Amazon, which first entered the food sector several years ago with dry groceries via its website, has slowly built its Fresh grocery-delivery business over years by targeting cities where it already owns large warehouses in part to avoid the need for refrigerated trucks. Still, Amazon has faced the same problem others have: Many consumers have been slow to buy produce and fresh items online.
Amazon has tiptoed into the brick-and-mortar grocery-store business this year, opening two Fresh Pickup stores in its hometown of Seattle and has explored various ideas for other types of grocery stores.
But Amazon's deal to buy Whole Foods for $13.7 billion, including debt, may help close a gap in its offerings. "Amazon can't compete in grocery without bricks and mortar," said Ms. Sheehan of Kantar Retail. "Fresh food is at the heart of what grocery is. Shoppers trust their grocery store for fresh meats, seafood, produce and dairy and Amazon has struggled to convince shoppers that they should be the store people go to for fresh food."
Amazon's 'last mile'
NPD Group Inc. food analyst David Portalatin said the Whole Food stores would solve much of "Amazon's 'last-mile' delivery challenge for fresh groceries." He said that logistics hurdle was a big reason Amazon hasn't been able to make a dent in the grocery shopping of the 60% of millennials who already buy other items from Amazon.
The migration online for at least a portion of grocery purchases, led by Amazon, almost certainly means a further shakeout in theindustry. The online grocery industry could grow into a $100 billion business over the next decade, according to Nielsen and the Food Marketing Institute.
"I would be the first one to sign up for Whole Foods delivery and would probably never step foot in the store again," said Judah Ross, 29, an entrepreneur who lives near the Whole Foods flagship store in Austin, Texas, and shops there every other week. "Whole Foods is a pleasant place but I hate going out to shop for groceries. Even though it's so close, there's traffic, parking and waiting in line. The convenience of delivery would outweigh any benefit of picking out the food."
Whole Foods currently partners with delivery service Instacart to offer grocery delivery in some cities.
Chains that don't adapt quickly to the changes in consumer behavior and business dynamics won't survive, say analysts, who, along with some supermarket executives, expect more consolidation in thecoming years and predict more grocery stores will close.
To compete with Amazon, Wal-Mart is offering curbside pickup and home delivery in test markets. Kroger is expanding its platform for customers to order groceries online and pick them up at the stores. It also said it has invested $3.8 billion in lowering its prices over the past decade.
Albertsons Companies Inc., which owns Safeway, says it will offer grocery delivery in eight of the 10 most populated markets in the U.S. by February. It declined to comment for this article.
Even though it is expensive for Albertsons, Chief Executive Bob Miller said in an interview earlier this year, he doesn't want Amazon to beat him to his customers. "Technology is changing rapidly. Amazon is a prime example of that," he said. "We don't want to be cutting edge, ahead of the curve, but we want to be understanding what's going on."
--David Benoit and Laura Stevens contributed to thisarticle.
(END) Dow Jones Newswires
June 18, 2017 19:22 ET (23:22 GMT)
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