- Amazon currently has a small share of U.S. grocery sales, but Packaged Facts forecast it will grow substantially during the coming years, according to a press release. The research firm expects Amazon’s online food and beverage sales to rise to $2.3 billion in 2017 from $1.5 billion in 2016, giving it a 19% share of the online grocery market.
- Packaged Facts projects 70% sales growth in 2018 and 2019 before growth begins to moderate. Still, double-digit annual sales growth is forecast through 2025 when the research company projects Amazon’s food and beverage sales, including Whole Foods, could top $30 billion.
- “Will Amazon overtake the food and beverage market? No, but perhaps most importantly, Amazon’s major foray into food will surely stretch margins in an industry where they are already notoriously thin,” David Sprinkle, Packaged Facts research director, said in a statement. “This will, in turn, likely result in additional industry mergers and alliances geared toward managing costs, as other retailers seek to stay in the game with a competitor long known to absorb heavy losses over time in its quest for market share.”
Amazon already had big plans to disrupt the grocery industry before the Whole Foods acquisition. Now, the recently acquired natural and organic chain provides the “one-two punch” — as Packaged Facts calls it — needed to propel the retail giant’s food and beverage sales. This growth will put tremendous pressure on competitive grocers.
It’s impressive how many facets there are to Amazon’s grocery growth strategy, the most obvious being recent tie-up with Whole Foods. Literally overnight, Amazon gained a multi-channel grocery presence throughout major U.S. markets. There is speculation that AmazonFresh, which has grown slowly during the past decade in only a handful of U.S. cities, will get a major boost using Whole Foods’ stores and distribution centers for last-mile fulfillment. And Amazon is already rolling out lower prices and its Prime-based loyalty program to physical Whole Food stores.
Consider the many other initiatives Amazon has been exploring in the grocery space, too — from a checkout-free Amazon Go “convenience” store to a two-hour online alcohol delivery pilot in select cities. Increasing implementation and acceptance of Amazon Dash buttons and voice-activated ordering through Amazon Echo’s Alexa also should drive future growth. And just yesterday, the retail giant announced that it’s looking to open a second headquarters in North America.
Packaged Facts also anticipates that any success Amazon has with food will translate to strengthening its Amazon Prime value proposition as well. It will give more shoppers the incentive to buy products across all categories, not just grocery, which will continue to fuel Amazon sales across the board.
Amazon’s future success in grocery could have a profound impact on the bottom lines of other retailers. Future consolidation through mergers and acquisitions is widely expected. And while grocers have been preparing and positioning for more grocery shopping shifting online for some time now, the Amazon-Whole Foods deal accelerates its importance and necessity.
The expansion of click-and-collect programs by market leaders Walmart and Kroger have been well documented. Regional powerhouses — like H-E-B and ShopRite, among others — are ramping up their services, too. Several others are now scrambling to stake a claim in the online space. SpartanNash, for example, has partnered with technology solutions provider Unata to expand click-and-collect. A growing roster of retailers — Bashas, BJ’s Wholesale, Costco, Meijer and Wegmans among them — are inking deals with online delivery services Instacart and Shipt.
In response to not only Amazon, but also inroads being made by discounters Aldi and Lidl, grocers have been investing in pricing initiatives, leading to widespread price wars throughout the industry. In an attempt to differentiate, grocery stores are emphasizing non-price factors too: broad and deep selections; prepared foods; in-store restaurants and bars; health and wellness initiatives; and superior customer service. Some retailers such as Kroger, Albertsons, and Southeastern Grocers, among others, are improving and ramping up their own private label lines as well.
There is plenty of jostling for position across the grocery industry. It will be interesting to watch the sector evolve and see how it all shakes out — that is, who will win and who will lose. But one thing is clear: the grocery landscape will look markedly different in the next five-to-ten years than it does today.