Amazon Is Taking Grocery into the Space Age
Jeff Bezos recently flew to the edge of space as part of Blue Origin’s first mission, but back on earth Amazon is also defying gravity.
At Edge by Ascential, we forecast that the e-commerce giant will take over Walmart as the biggest retailer by 2025 as it refocuses on some of its strategic initiatives after an unprecedented year. Some of these include ramping up its fulfilment capability and developing Amazon Advertising, which is set to become the next AWS for the company in terms of profitability and speed of growth.
But in terms of retail, grocery — fresh from a pandemic-fuelled shakeup and ripe for disruption — is where Amazon’s laser focus is and will be over the coming years. Amazon’s global online gross merchandise value (GMV) in edible grocery sales increased by a third in 2020 from the year before as lockdowns kept shoppers at home and e-commerce accelerated across categories.
Intense demand for online grocery last year pushed Amazon’s online fresh, chilled and frozen food and beverage sales to US $12.5 billion, up from $8.6 billion in 2019. That excludes sales from its growing portfolio of hi-tech grocery stores.
While traditional supermarket leaders rushed to partner with delivery intermediaries, like Uber Eats, Deliveroo and DoorDash, which had developed logistics systems to deliver hot food for the restaurant sector, Amazon had a head start. It was ready to go with an army of delivery drivers, a limitless digital shelf and an established fulfilment structure all in place.
In the United Kingdom, it expanded its relationship with Morrisons supermarket, now at the center of a £6.3 billion (US $8.7 billion) private equity takeover, to offer the full assortment from the United Kingdom fourth largest supermarket to its Prime members in the country. This helped the e-commerce giant gain proximity to U.K. shoppers with fresh perishable inventory. In Spain, Amazon deepened its alliance with supermarket chain Dia and recently has embarked on other initiatives and partnership agreements to capitalize on the dramatic shift to online grocery.
Online Grocery: Not Just for COVID-19
It is clear from recent actions that Amazon intends to be well positioned to hold onto its new shoppers and acquire even more once the pandemic starts to fade.
These efforts include streamlining its grocery services and integrating them under the umbrella of its main dot.com properties and app. This will see its stand-alone Prime Now website and app shut down by the end of the year.
With more than 60% of current online product searches starting on Amazon, the e-commerce giant is well placed to convert existing customers and Prime members into grocery shoppers, making the site a one-stop shop and streamlining the retail experience.
Online edible grocery growth on Amazon will be more muted this year compared to 2020, but that will be the case across platforms and retailers as COVID-19 restrictions ease and the vaccine rollout program in certain key consumer markets allow high streets to reopen. But it is expected that Prime members will still buy US $14.5 billion worth of groceries from Amazon online by the end of the year. Then the pace picks up. By 2026, Amazon online edible grocery sales will almost double from 2021 to reach US $26.7 billion. It will capture the most total GMV sales growth in e-commerce grocery over that period in Western markets. Worldwide, Amazon will be beaten in e-commerce grocery only by Asia-focused Alibaba, which we predict will grow GMV sales to US $34.2 billion in 2026, up from US $20.6 billion in 2021.
As for average annual growth rate — CAGR — between 2021 and 2026, Amazon is forecast to grow at 13%, with only Walmart in the West pulling ahead with a predicted 14% CAGR over the five-year timeframe.
Big Appetites: The Battle for the Basket
Even as economies open up and the vaccine programme allows the return of our daily routines, many habits have been reset — and buying groceries online will increasingly become the new normal for many across demographics. Edible grocery sales will add US $653.6 billion to chain retail sales in the next five years with e-commerce representing most of that growth — 10.5% compound annual growth rate (CAGR) between 2020 and 2025 compared to 3.7% store-based CAGR over the same period.
That means grocery — a historically rather dull and overlooked sector — is suddenly the flavor of the month. It is whetting the appetite of a range of ambitious new businesses, while pushing traditional retailers, like Walmart, Kroger, Carrefour and Ahold Delhaize, which recently completed its purchase of New York City pureplay digital grocer FreshDirect, to invest heavily in e-commerce capabilities.
The battle lines have been drawn and the prize is the hearts and stomachs of the future supermarket shopper.
Meanwhile, food service intermediaries will increasingly leverage their last-mile logistics infrastructure to grow market share in the category, gradually expanding their digital shelf capability and introducing opportunities for brands to advertise and drive conversion.
In other words, they will strive to be more like Amazon, offering advanced product content, more competitive search, better product management systems for sellers, and strategic partnership opportunities like new product launches and delivery campaigns. Transformation to data-driven ecosystems will split the winners from the losers as large firms utilize loyalty schemes to harvest customer data and adapt strategies closely tailored to audience needs.
For suppliers, this new age of grocery means reconsidering long-held business and investment strategies to win visibility as e-commerce adoption finally disrupts one of the last bastions of pre-internet life — the weekly grocery shop.
Product ranges must adapt to reflect the requirements of increasingly health-conscious consumers who are spending more time at home while high-quality mobile-centric imagery and clear product descriptions and pricing is critical to stand out on a digital shelf.
Retailers, meanwhile, will be paying close attention to Amazon’s push onto the high street and the customer-centric technology innovation the e-commerce giant is bringing to bricks-and-mortar stores. In June, Amazon debuted its first full-size supermarket utilizing its trailblazing Just Walk Out (JWO) technology. In this store, located not far from Amazon headquarters in Bellevue, Wash., customers can skip the checkout line if they choose the JWO option upon entry. Amazon has made this possible with a combination of computer vision, sensors and deep learning functionality. It is a pretty dramatic enhancement in its JWO technology, which was previously only used in its urban-based Fresh convenience stores through its hi-tech carts.
This not only offers grocery shoppers the opportunity to minimize contact while shopping — desirable during a pandemic and even once it fades — but extra convenience too. It will be interesting to see how many major grocery retailers end up rolling out Amazon’s technology in their own stores.
So, grocery retail is entering a new era, shoved into submission by the pandemic but shaped by Amazon, which is primed to benefit. The company’s persistent experimentation in the quest to provide consumers with novel, dynamic and convenient shopping solutions is having big ramifications on a sector that has been a sleeping giant for at least 50 years. What can we look forward to over the next 50 years? An Amazon Fresh on the moon? Whatever happens, if humans still exist and are buying groceries, you can bet that the way they do it will have something to do with Amazon.
