One year later, has Amazon become the grocery disruptor everyone feared?
- One year after acquiring Whole Foods for $13.7 billion, Amazon has yet to become the disruptive force many grocery companies have feared, according industry observers. The e-tailer has made selective price cuts and provided enticing discounts for Prime members, but Whole Foods stores still only claim a small percentage of U.S. grocery sales, and AmazonFresh, the company’s grocery delivery service, has been scaled back.
- Amazon’s main strategy with the chain has been to leverage its popular Prime service, according to The Wall Street Journal. Members can now get discounts on select products as well as free two-hour delivery in a growing number of stores. These integrations have driven traffic increases, and sales are up 3% year-over-year since last August, according to Second Measure data cited by the Journal. Meanwhile, Field Agent finds that more than 80% of Prime members that shop Whole Foods intend to do so more often.
- At the same time, culture clashes between Amazon and Whole Foods could signal further changes down the road. Reports have detailed the exodus of top Whole Foods executives from the company as well as disagreements over product standards. CEO John Mackey now shares power with a select group of Amazon executives that are implementing the company’s broader vision into Whole Foods, CNBC reports.
Rather than becoming the 800-pound gorilla everyone in the grocery industry feared, Amazon’s legacy so far has been as a catalyst for change.
Since the e-tailer announced last summer it would acquire Whole Foods, grocers across the industry — from national chains to mom-and-pop shops — have put their e-commerce plans into hyperdrive, and now consumers across the country can pick up orders in-store or have them delivered to their homes. Retailers have turned to service providers to run their online ordering and last-mile operations, providing a windfall for companies like Instacart and Shipt.
Fear of Amazon has also inspired major changes to store technology and assortment. For better or for worse, retailers are bringing meal kits into their stores and even buying up online companies that have fed the craze. They’re also remodeling stores and adding experiences that transcend shopping in front of a computer screen — or at least complement it. Kroger will soon have digital shelves that tie in with shoppers’ mobile phones. Walmart has aisle-scanning robots that regularly check inventory. Giant has a robot, too, but with googly eyes.
Amazon isn’t solely responsible for all of these changes, of course. Grocery assortments and technology are always evolving, and store remodels were underway well before the e-tailer bought Whole Foods. But the acquisition injected a sense of urgency into the proceedings. The pace of innovation in the grocery industry has arguably never been greater.
It’s also important to note that one year is a very limited time frame to judge a company’s impact — especially a company like Amazon that excels at playing the long game.
Amazon could still become the dominant force supermarkets fear. Its impact through Whole Foods is limited, given that chain’s footprint of less than 500 stores. But through Whole Foods, Amazon is learning the grocery business and collecting valuable data that will help it become a stronger online food retailer. AmazonFresh has struggled to date, but it could come roaring back now that the company has physical stores and distribution centers at its disposal. Amazon will also continue honing its broader grocery offering with special programs, private label lines and more.
The e-tailer, which brings in a leading 18% of online grocery sales, will have an uphill battle on its hands thanks to the digital revolution it helped accelerate. In major markets, consumers now have several options to choose from when ordering groceries online. Can Amazon craft offerings that make it the clear favorite for consumers — or will it become just another player scrambling after dollars?
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