Amazon Prime Day Works for Gadgets. Can It Sell Cereal and Cod?
(Bloomberg) -- Amazon.com Inc. proved it can use bargain buzz to sell a lot of gadgets on a random day in July. This year, it’s hoping excitement around Prime Day gets shoppers to change how they buy groceries.
Amazon’s fourth annual Prime Day -- 36 hours of sales beginning July 16 -- will be its first since closing the $13.7 billion purchase of Whole Foods Market Inc. It is offering discounted strawberries, chicken breasts and cod fillets to lure people into its brick-and-mortar stores, as well as enticements to get them to try grocery delivery for the first time.
Success for Amazon will be measured by how many people switch up their routines in response to the promotion and develop new habits. The $800 billion grocery market has been hard for Amazon to crack since so many shoppers already make weekly trips to supermarkets and big-box stores run by the likes of Kroger Co. and Walmart Inc. Retailers have also stepped up their own digital offerings, including a buy-online-pick-up-in-store option that combines the ease of online shopping with the instant gratification of a quick run to the nearby market.
“They’re unlikely to lure a customer away, but maybe they can take a bit of the spending,” said Jennifer Bartashus, a retail analyst at Bloomberg Intelligence. “Your average Kroger shopper isn’t going to meaningfully change their shopping pattern based on being a Prime member. It takes a long time to change those habits."
Amazon had grocery sales of $2 billion in 2017, representing 18 percent of the online market in the U.S., according to One Click Retail estimates. That’s a tiny fraction of overall grocery spending, but Amazon proved with books and electronics how quickly habits can change. Online grocery sales will grow to $100 billion as soon as 2022, with 70 percent of households ordering groceries online, according to the Food Marketing Institute and Nielsen.
That’s why Amazon is promoting so many grocery offerings on Prime Day, trying to extend the loyalty of 100 million global Prime members to the food aisle. Prime members, Amazon’s most active shoppers, pay monthly or annual fees for shipping discounts, movie streaming and other services.
After a decade of trying to sell fresh food online, Amazon found that most discerning foodies want to inspect fresh veggies and meat in the flesh before buying. So it’s offering Prime members $10 to spend online during Prime Day if buy at least $10 of groceries at a Whole Foods store July 11 to 17. Shoppers using Prime Pantry, a subscription service for bulk grocery orders, can get a free box of Honey Nut Cheerios through a joint Prime Day offer from Amazon and General Mills Inc.
The promotions show how Amazon is encouraging shoppers to separate their grocery lists: Go to the store for fresh meats and produce; skip that trip for cereal, coffee and laundry detergent you can buy sight unseen.
"They want people to realize how much stuff in their kitchens they don’t need to schlep to the store for anymore," said Paco Underhill, founder of behavioral-research firm Envirosell. "Amazon wants to train people to shop differently. Prime Day is an opportunity to introduce them to that new form of shopping."
Amazon has had success using promotions to entice people to try its devices, including the Echo speaker line. Amazon’s mini Echo Dot was its top-selling product on Prime Day last year, giving consumers access to the Alexa digital assistant for less than $40. This year, the company is offering its Echo Show, which displays videos and images, for $129, a $100 discount.
It could be tough to generate the same level of excitement with coupons and free cereal, enticements the grocery industry has been using for decades.
"It hasn’t had the apocalyptic effect everyone thought," said Kevin Kelley, co-founder of retail-design firm Shook Kelley. "A lot of my clients hunkered down, thinking they’d have to lower the price of eggs. But it really hasn’t affected them."
©2018 Bloomberg L.P.