(Bloomberg) -- Amazon.com Inc. shoppers are buying more packaged foods, pushing the e-commerce giant deeper into grocery sales.
The world’s largest online retailer sold $650 million worth of consumer packaged food items in the first quarter, a 48 percent increase over the same period a year earlier, research firm One Click Retail said in a note released Thursday. Packaged food items include coffee, salad dressings, baby food, cereal bars, energy drinks and soda.
In September, Amazon heralded its plans to disrupt the grocery industry with the $13.7 billion acquisition of Whole Foods Market. The deal, plus consumers’ increasing preference for shopping online, have sent some packaged foods companies scrambling to improve their web marketing. Online food brands like Soylent, a startup that makes beverages and meal replacement bars, are among the most popular on Amazon.com, One Click Retail said.
“We continuously need to educate traditional brands on the importance of selling well on Amazon,” said Nathan Rigby, vice president of sales and marketing at One Click Retail. Products like Bai, rxbar and Soylent are outperforming traditional brands, Rigby said. One Click Retail uses technology to monitor more than 10,000 brands to calculate weekly online sales figures.
Despite the boon in sales, Amazon’s grocery push is taking a toll as the company looks to compete with big-box retailers like Walmart Inc. on price and delivery. Amazon has been willing to absorb losses of millions of dollars a year on certain products to make sure it has the items in stock and to be competitive. But those costs are rising as the company sells more low-margin household goods. Fulfillment expenses -- the cost of storing, packing and shipping goods -- surged 43 percent in 2017 to $25 billion, outpacing annual revenue growth of 31 percent.
In March, Amazon began shifting its Prime Pantry service, which offers non-perishable household goods like breakfast cereal, laundry detergent and shampoo, to a $5 per month membership model to boost revenue. Those who don’t subscribe will pay a higher fee per box to help Amazon cover shipping costs.
A separate study released this week from Coresight Research found that shoppers frequently use Amazon for small grocery purchases of a few items, while most people still go to brick-and-mortar retailers like Walmart to fill online shopping carts and then retrieve them at the store. Smaller orders of household goods are more difficult to deliver profitably because the shipping cost makes up a bigger percentage of the overall order.
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