By Ronald Dod
Amazon’s U.S. marketplace features over 564 million products for consumers to browse and buy. As a result, the company’s ever-growing catalog and presence has forever changed how consumers shop.
By shipping products directly to buyers’ doorsteps, its often rock-bottom prices and extreme levels of convenience and ease, Amazon has become one of the most dominant forces in retail today.
Now Amazon seeks to change the way consumers purchase groceries, too.
It’s been a little over a year since the eCommerce behemoth bought the struggling grocer Whole Foods. At the time of the acquisition in 2017, the brand’s sales were in decline, which provided Amazon with an opening to dive headlong into the grocery industry.
Today, employees now don Prime logos on their uniforms, and Amazon delivery lockers are beginning to crop up in specific locations.
The reason for Amazon’s foray into the grocery industry isn’t exactly a mystery, either. Groceries are a must for American consumers, and it is one of the final frontiers left for Amazon to dominate.
As a result of reaching consumers through their stomachs, the online retailer can effectively increase its number of customers. By turning Whole Foods shoppers into Amazon customers, the company stands to become the dominant force in all of retail.
Simultaneously, Amazon’s (and subsequently, Whole Foods’) low prices pose a significant threat to existing grocers. As a result of slashing Whole Foods’ prices, the stock of the six largest food retailers lost $12 billion in value.
This move marked the beginning of Amazon’s transformation of the grocery industry.
The Whole Foods Effect
As it was widely predicted, Amazon has been utilizing Whole Foods as a tool for bolstering its massively successful Prime program as well as a platform for expanding digital grocery sales.
Whole Foods shoppers who are also Amazon Prime members receive discounts on a variety of products, as well as special promotions. This strategy effectively incentivizes Prime members to shop at Whole Foods and entices current Whole Foods shoppers to become Prime members. This is why Whole Foods ended its dedicated rewards program and folded it into Amazon Prime. This move now enables Amazon to collect valuable data metrics on its in-store grocery customers to optimize the shopping experience and predict buying behaviors, much as it does with its online clientele.
In addition to bringing its own products into physical stores, strengthening its Prime program and collecting data on in-store customers, Amazon is using Whole Foods to mirror its online model by offering one- and two-hour delivery via Prime Now, in select markets. With this move, Amazon is effectively bringing the traditional in-store grocery shopping experience into the digital realm in a big way.
Given that even next-day delivery is an unprofitable venture, Amazon stands to disrupt the grocery market with such options. Moreover, it is extremely feasible that Amazon would be willing to lose money in online grocery if it means dominating the industry. The company has famously operated at near break-even margins in retail as a strategy for putting competitors under extreme pressure and taking over markets.
However, Whole Foods is not Amazon’s only means of transforming the grocery game.
Amazon Go Changes the Shopping Experience
In early 2018, Amazon made headlines with its first Amazon Go location in Seattle. Since then, the retailer has opened two more stores in Seattle, two in Chicago and one in San Francisco. However, this is just the beginning as there are three more officially confirmed to be opening in 2019. Meanwhile, reports swirl stating that Amazon intends to open another 3,000 Amazon Go locations by 2021.
The centerpiece of these grocery stores is the company’s cashier-less “Just Walk Out” technology. When shopping at Amazon Go, customers scan their app for entry and then weight sensors, overhead cameras and other technological implementations monitor what shoppers take from or return to the shelves, automatically charging them upon departure from the store.
The novelty of this experience has been fun and exciting for consumers and may very well prove to be the future of in-store retail encounters.
As Amazon Go stores continue to crop up around the country, an increasing number of consumers are exposed to the technology, opening the doors for it to potentially be integrated with Whole Foods stores down the road.
Meanwhile, traditional grocers and competing retailers struggle to keep up with Amazon’s innovation.
Amazon’s Ultimate Impact on the Grocery Industry
While it is certainly several years out, it is quite likely that Amazon’s “Just Walk Out” technology will spread to various brick-and-mortar destinations. However, only select retailers will be capable of such an advancement as the up-front cost of implementation is likely to be substantial and will also come with the elimination of most (if not all) of a store’s human cashiers.
Meanwhile, massive retailers like Walmart are already working on Amazon Go-style experiences with initiatives like “Project Kepler.” This trend clearly shows Amazon is already having a significant impact on in-store experiences, primarily driven by the company’s aim to dominate the grocery division.
The most significant impact that Amazon will have on the grocery industry (via its Prime discounts, in-store proprietary products, grocery delivery programs, technological innovations, etc.) is that it is drastically raising consumer expectations from brick-and-mortar retailers. Much as the company did in the digital realm, Amazon aims to provide consumers with the most affordable, convenient, seamless and personalized shopping experience possible, online and off.
To this end, Amazon is leveraging Whole Foods and Amazon Go as platforms for a comfortable and smooth transition to expand its brand into the physical grocery realm. Eventually, the company will aim to lock out its competition with the incentivized ecosystem that it creates, paired with its meager prices.
Ronald Dod is the Chief Marketing Officer and Co-founder of Visiture, an end-to-end eCommerce marketing agency focused on helping online merchants acquire more customers through the use of search engines, social media platforms, marketplaces, and their online storefronts. His passion is helping leading brands use data to make more effective decisions in order to drive new traffic and conversions. @Visiture_Search