This month is the two-year anniversary since Amazon.com Inc. announced it would acquire grocery store chain Whole Foods Market for $13.7 billion.
While the announcement had many analysts speculating that Amazon would dominate grocery sales both online and off, that has yet to be seen. However, the deal markedly expanded Amazon’s reach offline and helped push the rest of the grocery industry to bolster their online and offline services.
Amazon (No. 1 in the Internet Retailer 2019 Top 1000) benefited from the Whole Foods acquisition in several ways, including:
- Allowing online ordering at dozens of Whole Foods stores for home delivery in two hours in more than 60 cities via Prime Now.
- Allowing curbside pickup of Whole Foods online orders in a few markets for Prime members.
- Bolstering its Prime loyalty program by providing discounts to Prime members who shop at Whole Foods, offering 5% cash back on all Whole Foods purchases made with an Amazon-branded Visa card and increasing visibility of the Prime membership program.
- Providing locations for Amazon lockers for online order pickup.
- Driving incremental purchases to Whole Foods for shoppers picking up online orders at a locker.
Although not tangible, one of the main benefits of the acquisition has been the media buzz, says Paula Rosenblum, co-founder and managing partner at the consultancy Retail Systems Research.
“[The major benefit is] endless free PR and striking terror in the hearts of grocers around the world,” she says.
That fear has motivated some of the largest grocers and mass merchants to amp up their grocery services in the years following the acquisition. For example:
- In November 2017, grocery chain operator Albertsons Cos. Inc. (No. 200) started online grocery delivery for orders on JewelOsco.com in select markets, in addition to its home delivery program for its Safeway grocery stores.
- In 2017, Target Corp. (No. 16) announced it would acquire delivery service Shipt, which can deliver groceries same day.
- In addition to its curbside pickup service of fresh groceries and online delivery service, Walmart Inc. (No. 3) this month announced Delivery Unlimited, a grocery deliver subscription service in Houston, Miami, Salt Lake City and Tampa, with more markets to come.
Plus, in the past few years, consumers demonstrated a growing appetite for buying groceries online, as online sales and ecommerce’s share of total sales continue to climb for supermarket chains in Internet Retailer’s Top 1000.
In a just-released Food Marketing Institute’s U.S. Grocery Shopper Trends 2019 report, 33% of regular grocery consumers shop online-only retailers for groceries at least sometimes, up from 28% in 2018, 25% in 2017, 20% in 2016 and 16% in 2015, according to a survey of 1,786 U.S. adults in February 2019. Additionally, 43% of shoppers have placed an online grocery order in the past year, and 10% of shoppers say they shop online for groceries at least every two weeks.
For online sales, Amazon is the most popular choice for shoppers. In the first few months of 2018, Amazon captured 30% of online grocery spending in the U.S.—as much as all grocery chains combined—according to a May 2018 survey of 4,855 U.S. adults by Brick Meets Click, a consultancy for grocery retailers and the consumer packaged goods industry. Bloomberg estimates that Amazon sold $25.4 billion in groceries both online and in stores in 2018, which doesn’t include an additional $23.6 billion in sales of consumables.
However, online sales represented just 5.5% of total U.S. grocery sales in 2018, Brick Meets Click says. In 2019, the firm expects it to grow to 6.3%. And for these total grocery sales, Amazon is not even close to catching up to the major chains and its mass merchant competitors. According to Bloomberg News, for the overall grocery market, Amazon/Whole Foods only captures 3.7% of grocery sales and Walmart is still the largest grocer:
- 25% – Walmart/Sam’s Club
- 11% – Kroger
- 6.8% – Albertsons/Safeway
- 6.4% – Costco
- 47% – Others