Amazon Is Still Sorting Out Its Grocery Strategy
(Bloomberg Opinion) -- When Amazon.com Inc. announced a year ago this week that it was buying the Whole Foods supermarket chain, investors braced for an industry shake-up. Stock prices of companies even remotely connected to groceries tumbled. Experts imagined supermarket price wars and stores transformed by Amazon robots. Some predicted Amazon would leverage Whole Foods stores as online delivery hubs, or as a launchpad for the pharmacy business.
The outlandish hopes weren’t Amazon’s doing, but so much — too much — was expected of Amazon to transform the grocery shopping experience. What’s perhaps most surprising since the world’s most ambitious company stomped into groceries was how little has changed. For Amazon, adding Whole Foods made its jumble of grocery-related offerings more disjointed. And while the ripple effects from the Whole Foods deal have been profound, as my colleague Sarah Halzack pointed out, predictions of Amazon bushwhacking the grocery business haven’t come true yet.
The Whole Foods deal and its aftermath are reminders of Amazon’s struggles with its grocery operations. The purchase was both an acknowledgment that Amazon couldn’t go it alone in groceries or with purely online tactics, and it was Amazon’s declaration that it wants to go big in a category with more than $1 trillion in annual spending in the U.S. alone — and only a few percentage points of that online.
Amazon now has to tackle the continued integration of Whole Foods and an even bigger task: making the company’s grocery-related offerings more coherent. Including the company’s main shopping mall, Amazon now has at least eight somewhat overlapping services from which people can buy food or household goods. One key to Amazon’s success is its simplicity of buying. The company’s grocery offerings are anything but simple.
Grocers do need alternatives for different cities and for the range of shopping needs. But there’s a fine line between giving choice and confusing shoppers to the point where they go elsewhere. The tangle of Amazon services selling groceries adds complexity for the company, too, with different supply chains, logistics demands and customer experiences.
Amazon officially took over Whole Foods only in late August, and no one counts out the company’s ability to work its magic on groceries, an industry that has remained immune to the forces of e-commerce and whose shopping experience, even online, hasn’t changed that much for decades. It’s likely that Amazon will see which grocery options prove popular, and double down on those while scaling back others over time.
Amazon is working with important advantages: the loyalty of many U.S. shoppers and its ability to be patient. Surveys commissioned for Barclays Research in Cincinnati and Dallas found that significant minorities of respondents reported shopping more at Whole Foods after Amazon’s acquisition. (A national survey by YouGov found people’s willingness to consider shopping at Whole Foods has settled back to roughly where it was when Amazon’s acquisition was announced.)
Already, Amazon is a big player in groceries thanks to its e-commerce prowess. John Blackledge, a stock analyst with Cowen & Co., estimated that household goods, pet products and personal care items are top sellers on Amazon. Those and other areas of grocery spending outside of food and beverage purchases are roughly one-third of Americans’ estimated grocery spending, Blackledge said.
©2018 Bloomberg L.P.