The Flavor | Unique Insight on the Industry

How Important Is Amazon to Grocery, Really? (Part 2)

Let’s not exaggerate Amazon’s scope.

Many media sources have arguably overestimated the demand for online grocery, especially given that only 9% of American grocery shoppers actually purchase groceries online at least once a month. It may be similarly tempting to overstate the implications of the Amazon-Whole Foods deal. No doubt, Amazon’s increasing investment in grocery retail will have huge effects. (Major CPG companies like Kraft Heinz, Mondelez, and General Mills took major hits to their market values the day that Amazon agreed to acquire Whole Foods.) However, competitors other than Amazon may pose more of an immediate threat to grocery retailers.

As far as grocery market share is concerned, neither Whole Foods nor Amazon holds an overwhelming portion. According to an article published by the American Farm Bureau Federation, “Walmart leads the way with 14.5 percent of food and grocery sales, Kroger is next with 7.2 percent. Whole Foods has a 1.2 percent market share and Amazon only 0.2 percent of the grocery market.”

Walmart’s continued investments in in-store operations and e-commerce, such as its increasing private label offerings and acquiring Jet.com, make it a formidable threat against key players such as Amazon. Moreover, other CPG companies and retailers are developing their own competitive e-commerce platforms. Thrive Market, for instance, sells name-brand organic items at significantly reduced prices only online. Additionally, Campbell recently hired a previous Amazon employee to run its e-commerce, and Mondelez International, whose goal is to sell $1 billion worth of products online by 2020, has recently increased its online efforts.

Further, the Amazon-Whole Foods deal is certainly not the first time Amazon has partnered with a major grocery retailer. Sprouts Farmer’s Market currently hold a partnership with Amazon Prime that it says could expand to half of its stores.

The Amazon-Whole Foods partnership is sure to have consequences for natural and online grocery retail. However, major competitors such as Walmart challenge Amazon’s tendency toward slashed prices and online innovation.

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