US Online grocery: 2019′s epic battle


In 2019 the US online grocery market will boom due to the heavy investment of the major players. The development of the market is quite unique for a number of reasons (without even mentioning Walmart, subject of a future post). Highlighting two, (I) Amazon is a major player in the online grocery space, mostly through Whole Foods. Second, Instacart provides a tried and tested platform for bricks and mortar retailers to fight back at scale. This sets the scene for an epic battle between retailers and FMCG manufacturers and their preferred routes to market and the online platforms they back.

1)
In no other market has Amazon become a major online grocery player – not for a lack of trying it has to be said.

In online grocery Amazon’s basket sizes have never been high enough to make a meaningful profit or justify a wider roll out. The company seems to have a trust deficit with shoppers when it comes to fresh produce and meat especially.

When the opportunity arose to acquire Whole Foods, the company grabbed it in the hope of transferring the high spend and trust levels of Whole Food shoppers over to online. The retailer will provide Amazon with brand strength and the full grocery proposition, so it should actually raise basket sizes at Amazon. (To be fair historically Amazon’s average size in grocery has also been depressed due to prime shoppers buying their coffee pods and capsules and not engaging with Fresh and PrimeNow).

Amazon is betting on rapid delivery with PrimeNow. The company will focus on convenience and speed and have less of an emphasis on AmazonFresh in future. This means Amazon’s online grocery business will be all about Whole Foods – and Prime. Actually, the prime benefits and discounts will be key. Many more shoppers are likely to begin online grocery shopping now that it is offered via Amazon Prime. And prime drives repeat shopping.

Apart from the marketplace, and its other online grocery businesses (from pantry to Alexa, Ring, Nest etc), Amazon also operates the Go stores and the drive locations. Undoubtedly, Amazon will launch other verticals in this space and throw new models into the mix. How they then all sit and fit together is a very different question. That said, Amazon now have a proper base from which to operate and iterate in the space.

2)
In no other market than the US, has there been a turnkey solution for bricks and mortar retailers to go online without significant up front investments and years long commitment.

Arguably PrimeNow has been inspired by Instacart’s success. There is a contradiction to the Instacart model though. Pick from stores is actually outdated, especially when viewed from an efficiency standpoint and when looking at cost. But the model is being saved by enabling rapid deliveries from central locations.

As such, Instacart looks like a brilliant model for smaller grocers. Through Instacart they will be able to share the same logistics platform, online capabilities, delivery drivers etc. Sharing front end to back end and especially the expensive last mile enables grocers to launch their e-commerce activities without the huge upfront investments and sunk costs otherwise required. In this sense Instacart has become a shared infrastructure for grocery retailers as they defend against Amazon.

3)
One way of looking at the sector in future posits Instacart versus Amazon, or retailers versus FMCG, as their preferred platform and route to market of choice.

Instacart will be the platform the established bricks and mortar grocery retailers use to gain a foothold in online grocery. And Instacart can simply repeat the old eBay playbook by stating that they (unlike Amazon’s PrimeNow) are not competing with their retail partners.

FMCG on the other hand view Amazon as a welcome route to market that bypasses the big retailers and their private labels and negotiating power. But arguably, such a marketplace should have been set up by the FMCG players rather than giving all the business to Amazon.

In effect this could mean, that Amazon will become the platform the FMCG players will want to push as a counterweight to (physical) retail. Many bricks and mortar retailers will join Instacart setting up heated competition in the sector. In any case, Instacart will be a great challenger for the online grocery crown in the US.

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