By now, everyone has heard the news of Amazon’s purchase of Whole Foods. The online retail giant’s purchase of the bricks-and-mortar grocery chain known for high-quality food products has everyone contemplating the impact and will no doubt have implications throughout their business and grocery industry alike.
I’ve personally spent the last weeks speculating the effect of the purchase on conventional grocers. Specifically, their historically slow move towards an omnichannel strategy, what this will mean for the consumer adoption of online grocery and how loyalty may play a larger role in connecting all the dots between online and offline shopping behaviors.
With the considerable reach and infrastructure Amazon brings to the table, it will be able to take on the three biggest hurdles to the embracing of grocery e-commerce: freshness concerns, the cost of convenience and offline-to-online integration.
While much of the retail world has already embraced online shopping or is adapting quickly, grocery has been slower to make the transition, in part because of the industry’s razor-thin margins and consumers’ attachment to the experience of seeing, feeling and smelling their food before purchasing. More than half of U.S. consumers – about 190 million – will shop online this year, according to Forrester Research, and eMarketer predicted in its report “Worldwide Retail Ecommerce Sales” that e-commerce will account for 8.7% of total retail spending worldwide this year, reaching $1.9 trillion in sales. The grocery industry isn’t there yet, but change is coming. Alliance Data Systems’ “Grocery Market Overview Report 2017” found that online grocery sales are likely to accelerate to $59 billion by 2021, or 5% of the total market, while Nielsen and the Food Marketing Institute predicted 72% of all shoppers will do a quarter of their grocery shopping online by 2025.
All in all, that’s one big basket for online grocery shopping. And the trend won’t stop: The 2016 LoyaltyOne E-commerce Grocery Study found that those who have shopped for groceries online plan to continue. In fact, 96% of those surveyed said they will either hold steady in the amount they shop for groceries online or increase it.
Just as the popularity of online grocery shopping has been slow but steady, Amazon has undertaken a gradual march into the arena. It made its entrance in 2007 with a pilot online grocery delivery service in Mercer Island, Washington, and it has gradually expanded in to many urban U.S. cities as well as Europe.
LoyaltyOne’s recent study on E-commerce grocery explores customer sentiment towards online grocery and the snares that are currently holding back widespread adoption. Now, with the purchase of Whole Foods, Amazon has the opportunity to marry its online-retailing clout with a reputable offline presence and in doing so address and conquer what the study found as the three biggest inhibitors to widespread adoption of grocery e-commerce:
1. Freshness concerns.
The top driver for choosing a primary grocery store, online or offline, is product quality, with 96% of those surveyed choosing it as their top concern. Among shoppers who dabbled in online grocery shopping in the past but abandoned it, 78% cited their interest in inspecting their fruits and vegetables as the reason for leaving.
Amazon can ease these worries with the strength of Whole Foods’ brand image as a leader in freshness, health and organics. What’s more, Whole Foods’ transparent food supply chain could give the online retail giant the ability to tell shoppers exactly where their food is coming from, offering information about classification, sustainability and providing more details about quality and freshness.
2. The cost of convenience.
Consumers are busier than ever and their craving for convenience means they are willing to pay for it – but only to a certain extent and if the value for convenience is there. In fact, 60% would switch to an online retailer for added convenience. Among those already shopping online, the willingness to jump ship is even greater: 80% of online shoppers would leave their primary grocer if it were more convenient to shop online. Perhaps more surprising, 40% of in-store shoppers said they would switch.
The biggest reasons for sticking with bricks-and-mortar stores are ease of purchasing and shipping fees for online buys. Amazon’s robust warehousing and delivery networks and its ability to remove the constant reminder of delivery fees through its up-front loyalty fee model could help it remove some of the barriers to a true omnichannel grocery shopping program while giving the customers exactly what they’re looking for – high convenience and value
3. Offline-to-online integration with loyalty.
For many consumers, online grocery shopping has already become a way of life, but even those who embrace grocery e-commerce don't do all their shopping online. All online grocery shoppers surveyed also shop in-store and half shop in-store more than 60% of the time. Unfortunately, most shoppers have a fragmented experience between online and offline. Either the products, price, promotions, brand and experience are different between a grocer’s online and instore channels, or they are seeing the need to shop between different grocery banners altogether based on which needs they’re looking to meet.
With that in mind Amazon’s online and offline capabilities after combining with Whole Foods give it a unique ability to succeed by providing a consistent experience across channels
Meanwhile, online grocery shoppers are enthusiastic about loyalty programs – 70% of online delivery shoppers and 77% of buy online pickup in store shoppers participate in loyalty programs, versus 60% of in-store shoppers. But they often don’t have the chance to embrace loyalty, as 54% of online grocery shoppers in the LoyaltyOne study said their online grocer doesn’t offer a program. With its incredibly popular Amazon Prime loyalty program, Amazon is well positioned to deepen the role of loyalty in grocery e-commerce, especially if they can adapt the program to offer in-store benefits. This could be the ticket to keeping shoppers sticking to a single brand for flexible shopping between channels.
Yes, online shopping has been slower to take off in grocery than in other areas of retail, but this won’t last forever. By offering a convenient, true omnichannel experience and a hearty cross-channel loyalty program, grocers could be ready to move into this next phase. With the purchase of Whole Foods, it looks like Amazon might be the one to finally open the floodgates.