There’s a physical sensation to being “stuck in the middle” of the grocery sector — a vibration between two magnets pulling in opposite directions. The discounters (Aldi, Lidl, WinCo and others) are tugging hard on price-sensitive shoppers while tech-forward giants (Walmart, Amazon-adjacent players) and premium specialists pull on convenience, assortment and experience. In the middle sit legacy supermarket operators — think Kroger and, for many product categories, Walmart’s traditional grocery business — trying to be everything to everyone and risking being nothing memorable to anyone.
Below
I’ll walk you through the history, the current facts that matter, why this
middle is dangerous, and finish with four Grocerant Guru® insights on where to
actually go next.
A short history — how we arrived here
Grocery
used to be simple: low price or differentiated assortment. For decades the
market bifurcated into broad national chains (big assortment + scale), regional
premium/specialty grocers (fresh, variety, service), and the
warehouse/wholesale clubs. In the last 15 years two structural forces changed
the map:
1. Discounters
perfected private-label value at scale. Aldi and Lidl
brought extremely lean stores, concentrated SKUs and strong private-label
programs that undercut mainstream supermarkets on staples and increasingly on
fresh items. WinCo—employee owned, warehouse-like—has gained traction by
offering wholesale-like pricing without a membership. Discounters have been
expanding and grabbing share from traditional supermarkets.
2. Technology
and e-commerce rewrote convenience expectations.
Amazon, and then the grocers who tried to emulate its model, pushed same-day
delivery, subscription convenience and hyper-personalization. That forced
incumbents to decide: double-down on price, double-down on tech, or try to do
both. Many tried the latter and got caught between heavy capital investment and
thin operating margins.
The current battleground — what the data is telling us
•
Discounters are growing visits and market share. Foot-traffic and market
studies show value grocers continuing to gain momentum as consumers prioritize
price and private label. Aldi and Lidl, in particular, report strong visit
growth versus the broader grocery segment. WinCo and other value chains have
also shown traffic gains.
•
Kroger’s expensive experiment is being rethought. Kroger’s
robotic/automated fulfillment strategy (the partnership with Ocado) is being
scaled back — recent announcements show Kroger closing several automated
delivery/fulfillment centers and taking a material impairment charge as it
reorients to a hybrid, store-based fulfillment model and third-party delivery
partnerships. The company says this will improve e-commerce economics but it’s
a clear signal that trying to be both low-cost scale and high-tech convenience
is fiendishly hard.
•
Walmart doesn’t want to be the middle — it wants the edge. Walmart
publicly and privately has leaned into technology (GenAI, agentic AI, real-time
fulfillment improvements) to be faster, cheaper and more convenient — basically
to out-Amazon Amazon on a blend of scale + tech. Walmart’s corporate narrative
in 2025 stressed AI and automation as strategic priorities for making shopping
faster and more relevant. That’s not a middle-management choice; it’s an
identity shift.
•
Online grocery economics remain challenging. Online grocery has grown
enormously as a share of consumer behavior, but unit economics are still poor
unless you achieve scale or efficiency in fulfillment. That is why Kroger’s
shift to third-party partnerships and Walmart’s aggressive tech push are such
important strategic moves — both are experiments to solve thin margins in
delivery/fulfillment.
What “stuck in the middle” feels like operationally and for
shoppers
·
Confused assortment and unclear value
proposition. Middle grocers try to stock
everything — premium dinner kits, private-label staples, a sushi case, and too
many SKUs. The shopper who wants the cheapest eggs goes to Aldi or WinCo; the
shopper who wants a curated meal experience goes to a specialty or foodservice-forward
retailer. Middle grocers end up being the “also-ran” in both missions.
·
Margin squeeze from two sides.
Discounters compress prices on staples while tech/fulfillment investments
inflate operating costs. Trying to match both results in underpriced promise
and overexpansive delivery. Kroger’s recent write-downs of automated centers
are a textbook symptom.
·
Brand identity dilution.
When your ads claim both “lowest price” and “premium chef-quality meals” you
create a fuzzy brand that makes loyalty fragile. Consumers migrating toward
specialists (value or premium) vote with feet and wallets.
·
Operational whiplash.
Constantly switching strategies — build warehouses, then close them; push
proprietary delivery, then partner with Instacart/DoorDash — leads to execution
drag, associate churn, and customer confusion.
Marketing & food industry facts the middle must reckon
with
·
Private-label is a weapon.
Discounters leverage a tight private-label assortment to deliver perceived
quality at low prices and that perception is holding up with shoppers. That’s
an advantage the middle must either match or clearly differentiate from.
·
Foot-traffic trends favor simplicity.
Recent data show value grocers posting higher traffic growth than the average
supermarket, especially when inflation bites. Consumers will trade up on
occasional items but shop down on staples.
·
E-commerce is essential but costly.
Kroger’s shift away from a full Ocado roll-out and toward hybrid fulfillment
plus third-party partnerships is a reminder: owning the tech is not the same as
making the economics work.
Four Grocerant Guru® insights for grocers stuck in the
middle
1. Choose
a real strategic pole — don’t try to be the midpoint on price and the
leader on tech.
If you want price leadership, ruthlessly optimize assortment and private label.
If you want convenience/tech leadership, accept higher AOVs and build
fulfillment economics that scale (or partner where it’s smarter). The middle
dilutes investment and brand clarity.
2. Turn
stores into micro-experience hubs, not cost centers.
If you cannot win on lowest everyday price, win on a handful of foodservice or
fresh offerings that create habit (breakfast bundles, ready-to-heat chef bowls,
local fresh counters). Make those experiences repeatable, measurable and
profitable.
3. Be
pragmatic about tech: hybrid > headline.
Kroger’s closures remind us that headline robotics are sexy but store-first
hybrid fulfillment often wins in cost-per-order and speed in sprawling U.S.
markets. Use automation where density justifies it; everywhere else, optimize
store labor and routing.
4. Market
decisively to the evolving consumer — not to a mythical average shopper.
Segment your marketing into clear missions: “value staples,” “midweek fresh
meals,” “premium weekend entertaining.” Speak to the shopper’s occasion — the
consumer increasingly shops by meal occasion and mission. Those who craft
messaging by occasion win share.
Think About This from the Grocerant Guru®
The
“mushy middle” isn’t a fate — it’s a warning label. The discounters have made
price a science; the tech players have made convenience a technology playbook;
the winners will be the ones who make deliberate bets and then own the
day-to-day mechanics of that bet. For Kroger, Walmart and others, today’s
choices — close or repurpose automated sites, invest in AI search, partner with
third-party delivery — are identity moments, not mere tactical shifts. The
market rewards clarity. Choose your pole, optimize for it, and then tell your
customer exactly why you exist for their life.
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