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Amazon’s next grocery moves will be data-driven

E-tail giant to make 'aggressive move into physical locations where they have customers,' says Brick Meets Click

Russell Redman

January 30, 2020

5 Min Read
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“It’s not lost on Amazon that more than 90% of all groceries are still bought in-store,” Brick Meets Click said in its "What's Next for Amazon in Grocery?" report.Amazon/Whole Foods Market

Amazon’s data prowess and customer knowledge will drive its growth in retail grocery and make it an ongoing threat to brick-and-mortar food retailers, according to a new analysis from Brick Meets Click.

So far, Amazon has established a “strong beachhead in grocery” but gained only a fraction of the overall market by capturing “the low-hanging fruit,” Brick Meets Click said in its “Guidance for 2020: What’s Next for Amazon in Grocery?” report, released yesterday. The Barrington, Ill.-based strategic advisory firm noted, however, that Amazon has set its sights on becoming the main source of groceries for a higher number of affluent U.S. households.

“We anticipate that Amazon will focus on three areas to help strengthen its grocery business over the next year or two,” Bill Bishop, chief architect at Brick Meets Click, said in a statement.

Those strategies, he said, include aggressive customer acquisition by leveraging the Prime customer benefits program to spur more upscale consumer purchases; strategically located physical retail outlets to better meet customers’ store-based grocery needs; and an optimized product mix that blends strong private labels and profitable advertised brands.

“To get to its ultimate win in grocery, Amazon is going to have to go after the business the big players currently own, and this means leveraging its digital connections in a physical store network,” Brick Meets Click said in the report. “Winning in grocery is essential to Amazon because it provides the coverage and purchase frequency Amazon needs to achieve its end game: the build-out of dense delivery and service networks that will allow it to dominate a broad set of verticals in the B2C market.”

Related:Amazon reports Q3 dip in physical store sales

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Data from Prime will be a big plus in helping Amazon target the best grocery customers and potential store sites.

Amazon upped the ante in grocery this past fall when it folded AmazonFresh into Prime, eliminating the extra fee and essentially making online grocery delivery free for member orders of $35 or more. That move bolstered the already formidable Prime offering and further enhanced Amazon’s ability to know customers in detail, according to Brick Meets Click.

The consulting firm added that Prime Now, Amazon’s same-day grocery delivery service (including from Whole Foods Market stores), has won kudos from users as an “ultra-fast grocery delivery option.”

“The richer data set that Amazon is able to develop as a result of leveraging Prime to accelerate its appeal among high-value, affluent households is powerful,” the report said. “It will enable Amazon to do in grocery what it’s done in other parts of its business: identify offers and services that provide greater value for each household.”

Related:Storefronts next for AmazonFresh?

Not only will Amazon’s rich data enable it to target the best shoppers, but that intelligence also will help steer the company towards strong locations for brick-and-mortar stores. The acquisition of Whole Foods in 2017 gave Amazon a good start with an attractive customer base. Yet Brick Meets Click observed that Prime hasn’t swayed many members to become shoppers at Whole Foods, whose U.S. footprint is less than 500 stores.

Likewise, the Amazon Go cashierless stores have garnered much attention as well as plaudits from shoppers in major U.S. markets, though at 25 locations their reach is limited.

“It’s not lost on Amazon that more than 90% of all groceries are still bought in-store,” the study stated. “To grow its grocery business beyond the current share/level, we can expect Amazon to make an aggressive move into physical locations concentrated where they have existing customers.”

Industry buzz has continued about reported plans by Seattle-based Amazon to launch a supermarket chain separate from Whole Foods. Most recently, published reports have centered on Amazon opening a grocery store this year in Woodland Hills, Calif., and possibly in the broader Los Angeles area. Earlier accounts have said Amazon was mulling acquisitions of small grocery chains and looking at potential supermarket openings in San Francisco, Seattle, Chicago, Philadelphia and Washington, D.C.

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The cashierless, high-tech Amazon Go outlets may provide a glimpse of what a new Amazon grocery store might look like.

Brick Meets Click noted that Amazon will hold a “big advantage” in site selection.

“Armed with its expanding base of household grocery purchase data, Amazon will be able to be smarter about identifying trade areas where there are enough active and potential grocery customers to ensure that each store will be profitable in a shorter time frame,” according to the report. “This reduced risk of underperforming stores will give Amazon a big cost advantage over brick-and-mortar competition, which will likely be evaluating store locations using the traditional metrics. And it will realize this benefit even before using performance data to tailor product assortments to reduce out-of-stocks and increase inventory turns after its stores open.”

On the products side, Amazon is cultivating an assortment of national brands to which it sells advertising and provides efficient fulfillment. “This means Amazon can sell CPG products without having to subsidize any of those products to drive sales,” Brick Meets Click explained. The e-tail giant also is boosting customer loyalty and gross profit dollars with a burgeoning portfolio of “high-quality, well-differentiated” private labels. In addition, the company avoids unintended loss leaders by staying atop a product’s handling cost versus its sales and gross profit.”

“With this mix, Amazon will be able to deliver greater value to customers while generating above-average profits,” the study said.

Though some analysts say Amazon has struggled in grocery when up against stronger supermarket competition, Bishop emphasized that it’s wise for traditional food retailers to keep an eye on this disruptive company.

“Today’s grocers are clearly in a race with Amazon to keep up with rising customer expectations, and the best way to compete is to know what’s next for Amazon,” he said. “This paper offers a framework for understanding the competitive threats posed by Amazon along with guidance on how to respond both in the short and long term.”

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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