Online Grocery: Eat, Drink and Be Wary

April 6, 2016

My food and beverage expertise lies primarily in the enjoyment of its consumption. But there are a number of e-commerce trends that could have a profound impact on this industry in the months and years to come. In this post, I’ll highlight these trends and the potential implications for the food and beverage industry. First, let’s imagine a not-so-far-fetched scenario.

The Near Future Imagined

You’re a manager at a restaurant. On a regular basis, a delivery arrives at your establishment from Amazon with basic grocery, cleaning and office supplies. However, you’ve just hung up the phone after booking a large, unexpected group for dinner, and your regular supplies aren’t enough. Quickly, you pull a small device from your pocket and scan the packaging of a number of ingredients you’ll need for tonight’s meal. You speak into this device the name of two ingredients that you don’t currently have on hand. Instantly, an order is placed for you on Amazon with special business-only discounted pricing. You’ll be invoiced for this order later. Within one hour, packages arrive with all the ingredients you need to successfully prepare the dinner for tonight’s large group. Included in the order are some of your favorite brands, as well as Amazon-branded pasta and coffee.

While this scenario may sound implausible today, every aspect of it either exists now or is being planned. Below, we’ll take a look at the components that could allow this to be a common scenario in the near future.

The Consumer Landscape

According to Morgan Stanley research, online grocery sales make up 2% of the overall grocery market in the US. (This number is expected to increase dramatically.) And 8% of US consumers surveyed said they purchased fresh groceries online at some point in the prior 12 months, and 16% reported purchasing packaged foods online during that same period. Based on responses by these consumers, those numbers are expected to increase to 26% and 28%, respectively, over the next 12 months.

Online grocery is currently larger internationally than it is in the US. Online adoption for fresh grocery is expected to rise from 21% over the last 12 months to 34% over the next 12 months. As one of the leaders globally in online grocery, the UK market is instructive. According to PostNord’s E-Commerce in Europe 2015 report, more than one quarter of the UK population has purchased groceries online in the last year. IGD also indicates that within the UK, 11% buy most of their groceries online. And online purchases tend to be larger. In 2013, 12% of all checkouts greater than £60 were purchased online, compared with just 1% of those under £60.

But let’s step away from consumers and take a look at how recent e-commerce trends, including those from Amazon, might ultimately affect the distribution of food and beverage to businesses.

E-Commerce Trends

There are three major trends that will impact food and beverage players in the years to come.

B2B is the new B2C: According to a survey by Avanade, 61% of B2B buyers report that third-party sites and feedback from business partners, industry peers or social channels are more important than conversations with a company’s sales team. Further, Forrester studies indicate that nearly half of business buyers prefer to make purchases on the same B2C sites they use personally and are increasingly expecting the same experience.

Mobile: According to the Centre for Retail Research, 27% of US e-commerce sales occurred via a smartphone or tablet. EMarketer research shows that 46% of all consumers made at least one purchase on their smartphones in 2015, and that number is expected to exceed 50% by 2017. Our internal data here at ChannelAdvisor confirms the increasing use of mobile platforms for online browsing and purchases.

Zero Friction: Consumers are increasingly demanding zero-friction e-commerce transactions. An area that has historically caused friction was payment, particularly on smartphones. Typing credit/debit card and address information into a phone is cumbersome at best. However, we now have multiple services that store this information, including Apple Pay, Amazon, PayPal and more. Another area of friction is fulfillment. Fast and free delivery, once a luxury, is now an expectation.

Amazon

Of course, many trends highlighted here are a direct result of Amazon and the expectations the company has set for consumers.

  • Amazon has set the standard for the e-commerce experience, enabling consumers to quickly find and purchase products.
  • Amazon’s mobile app is in widespread use. According to comScore, Amazon sites had more than 183 million unique users in the US in January 2016, and more than 75 million of those users accessed Amazon via a mobile device.
  • Amazon pioneered one-click checkout, making it easier than ever to find and buy via smartphone.
  • For an annual fee, Amazon Prime members are eligible for free two-day delivery in the US and same-day delivery for select items in certain metro areas within the US. Prime members spend more than non-Prime members, and analysts estimate that as many as 80 million people globally are Amazon Prime members. Video, music, picture storage and Kindle lending services come with the subscription. The fast delivery is made possible by the massive global investment that Amazon has made in fulfillment infrastructure. By our estimates back in October 2015, Amazon had more than 173 global fulfillment centers globally, with more than 115 million square feet of space. Since then, Amazon has already announced additional fulfillment centers.

