chain, and you bet it all on delivery, or make a big bet on one of these areas, that could turn out to be something customers don't actually want. We might see that it's 10%, 15% of the market for delivery and curbside pickup, and that most people are still comfortable going inside, and they want to pick most of their stuff. They might pick and choose when they get deliveries. I use delivery all the time, but I still go to the grocery store two or three times a week. It's a very fine line if you don't have the endless sums that the big players do.
Jones: Exactly. It's really about figuring out, what is it that you're going into the grocery store for? What is actually appealing to consumers? And then also, figuring out, what is it that I don't mind just having sent directly to my house? A lot of questions there.
To close us out here, Dan, if there was one thing that surprised you the most from this conference, what would that be?
Kline: I'm going to talk about a company that I've been very negative on, not so much because of their product, but because of their valuation: Beyond Meat. Beyond Meat is a meat substitute. Their famous product is a burger, it looks like a burger, it bleeds like a burger. I can attest, because they were cooking them on the show floor, it smells like a burger. But, I felt there was a limited market for this in that, they're going to put these things on fast food menus, it's going to be a fad for a while, and then, kind of like a lot of places with gluten-free, it's going to fade away.
But one of the keynotes was the chairman of the company. And he got up and, for his opening example, he talked about how, in the 1960s, when you went to the milk section of a grocery store, mostly what they had was whole milk. And certainly, the only thing they had was cow milk. Now, if you go to the average Whole Foods, not only do you have 2%, 1%, skim, heavy cream, all different types of milk; you're almost at about 50/50 between cow milk and other forms of milk. Plant-based milks, nut-based milks, and all sorts of other things. That's their goal. It isn't so much just to get penetration of people accepting their substitute. It's for their product to be alongside meat, and to stop thinking about where the meat comes from. Is this a cow-based meat? Is this a plant-based substitute? And saying no, it's all meat, it doesn't really matter what the point of origin was. That's a fundamental change to how these products have been displayed. I actually think that's a really smart idea. If I'm searching for burgers, and their burger is right there alongside and it's competitively priced, there's a chance I might buy that. To be fair, there's no chance I will buy that; but, there's a chance many people will buy that. He's really looking at changing how we think about food. And that's a bigger market than just launching a substitute product.
Jones: Yeah, that's a very good point you make, Dan. Anytime I'm looking at an investable opportunity, I'm looking for visionary CEOs who really are thought leaders and are thinking 10 years ahead, 20 years ahead, about, how are we changing? How are consumer preferences and habits changing? Where does the company fit in? And I think that's a fair point. I'm like you; I'm not really sold on the Beyond Meat idea. But it sounds like there's a vision that is much grander in scale, and hopefully a market opportunity that can support that meaty evaluation.
Kline: If I get a chance, I'm going to try it on the show floor today.