Last year, Amazon reached 18% market share in U.S. online grocery sales, double that of Walmart, and the company is poised to continue to disrupt the grocery market and grab more share as consumers feel more comfortable shopping for food online, according to e-commerce research and analytics firm One Click Retail.
Amazon Fresh — the e-commerce giant's grocery delivery service — is helping drive the company's food sales by creating a convenience play irresistible to young professionals, according to a blog post from Nathan Rigby, a partner at One Click Retail who leads sales and marketing. Weekly sales there more than doubled last year, climbing from some $3 million in January to over $7 million by the end of 2017, to reach an estimated $350 million in total sales. (Organic proved to be a key search term, with roughly 25% of all Amazon Fresh sales going to items with that word in the title, including eight of the top 20 bestselling items.)
But the biggest growth driver of late 2017, which will "inevitably have a major influence on sales well into 2018 and beyond," Rigby says, is Amazon's acquisition of Whole Foods. Customer traffic in Whole Foods locations spiked by 25% in the first two days after the acquisition, and Amazon Fresh also experienced a strong increase in sales after the announcement, even before any new products were released on amazon.com. And the effect could have been even greater, even more quickly, if Amazon had been prepared for consumers' high level of appreciation for the chain's 365 private label brand.
The $2 billion in online grocery sales that Amazon raked in last year is just a fraction of the $13.7 billion it paid for Whole Foods, notes One Click Retail. That may seem pretty lopsided, but when it comes to food and beverage e-commerce, the landscape is almost all potential.
"The food and beverage sector is one area where e-commerce penetration lags," notes Rigby. "Consumers are slow to embrace online grocery shopping as they prefer to touch and smell fresh food before buying."
Some categories fare better online than others, with packaged goods, perhaps unsurprisingly, doing the best. Beverages sell better than other categories by a wide margin: online sales of cold beverages grew 65% year over year. The remaining top categories are snack food, breakfast foods, and candy and gum. After the purchase of Whole Foods, Amazon could have penetrated even further, but the e-commerce giant sold out of more than 90% of the roughly 2,000 365 Everyday Value items once it began selling the Whole Foods private label online.
"Despite these shortages, 365 Everyday Value still consistently sold as the #2 bestselling brand among Amazon's private labels (second only to AmazonBasics) since its launch in late August, earning an estimated $11 million in sales by the end of 2017," Rigby noted.
But the Whole Foods acquisition isn't doing all the work. The Amazon Fresh unit is also helping to lift consumer comfort with online grocery shopping, with same-day delivery of fresh food, Rigby said. Growth rates of Amazon's grocery e-commerce in its three biggest markets, the U.S., U.K. and Germany, are "north of 50%," Rigby notes, adding that One Click Retail expects those growth rates to increase this year, for a few reasons.
One is that Amazon's penetration is at an all-time high in both North America and Europe and is "increasingly valued by young professionals, busy with their careers and/or raising young families, as a one-stop-shop where they can do all of their shopping, including groceries." Plus, as Amazon itself noted, Prime signups broke records at the holidays, with more than four million people starting Prime free trials or paid memberships in just one week. And the retailer continues to expand Amazon Fresh to more zip codes throughout the U.S., U.K., Germany, Japan and, soon, Australia.
Meanwhile, Walmart is under pressure. The retail giant is in the midst of a major pivot to e-commerce, attempting to reach millennials through online apparel brands like Modcloth and Bonobos, and boosting its in-store pickup of online grocery orders. Without the cushion that Amazon enjoys thanks to its profitable cloud services unit, Walmart is also managing price competition, which is flaring up, with the arrival of Lidl making a price war more likely, Rigby notes.
"The Amazon and Whole Foods partnership is a perfect match, doubling down on the campaign begun by Amazon Fresh to change consumer perceptions of online grocery sales from 'non-perishables only' to high quality, fresh, 'whole'-some foods," Rigby writes. "For brands, this will have – and already has had – widespread implications, with food sales moving online in record volumes as consumer confidence soars. The growth potential for online sales of groceries in 2018, and fresh foods in particular, is huge. In all likelihood, this is the tipping point we have been waiting for."