It has been two years since Amazon.com Inc. announced its acquisition of Whole Foods Market for a whopping $13.7 billion. This move had analysts speculating that Amazon would revolutionize the grocery industry both online and offline. While the extent of its dominance remains unclear, the deal undeniably expanded Amazon’s offline presence and spurred other grocers to enhance their online and offline services.
Amazon’s Benefits from the Whole Foods Acquisition
Amazon (ranked No. 1 in the Internet Retailer 2019 Top 1000) reaped several advantages from the Whole Foods acquisition, including:
- Enabling online ordering at numerous Whole Foods stores for home delivery within two hours in over 60 cities through Prime Now.
- Introducing curbside pickup of Whole Foods online orders for Prime members in select markets.
- Strengthening its Prime loyalty program by offering discounts to Prime members who shop at Whole Foods, providing 5% cash back on all Whole Foods purchases made with an Amazon-branded Visa card, and increasing the visibility of the Prime membership program.
- Establishing locations for Amazon lockers and facilitating online order pickup.
- Driving additional purchases to Whole Foods by enticing shoppers to pick up their online orders at a locker.
Moreover, the acquisition’s most significant advantage, albeit intangible, lies in the extensive media coverage it garnered. Paula Rosenblum, co-founder and managing partner at the consultancy Retail Systems Research, highlights this as “endless free PR” that struck fear into the hearts of grocers worldwide.
Impact on Rival Grocers
Fear prompted major grocers and mass merchants to amplify their grocery services in the years following the acquisition. Notable examples include:
- In November 2017, grocery chain operator Albertsons Cos. Inc. (No. 200) introduced online grocery delivery service for orders on JewelOsco.com in select markets, in addition to its existing home delivery program for Safeway grocery stores.
- In 2017, Target Corp. (No. 16) announced its acquisition of delivery service Shipt, allowing same-day grocery delivery.
- Walmart Inc. (No. 3) expanded its services to include curbside pickup of fresh groceries, online delivery, and recently introduced the grocery delivery subscription service, Delivery Unlimited, in Houston, Miami, Salt Lake City, and Tampa.
Consumers’ growing appetite for online grocery shopping has also motivated these changes. Online sales and ecommerce’s share of total sales have steadily increased for supermarket chains in Internet Retailer’s Top 1000.
Changing Consumer Behavior
The Food Marketing Institute’s U.S. Grocery Shopper Trends 2019 report reveals that the number of regular grocery consumers who shop online-only retailers for groceries has risen steadily to 33%. This figure represents an increase from 28% in 2018, 25% in 2017, 20% in 2016, and 16% in 2015, based on a survey of 1,786 U.S. adults conducted in February 2019. Furthermore, 43% of shoppers have placed an online grocery order in the past year, with 10% of shoppers shopping for groceries online at least every two weeks.
In terms of online sales, Amazon is the preferred choice for shoppers. In the first months of 2018, Amazon captured 30% of online grocery spending in the U.S., equivalent to the combined online sales of all grocery chains. Bloomberg estimates that Amazon’s grocery sales, online and in stores, amounted to $25.4 billion in 2018 (excluding an additional $23.6 billion in consumable sales).
However, online grocery sales accounted for just 5.5% of total U.S. grocery sales in 2018, as reported by Brick Meets Click. The firm anticipates this figure to grow to 6.3% in 2019. Even when considering total grocery sales, Amazon is far behind major chains and mass competitors. Bloomberg News reports that Amazon/Whole Foods holds a mere 3.7% share of the overall grocery market, with Walmart remaining the largest grocer:
- 25% – Walmart/Sam’s Club
- 11% – Kroger
- 6.8% – Albertsons/Safeway
- 6.4% – Costco
- 47% – Others
While Amazon’s acquisition of Whole Foods initially sparked speculation about its industry domination, the impact remains a subject of ongoing observation. Nevertheless, the acquisition undeniably expanded Amazon’s offline reach and prompted other grocers to improve their services. As consumer trends shift towards online grocery shopping, the competition in this sector is expected to intensify, with grocers adapting and innovating to meet the evolving demands of consumers.