Amazon is going to eat the grocery industry
News broke last week of Amazon’s plans to acquire supermarket chain Whole Foods for a reported $13.7 billion. The purchase of the Austin-based grocer’s more than 450 stores marks Amazon’s most ambitious step into the brick and mortar retail space, giving them immediate access to a large network of physical locations.
While Amazon’s Prime Now offering has already begun shaking the U.S. retail industry, their physical presence has been largely limited, having only recently experimented with bookstores and a small grocery location. For Amazon to make significant inroads into the grocery industry, they’ve always needed to diversify their online approach and increase their footprint in traditional retail locations.
So what does Amazon’s swift invasion of brick and mortar mean for retail? A lot.
The US grocery industry continues to be shaken up
For starters, grocers that were once able to fend off Amazon’s creeping presence by offering an in-store experience have suddenly lost that edge. With hundreds of Whole Foods’ storefronts at their disposal, Amazon has become vertically integrated virtually overnight—and Wall Street has quickly caught on.
Shares of Kroger, Costco, WalMart, and Sprouts all dove after the acquisition plans were announced. It’s clear that Amazon’s deep pockets, innovative approach, and dead-set ambition to dominate every aspect of retail has dampened interest in traditional grocers.
The reason is that, until now, the physical absence of Amazon had given groceries the safe haven of offering an in-store experience, with Amazon instead becoming the default marketplace for traditional grocers to offer goods online.
With Amazon’s move into direct competition, however, supermarkets will likely be forced to move away from Amazon’s marketplace. This shift parallels the move that large national retailers including Staples, Target, and Macy’s made years ago when Amazon started competing with them directly. Grocers are now forced to accelerate their efforts to offer their own branded, online experience for customers.
Instacart and grocery delivery
The underlying storyline that is playing out amongst Amazon’s move into physical retail is the limbo that marketplaces—and the supermarkets they service—have been left in. Instacart has claimed that Whole Foods is not a major part of its revenue, but its future as a grocery delivery platform is inextricably linked to its relationships with grocers.
Last year, Whole Foods invested a reported $36 million in delivery service Instacart, making it their exclusive solution for ecommerce including being its delivery partner. Whole Foods’ national presence left them perfectly-suited to serve as a growth catalyst for Instacart to enter new markets.
In one fell swoop, however, one of Instacart’s largest customers and strategic investor is consumed by their biggest competitor. Amazon’s new stake in Instacart grants them access to their customer data—an audience of ideal Prime customers, no doubt.
This leaves Instacart in a precarious position. Unless part of Amazon’s rationale for acquiring Whole Foods was for their stake in Instacart, it’s not looking promising for them. Either way, Amazon seems set on dominating grocery delivery.
The venn diagram of customers among Instacart, Prime, and Whole Foods is likely a perfect circle. With an ubiquitous online presence, widespread brick and mortar retail locations, and baked-in delivery, Amazon seems to be putting the finishing touches on a truly comprehensive retail approach.
How grocers can continue to compete
As Amazon continues to stack their chips, the rest of the US grocery industry is left scrambling to find ways to compete. With many grocers having based their online sales and delivery on Amazon’s marketplace, they’ve been left in a vulnerable position with Amazon assuming the role as competitor. And competing with Amazon on customer experience is no small task.
Consumer expectations have quickly grown accustomed to the new standard that Amazon has largely set. Choice, convenience, speed—the current retail experience has shifted in favor of the customer and it’s up to supermarkets to keep pace. Delivering groceries is the new customer standard. If Amazon’s acquisition of Whole Foods tells us anything, it’s that cutting corners to offer that level of convenience through an online marketplace is not a long term solution.
This still leaves grocers with the an enormous opportunity. Groceries are a 600 billion dollar industry and, while online ordering and delivery is a relatively small portion, it is by far the fastest growing segment.
Competing with the likes of Amazon requires grocers to own their customer experience and, in turn, their own destiny.
Grocers can’t be left with their bags in hand any longer—offering their own same day delivery ensures they won’t.
Daphne Carmeli is the founder and CEO of Deliv, a leading last-mile logistics company that powers scheduled, same-day delivery and returns for 4000+ national and local businesses including Best Buy, Kohl’s, and Macy’s. Previously, Daphne was the CEO at Metreo from its inception in 2000 through 2007, overseeing the company’s business, product strategy and direction until its sale to Symphony Technology Group.