Amazon Is Not Necessarily Set To Dominate Grocery: Gadfly

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Amazon Is Not Necessarily Set To Dominate Grocery: Gadfly

Amazon's $13.7 billion purchase of Whole Foods Market has inspired visions of a new breed of grocery juggernaut, trampling rivals still figuring out how to sell food online.

At first glance, a recently released consumer survey by RBC Capital Markets offers some justification for those fears, showing Amazon already dominating online grocery shopping.

And Amazon has only just begun absorbing Whole Foods' merchandise and its perishables supply chain, which should help it build on its wide lead.

But if you step back and look at the bigger picture, I don't think it's a sure thing Amazon will completely dominate online grocery shopping.

Online Grocery

For one thing, it's important to remember just how uncharted the online grocery realm really is.


So Amazon has a big slice of the pie - but at this point it's a pretty tiny pie. It will be much easier for rivals to topple Amazon from its perch here than, say, in electronics, where swiping and tapping your way to a purchase is already an entrenched behaviour.

In the online grocery business, shoppers' habits are still forming. Their priorities are different. And that gives Kroger, Walmart, Target and others a real chance to woo them.

Just look at what's happened with customer adoption of online grocery shopping this year. The percentage of US adults who regularly shop for groceries online rose to 13.3% from 12.2% last year, according to a study by consumer-analytics firm TABS Analytics.

Within that group, there are varied preferences for how, exactly, people buy groceries online. Most prefer to have their groceries delivered, but this year there was a big jump in the share of customers who prefer to pick up their groceries at stores.


It's likely that some of this simply reflects that pickup is more widely available, with the likes of Walmart and Kroger rapidly rolling out this service to more locations.

And we don't know whether we'll continue to see a gain in preference for this format going forward. But it is an encouraging sign for brick-and-mortar chains that a larger share of shoppers used this service routinely.

Amazon Grocery

Amazon's purchase of Whole Foods, which has about 470 stores in the US, helps it compete on pickup. But the competition dwarfs that footprint.

If in-store pickup does become a popular way to buy groceries, then Amazon has a lot of expensive work to do to match its rivals' pickup-point networks. Of course, Amazon has shown plenty of willingness over the years to invest in such projects - but it can't be done overnight.


There's another reason not to get too breathless about Amazon's presence in the sector just yet. At least so far, it doesn't appear its purchase of Whole Foods has done much to change customer behavior.

This partly reflects that it is simply early days for this corporate marriage. Amazon wants to better integrate its Prime program with Whole Foods, for example, but so far has only done so in limited ways, such as offering special deals for members.

Until there is more plain evidence of cross-pollination, consumers have little reason to change their routine.

But it doesn't appear the deal has magically convinced shoppers Amazon's produce is any fresher or that Whole Foods' prices are much better. Amazon still must lure people to buy groceries online - and convince them Amazon is the best place to do so.


In a research note about RBC's online grocery survey, analyst William Kirk suggested 2017 may be a tipping point for adoption of online grocery shopping. More people are trying it out, and more plan to stick with this format - a sign satisfaction with such services is improving.

Amazon will certainly be a formidable contender in the battle for those dollars, and it would be boneheaded for any grocer to dismiss it. But make no mistake: Online grocery is still a wide-open field.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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