Amazon.com has just started to make a dent in the grocery business, but there is no doubt that supermarkets are at the top of its hit list.
Exactly how far will this Amazon.com revolution go? Judging by the growth of the e-commerce site and its increasing buzz with consumers, the answer may be that Amazon is the future of retailing in America and maybe the world.
The e-commerce giant has made dramatic inroads with consumers over the past decade by offering a growing range of products at extremely competitive—some say too competitive—prices and does not collect sales taxes that can be up to 8.25 percent in more than 40 states. The result has been a complete revamping of the retail landscape with such major chains as Best Buy and Bed, Bath & Beyond getting hammered by its newest and most dangerous competitor.
So how is this going to impact the grocery industry? As we discuss in this month’s cover story, the supermarket industry has thus far managed to avoid the wrath of Amazon mainly because consumers still want to get their meats and produce at a convenient outlet where they can consume these fresh products that night.
But clearly officials at Amazon’s headquarters have their sights set squarely on the supermarket industry. Frankly, the company would be simply foolish not to look at grocery with its billions in annual sales and not target it.
In some categories, perhaps the lowest hanging fruit, Amazon has already started to make its move. Right now, industry information shows that the company accounts for more than 11% of disposables diapers sales in the U.S. The company is gaining ground with other paper products as well, with some sales data showing that Amazon sells more than 4% of all paper plates in the country and a similar percentage of paper towels.
That is business that is basically coming out of the grocery store. What could make the situation worse is AmazonFresh, the company’s same-day or next-day delivery service, which is being tested right now in the Seattle area. If Amazon is successful with its new format—and I am betting it will do well in larger and more condensed cities like New York, San Francisco and Chicago—it will be able to position itself as a direct competitor of the supermarket industry in those regions.
Supermarket chains need to react now to slow Amazon’s momentum. No matter how well AmazonFresh does, grocery stores still hold an advantage in that most consumers want to feel, touch and smell many of the products they are seeking to purchase at their stores. Now food stores must make that experience as easy as possible for these shoppers.
And lowering prices will not win this battle. As many grocers discovered during the early days of the Walmart battles, it is very difficult to beat a much larger competitor—and still make money—by offering lower price points.
Amazon is at the forefront of the e-commerce digital revolution. Grocery stores do not have to lose this battle, but it will take some savvy marketing and merchandising to stay ahead of the curve.