With AmazonFresh Pickup, a brick-and-mortar extension of its grocery delivery services, Amazon is edging further into the crowded grocery market with a model that downplays the process of wandering the aisles of a physical store. But unlike some of Amazon's other retail efforts, this one is not as big a departure as it first seems.
Online grocery ordering for in-store pickup is already a feature of major retailers like Target and Walmart, and an expected boom in the online market in the next few years may give Amazon the opportunity to capitalize on new physical locations and come out on top.
“It’s a zero-sum game so there will be winners and losers and the online players like Amazon have got to figure out the physical components to all of this," said Mark Baum, the chief collaboration officer for the Food Marketing Institute, an organization that performs research for grocery stores.
"Those who are traditionally in-store, physical brick-and-mortar retailers have a steeper learning curve on the online aspect,” Baum said.
The stakes are high: An ongoing collaboration between the Food Marketing Institute and Nielsen predicts that online grocery sales could grow to 20 percent of the grocery market by 2025, representing $100 billion annually. Separate analysis by financial services company Cowen gives Amazon an optimistic projection, too, and expects the company to move up from ninth biggest grocery provider in the country to third biggest by 2021.
While analysts credit Amazon with a knack for technological innovation that is likely to make it highly competitive in the online grocery sales and pickup race, a variety of strategies could affect the results. For instance, the cost of the service (AmazonFresh Pickup is free to Prime members, but AmazonFresh delivery is an additional $14.99 a month while Walmart requires a minimum $30 purchase, for example) could play a role in consumer adoption, as could availability and convenience of services.
“The pickup market is extremely competitive. For example, Walmart is continually rolling out its pickup offer and has another 500 locations planned for 2017. It is trialling new formats… All the retailers are focusing on offering convenience and providing a better service on fresh products,” Toby Pickard, senior innovations and trends analyst at retail research organization IGD, said.
A Walmart spokesperson said that, having stores within five miles of 70 percent of the U.S., marrying online sales to in-store shopping is an important part of its strategy going forward. Whether physical proximity is a major concern for Amazon, which has already shown success with grocery delivery, is less clear. Amazon did not respond to a request for comment by deadline.
“I would think this is an experiment to see if their customers or Prime members find that as a useful alternative to home delivery. I certainly would not assume that it’s central to their ambitions,” Colin Sebastian, a senior equity research manager at R.W. Baird, said.
The logistics of online grocery aren’t easy but “one thing about Amazon we know is that even if an experience or part of retail is not easy or it’s complicated, Amazon likes those challenges," Sebastian said. "They use technology as a foundation to solve those problems.”