What's the State of the U.S. Grocery Market?

It's a changing time for the grocery business in the United States. Delivery and digital are rising in importance, and new technology exists that's available not just for the major players but for anyone in the space. It's an industry where change is being led by the biggest players -- Amazon.com (AMZN -1.14%), Walmart (WMT -0.65%), and Target (TGT 1.28%) -- but upstarts like Instacart have made major advances available to the more traditional chain competing with those giant players.

In this segment of Industry Focus: Consumer Goods, host Shannon Jones talks groceries with contributor Dan Kline, on the occasion of the Groceryshop convention. 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: We're talking about Groceryshop. Dan, I can only say, I didn't even realize this was even a thing until you told me about it several weeks ago.

Dan Kline: [laughs] I have to be honest, I cover this industry, and this is year two of Groceryshop, and I spent most of my time here thinking it was the first year because I'd never heard of it. What Groceryshop is, is it's a convention for everyone in the grocery space. Major players -- Amazon, Target, Walmart, Instacart; mom and pops, and start-ups. And they're all dealing with the questions of, how are we going to get our groceries? How much is that is going to become digital? How much is going to stay brick and mortar? Where's the omnichannel mix? You're seeing a lot of solutions to a lot of questions. But we don't really know which ones consumers want yet.

Jones: Exactly. Just for some perspective, this is a massive conference, Dan. I was taking a look -- 33,000 attendees, over 200 speakers. You mentioned the long list of those high-end grocery store retailers, some e-commerce, some more big box retailers. You've also got start-ups coming as well, start-ups hoping to bring in some of that innovation. Truly a fascinating space.

Kline: It's big in that important people are here -- CEOs and top executives -- but it's small in that 3,000 is a pretty manageable amount. If you want to speak to someone, other than maybe the big keynotes, you can talk to them. You're seeing a real exchange of ideas. The challenge isn't for the biggest players. Amazon, Walmart, Target can all try everything and see what works. But if you're a smaller chain, even if you're a Publix, which is a pretty big chain, you have to decide where you're going to invest your money. Is it cashier-less checkout? Delivery? Drones? And I don't think anyone knows the answers because the digital part of grocery shopping is still a teeny, tiny part of the overall business.

Jones: Exactly. That's a good segue to talk more and set the stage for a lot of our listeners who may not be familiar. Can you just talk about where the market stands right now?

Kline: When you look at the big players -- and we'll keep talking Target, Walmart, and Amazon over and over again -- Target and Walmart are both using curbside pickup in a lot of markets. That's been a very successful driver for Walmart. We have a story coming out tomorrow that talks about how curbside pickup has actually driven traffic inside their store. Somehow, it helps. Target and Walmart are also both doing same-day delivery. Slightly different models. Walmart's rolling out a subscription service; Target bought Shipt, which is already in a lot of markets, so Target is leading by a little bit. Amazon, of course, is pioneering one-day delivery and same-day delivery from its Whole Foods stores, as well as some of its Amazon Prime Pantry. So, you've really got this push toward immediacy from the big players. That sets a bar for everyone else. But the reality is, everyone else has options. They can partner with, say, an Instacart, and the negative of that is, there's a cost involved with that. Everyone tries to downplay that. Walmart says, "Well, we charge the same prices in store and online, aside from a delivery fee," but the reality is, whether you eat the cost or pass it on to consumers, it does cost money to pick these orders. Instacart mentioned having 100,000 people. Walmart said they had 45,000 people picking orders. This is not fully automated, and maybe it won't be. We're figuring out where all of this is, and what consumers are going to want. That's sort of the question hanging over this. Is curbside pickup a real convenience? You still have to go to the store. Is it better to just get it delivered? Or, do people really want to put their hands on everything they buy, and they're only going to buy, like, kitty litter, water, other big things that are not all that fun to shop for?

Jones: Such a good point. When you think about the logistics involved with same-day delivery, even curbside pickup, it's still an expensive undertaking, no matter how you look at it. Of course, with grocery chains in general, many of them already are operating on razor thin margins. So, for a lot of the smaller players, it does become much more difficult, much more expensive, to think about offering similar services that these big names can do.