Retailers and brands should start preparing for Amazon grocery to finally hit its stride, according to data and insights firm Edge by Ascential.
The company reported 2018 grocery sales for the retailer at about $3 billion, up 45% from the previous year. The growth rate was down significantly from the 60% mark for 2016-17. Still, the growth has been huge. However, most of the grocery sales come from items like coffee, cold beverages, snacks and cereals — not meat and produce.
Even so, Amazon is still eyeballing those perimeter category opportunities.
“Amazon has no intention of giving up on fresh food,” Edge by Ascential wrote in a recent publication on its short-term, mid-term and long-term predictions for the company. “They just need to change their strategy. We predict that Amazon is finally going to discontinue the sub-par Pantry service — or at least merge it into another program like Prime Now or Fresh — and go all-in on brick and mortar grocery sales.”
Relevance in fresh food is so coveted by Amazon, of course, because of the trip frequency associated with those categories.
“The acquisition of Whole Foods has taken a couple years to sort of materialize in terms of how they will leverage that asset to drive fresh and grocery delivery, but that’s really starting to emerge now,” said Danny Silverman, chief marketing officer of Edge by Ascential. “And as they’ve announced expanding Whole Foods and creating more formats, there’s also been some news on the number of Amazon Go locations that they want to add — that also creates the potential for more hubs that are farther out or extended to reach more of the population.”
In addition to Whole Foods, there is AmazonFresh. There are likely some opportunities for synergy, but the businesses are distinct.
“The challenge ... is that Whole Foods still has the core mission of being about natural and organic, and AmazonFresh delivers a much broader assortment, and who they’re competing with, if you look at Instacart or Peapod, they’re delivering the whole breadth of the grocery store, whereas Whole Foods is somewhat limited in that it is natural and organic,” Silverman said. “So how they kind of square that, I think, will be the really interesting piece.
“I’m not sure that they’ll go so far in the short term as to completely eliminate the two, but I think we will see some of kind of a shift in terms of how they message Whole Foods so that they can enable that streamline for the future,” Silverman said.
However, Amazon might be able to leverage the Whole Foods brick-and-mortar presence to enable AmazonFresh delivery in more markets.
“You might have a Whole Foods but then on the back there’s an ... extension of the store that warehouses additional products that go beyond Whole Foods that are specifically for AmazonFresh delivery, and so in that way being able to mix the two together for those who want to buy beyond just the Whole Foods proposition, might be one potential solution on how they bring those two together,” Silverman said.
Picking up pickup
Walmart, the biggest competitor to Amazon in grocery, has invested heavily in its delivery capabilities, but it also has a strong foothold in grocery pickup because of its enormous physical store footprint.
Silverman said he expected Amazon would look to add pickup for Whole Foods to some degree but that it might be less straightforward for that retailer than others.
“Very often Whole Foods tend to be more in strip malls or shopping plazas as opposed to freestanding grocery stores or a Walmart where they have the footprint to be able to build the pickup,” Silverman said. “That said, grocery pickup is generally a more convenient proposition because rather than having to wait at home for the delivery, you can pick it up within a wider range and on your schedule, so if you’re running early or late, you can still get your pickup.
“In some ways pickup offers a type of convenience you don’t get from delivery, and for that reason to really expand penetration of the service, I would expect them to figure out how to add the pickup service in parallel to delivery,” Silverman said.
How retailers should respond
He advised that retailers readying for the continued push of Amazon into grocery should stay true to their identities.
“Focus on the shopper experience, focus on why shoppers love shopping their stores, and be sure that that experience carries through as they look at adding these capabilities or expanding capabilities to kind of keep up with shopper expectations,” Silverman said.
He noted that while maintaining core competencies is key, new offerings like grocery pickup and delivery are a significant part of the equation as well.
“It’ll be critical to survival for any retailer to add the capability,” Silverman said. “There are shoppers who are always going to prefer to go to the store, they enjoy the shopping experience, they want to walk the aisles and they’re always going to insist on picking out their own (items), but a rising population, particularly as you have the millennial generation growing up who grew up in the world of the internet and the world of e-commerce, will just expect it, and those who don’t find some solution to online purchasing ... will find that their business is just going to keep shrinking and be much, much harder to hold onto without being able to serve that population.”