Amazon wants to sell groceries online and is testing a variety of ways to make that happen. But will shoppers click and bite?
This may seem like an odd question since it seems everyone is buying everything online today but the truth is something altogether different. The number of U.S. consumers who buy groceries online (including perishables) is in the single digits, but that is set to change dramatically as millennials age.
Online grocery is hardly new. Peapod (1989) and Webvan (1996) were early entrants, but in years since Peapod was founded, adoption has grown at a snail’s pace.
There are certainly more players today, but the only two that really matter are Amazon and Walmart as these behemoths battle it out for the title of largest U.S. retailer.
Whichever wins at grocery wins the heart and wallet of the American consumer. Amazon wants to be that winner.
At $800 billion, there should be enough of the grocery market to go around, but the battle for it will be fierce and weed out a lot of smaller merchants. Grocery is a category that serves to cement loyalty that pays off in much bigger ways and in order to achieve market dominance, one must dominate in this category.
U.S. consumers have predictable shopping habits. We do a big stock-up shop every month for essentials that include consumables like toilet paper and laundry detergent. Weekly trips for food items and intermittent fill-in trips for an item here and there.
On average, we make 1.6 trips to the grocery store each week, according to industry trade group The Food Marketing Institute.
The big trip is what discount stores get, but they need shoppers to stop in more frequently and so began adding groceries.
Target did so tentatively at first with a few refrigerated cases for milk and eggs, essentials that could be considered convenience items for shoppers on their big trips.
Then it expanded to pantry staples and dry grocery, and ultimately to its current PFresh model that better resembles a small grocer than the supercenter selection, a format Target dabbled with in the early 2000s.
Walmart tackled grocery head on and thanks to its 200,000-square-foot stores, quickly became the largest grocer in the U.S.
Enter Amazon, which needs grocery in order to unseat Walmart.
Amazon has been experimenting with grocery for years. Amazon Fresh promises speedy delivery of grocery items in a growing number of markets. The initial $299 membership fee has had some adjustments and Prime members can now add-on the service for $14.99 a month.
Amazon is also testing a service that lets shoppers order online and pick up at a physical location. And the much written about Amazon Go is a retail prototype that could produce new tools to boost grocery sales. Both tests, however, are only available to Amazon employees in Seattle.
Perfecting grocery will come as Amazon learns – that strategy has served it well in everything its done to date.
“Amazon is learning as they go,” says Joseph Thompson, VP of marketing and growth at BuildDirect. “They go slow so they can go really fast.”
Thompson was formerly a general manager in Amazon’s retail division recounts how the company excels at testing at learning. “They are great at trying different things and when they solve [something], they go all in,” he said in an interview.
Even this far from perfecting its model, Amazon has made big inroads in the category.
A recent report by One Click Retail estimates Amazon’s U.S. grocery sales at $350 million, a 30% increase over last year.
The solution, believes Thompson, will lie in removing waste from the supply chain. Something that’s a lot less sexy than the Amazon Go store with its virtual inventory and scan-and-go mobile payments.
“I think they’re still a ways away, maybe three to five years,” says Thompson. “It’s committed to completely reinventing the industry and they know the war will be fought on grocery.”