Grocery next frontier for online growth, led by Amazon/Whole Foods, Walmart

Walmart may be the nation’s largest grocery retailer, but Amazon is gaining ground with the acquisition of Whole Foods, which it’s pairing with its Prime membership to help grocery grow faster than any other segment at Amazon.

A report from e-Marketer Retail estimates food and beverage categories will grow by 40.1% at Amazon this year. That’s equal to $4.75 billion in online grocery sales. Amazon is the leader in online grocery sales and Walmart is a distant second, according to industry reports.

Groceries are one of the last frontiers for online penetration and Walmart, Kroger and other large grocery retailers are still trying to figure out a sustainable way to deliver groceries in suburban America. It’s still anyone’s race to win given online grocery represents only about 2.8% of total sales. Analysts agree the retailer who can best solve the logistical issues with delivery of perishables to shoppers efficiently and cost-effectively has the best chance to win the spoils.

Walmart had U.S. grocery sales of roughly $172.368 billion last year and while the retail giant doesn’t break out its e-commerce sales, the industry estimates e-commerce sales totaled about 3% of sales. With Walmart’s push of online groceries with in-store pickup the retailer saw online sales increase 44% last year, which totaled about $11.5 billion. While that includes sales by Jet.com, a report from Slice Intelligence indicates the biggest catalyst for online growth at Walmart was online grocery. The report found online grocery accounted for 26% of the Walmart U.S. sales online in the summer of 2017, up from just 8% the year prior.

Ken Cassar of Slice Intelligence said Walmart’s online grocery sales nearly tripled in the past year and makes up considerable more share than SamsClub.com or Jet.com.  Walmart’s online sales are roughly 8% of Amazon’s total U.S. e-commerce sales, up from 6% in 2016. Cassar said the small gain is not insignificant because it “clearly solidifies Walmart as the top alternative to Amazon for those looking for options. And suppliers to Amazon are looking for alternatives in order to mitigate Amazon’s power in the market, which is outsized in virtually every category where Amazon competes.”

Casser said the encroachment of Walmart grocery on Amazon’s effort to expand that market might have played a role in Amazon’s decision to acquire Whole Foods rather than try an organically grow Amazonfresh Pickup.

While Amazon and Walmart shoppers overlap, 75% of Whole Foods shoppers are Amazon Prime members, but fewer than 20% of Prime members were regular shoppers at Whole Foods when deal was made last year. The company has been trying to bridge that gap by rolling out incentives to Prime Members to try Whole Foods.

The retailer is appealing to consumers by offering Whole Foods’ 365 branded products to its Prime members. This year Amazon also began offering Prime Members a 10% for their purchases at a Whole Foods store. Customers in cities where Prime Now home delivery is available can order online for home delivery and still get the 10% discount, even on sale items. Amazon says it has plans to implement Prime Now, two-hour delivery nationwide by the end of the year. For now the program is available in 30 metro areas, but none in Arkansas. Amazon Prime members who pay $99 per month can access the delivery service on online orders at Whole Foods for no added charge.

Walmart too has said it plans to have grocery delivery for online orders available to nearly half of the U.S. population in 100 markets by the end of the year. This service incurs a $9.95 charge for a minimum order of $30. The home delivery is available in about a dozen metros and none in Arkansas.

The eMarketer report forecasts Amazon’s e-commerce share of food and beverage sales in the U.S. will reach 31.8% this year, up from 18% last year. In 2017, One Click Retail reported Walmart had roughly half of Amazon online food and beverage sales. That gap is expected to narrow as Walmart expands its online grocery pickup to more U.S. cities.

The Food Marketing Institute reports nearly half of Americans buy groceries online. A survey conducted by Nielsen found 49% of U.S. consumers had purchased consumer packaged foods online in the past three months. Millennials are the largest online shopping demographic at 61%. This report found online grocery shopper numbers more than doubled in the past year.

Nielsen forecast 70% of U.S. shoppers could be buying groceries online by as early as 2022. However, because shoppers tend to make online grocery purchases less frequently than they do in-store grocery purchases, the increase may not translate into a major share of the grocery market for e-commerce.

The eMarketer report found one of the biggest stumbling blocks to selling groceries online is not prices or delivery, but that people like to see, touch and smell food for themselves. One Click Retail found beverages have dominated Amazon’s share of grocery sales in recent quarters. In the second quarter, sales of cold beverages grew 37% year-over-year totaling around $140 million. Coffee sales grew 40% to $135 million. Coffee pods were four of Amazon’s top five grocery items sold in the second quarter.

A survey by Coresight Research in March found 59.5% of U.S. internet users had bought groceries from Amazon in the past 12 months. While that number looks high, 43.2% characterized their shopping on the digital platform to be “a small amount,” while 12% said “most” or “almost all.” In comparison, 21% of Walmart shoppers in the survey said they “do most” or “all” of their grocery shopping online. More shoppers said they use pickup instead of home delivery. CoreSight asked respondents about their willingness to pay for home delivery. One-third said delivery should be free, or part of a membership like Prime. Only 29.2% said they would pay up to $5. One in five said they would pay up to $10 for the service.