Click to eat: Inside Amazon’s Online Grocery Strategy

Amazon Tosca Blog

Since Amazon’s $13.7 billion purchase of organic grocer, Whole Foods, in August 2017, analysts are sitting on the edge of their seats and busily calculating their projections on how the internet giant’s online grocery strategy can succeed.

If the 23-year-old e-commerce giant can make it work, and consumers fully embrace the convenience of (nearly) effortlessly ordered and delivered foods, industry analysts believe the impact could be cathartic. At a minimum, brick-and-mortar stores may have to revamp their product mixes, marketing and merchandising strategies to even the landscape against the strong online grocery strategy emerging. Online grocery shopping attracts those customers who prefer a more immediate and/or more tactile shopping experience.

“Once Amazon is a player in the industry, anything can go,” predicts analyst Joe Agnese in USA Today. “The big threat is what else they can do. Now that they have a retail presence with (more than) 400 stores, long-term they can expand on that threat. They could bring down prices, and everyone would have to match them or lose (market) share.”

Other industry gurus, including retail and consumer analytics specialist Kurt Jetta, point to statistics showing online shopping still represents a small portion of all retail sales. In 2016, for example, only 4.5 percent of U.S. shoppers sprang for grocery items over the internet, Bloomberg reports.

“While there is much uncertainty about the future of e-commerce, what we can say is that there is no demand-based rationale for the dramatic growth rates espoused by most industry analysts,” Jetta writes in Forbes. “In the meantime, all retailers have plenty of time to study consumers and understand why more of them are not doing their shopping online. Only then can retailers not named Amazon develop offers that will change consumers’ minds.”

Amazon’s Strives for Big Future in Food

While Amazon has already been selling certain foods online over the past decade, to date it’s been unable to generate anywhere close to the revenues it realizes with its other lines. But its future goals are lofty; Bloomberg quotes an unnamed source as stating it aims to be one of the top 5 grocers in the U.S. by 2025. Future plans of their online grocery strategy call for some 2,000 brick-and-mortar stores that mix elements of online and in-store shopping, including kiosks that allow shoppers to pre-order online before picking up groceries via drive-through, convenience stores called Amazon Go and hybrid supermarkets.

Areas of Growth for Amazon’s Online Grocery Strategy

  • Ways of optimizing customers’ digital devices as tools for browsing or researching in-store products; recent Deloitte research indicates 80 percent of U.S. consumers have already done that. “The science of merchandising a store changes when more than half of shopping decisions are made outside the physical retailer,” notes Daniel B. Kline in Business Insider.
  • How to build online add-on sales as effectively as brick and mortars do. “Forty percent of shoppers spend more than they had planned to while shopping in stores, while only 25 percent of shoppers do so when shopping online,” advises Carly Botelho on Yahoo Small Business. “Beautiful storefronts and point-of-purchase displays can strongly influence moms to make an impulse purchase, and are much harder to ignore than online ads.”
  • Whether it should and how Amazon might create its own full line of foods, as it’s already done with products such as coffee, batteries and pet food, remains to be determined. Whole Foods’ line of branded food items, 365 Everyday Value, has already generated $10 million in its first four months listed on Amazon.
  • Best practices for buying, receiving and shipping food to optimize freshness. Recently, a source quoted in Bloomberg placed Amazon’s existing grocery spoilage problem at twice that of typical supermarkets. “Consumers are understandably reluctant to have someone else pick out their fruits, vegetables, meats, fish and chicken,” writes Richard Kestenbaum in Forbes. “You never hear a consumer talk about how an online grocery service picked out better products than they could do at the store.”
  • To what extent it can optimize its history of volume discounts to compete with heavy discounters such as Walmart. “In the near-term, at least, the big winner will probably be shoppers,” predicts Zlati Meyer in USA Today. “Consumers can look forward to more than just extra cash in their wallets … they might see completely overhauled stores, smaller footprints and larger assortments of exclusive brands, which is the successful German approach already invading the U.S.”

Amazon’s strategy as it transitions into offline groceries will be interesting to observe and may involve several surprises for analysts and grocers alike.

“Long term, a stronger grocery business could position Amazon to become a wholesale food-distribution business serving supermarkets, convenience stores, restaurants, hotels, hospitals and schools,” speculate Spencer Soper and Olivia Zaleski on Bloomberg. “But first the company has to find a way to get more people to think of Amazon when stocking their refrigerators and pantries.”

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