In summary, Amazon has invested significantly in making our shopping experiences fast and easy, all while providing a great customer experience. Now, let’s look at some lesser-known initiatives.

Amazon Fresh: Amazon Fresh is Amazon’s same-day and early-morning grocery delivery service and includes fresh groceries, local products and other non-grocery items from Amazon’s large selection. It’s currently available in six large metropolitan areas in the US and requires a separate annual fee on top of an Amazon Prime membership.

Amazon Prime Now: Amazon Prime Now is a mobile app that allows Prime members to receive delivery within one hour for $7.99, or within a two-hour, same-day window for no additional cost. The service is available in select metro areas and includes delivery of grocery, essentials, gifts and more.

Amazon Pantry: Amazon Pantry lets Prime members fill a virtual box of groceries and household products and have the items delivered to their door for $5.99 per box. Amazon describes the benefit of the service as convenience, allowing customers to purchase everyday sizes while saving a trip to the store.

Amazon Subscribe & Save: This service allows consumers to have their favorite items delivered free once per month, with savings of up to 15% on the entire order. The service covers thousands of items across numerous grocery categories.

Amazon Dash: Amazon Dash is a small, Wi-Fi-connected device that allows consumers to say the name of a product or scan the product to automatically add items to their Amazon baskets. There are also branded, push-button versions for reordering specific products such as laundry detergent or coffee.

Amazon Business: A few years back, Amazon had a separate site called Amazon Supply, which was designed for people to buy items on behalf of their businesses. That initiative was shut down, and Amazon relaunched it as Amazon Business. Amazon Business is part of the core Amazon platform and has a number of features important to businesses, including:

  • Free two-day shipping on orders of $49 or more for Prime customers
  • Custom offers and pricing for registered business customers only
  • Purchasing system integration
  • Order approval workflows, purchase delegation and shared payment methods
  • Order reporting
  • Tax-exempt purchasing for eligible organizations
  • Corporate credit line that allows businesses to place orders and finance purchases.

Amazon Elements: Amazon Elements is an Amazon private-label brand, currently used only to sell baby wipes. However, according to a report in the Wall Street Journal last year, “Amazon has sought trademark protection for more than two dozen categories under its Elements brand, including coffee, soup, pasta, water, vitamins, dog food, and household items.” It was also reported that Amazon had approached some private-label food manufacturers to discuss potential partnerships. Surely Amazon won’t make its own food, will it? We don’t know for sure, but ask fashion companies what they think after Amazon introduced seven private-label fashion brands with approximately 1,800 SKUs.

Groceries on Amazon

What does Amazon sell now in the food and beverage categories? As of March 2016 on Amazon.com, we can see more than 1.1 million items for sale, of which just under 56,000 are sold directly by Amazon and the balance sold by third parties. Amazon Fresh is available only in select markets and not included in this data.

Grocery Items Sold by Amazon

 

Grocery Items Sold by Amazon

Amazon vs. Traditional Distribution

What are the implications of these trends for the food and beverage industry? The primary takeaway is that change is coming (if it hasn’t already). And if change has already come, it will likely get faster. If you’re a manufacturer, Amazon should be on your radar as a partner and potentially a competitor. If you’re a traditional distributor and can’t provide an experience like the scenario described at the beginning of this blog post, you should be concerned.

As consumers, we’ll enjoy our food and drink regardless of how it gets to our table. But keeping up with the innovations may cause some heartburn for manufacturers and distributors along the way. Eat and drink, but definitely be wary about the changes that are coming to the industry.

Blog post by Mike Shapaker, VP and managing director, EMEA at ChannelAdvisor.