August 31, 2018
A year into Amazon’s ownership of Whole Foods Market, grocery-anchored shopping centers are still considered a safe investment bet, and not only in the 400 or so centers with a Whole Foods. Aside from the presence of Amazon Lockers near the entrance and a few other signs of the current owners, the typical Whole Foods store doesn’t appear that much different, either.
Yet, the impact on the grocery business has been seismic. From the standpoint of operations, at any rate.
“This has been a big wakeup call,” Bill Bishop, founder of consulting firm Brick Meets Click, told CNN. Walmart, Kroger and Costco all have taken aggressive steps, both online and in-store, to stave off the competitive threat from Amazon/Whole Foods.
All three retailers, along with Target, have expanded their online delivery and in-store programs for grocery items. They’ve upgraded their technology and kept prices low.
For the online channel in particular, Amazon’s Whole Foods deal may be prove to be a growth catalyst. MoffetNathanson projects that 18% of grocery sales will take place in the digital domain by 2025, up from about 2% today.
However, the impact on brick-and-mortar grocery has been muted, at least by comparison to industry expectations. For one thing, despite its high visibility, the Amazon/Whole Foods combination is lower-profile than it seems. Whole Foods’ share of the U.S. grocery market isn’t much larger than online ordering’s share—about 2.5%.
“The amount of industry share that Amazon can take with the physical stores is limited,” RBC analysts William Kirk and Mark Mahaney wrote earlier this month. “We believe grocery is ownable in the face of the Amazon fear.”
Helping legacy grocers maintain that ownership is shoppers’ preference for buying fresh food in physical stores. And with more than 4,000 Walmart stores in the U.S.—half of which will offer in-store pickup by the end of this year—there’s the convenience factor over waiting at home for a delivery. Walmart’s sales growth in the grocery sector was one of the highlights of its second-quarter earnings report, much of that success due to in-store pickup.
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