1. Channel: Ecommerce & Digital

Why Amazon Isn’t A Food Business Threat. Yet.

The Wall Street Journal has a piece about how Amazon’s penetration in the food business remains underwhelming: “For the year ended March 31, Amazon.com and Whole Foods had 1.4% and 1.2% of the grocery spending in the U.S., respectively, according to data from Numerator. Industry stalwarts Walmart and Kroger had total market shares of 22% and 12%.”

At the same time, “Amazon’s sales through Whole Foods have been stagnant. Its physical- stores segment, which primarily reflects in-person sales at Whole Foods, has seen annual revenue decline since 2018, the first full year of integration after the grocery chain’s acquisition … Amazon would have a natural advantage in grocery delivery. Yet less than 3% of its domestic fulfillment centers are dedicated to fresh-food delivery, according to estimates from the logistics consulting firm MWPVL International.”

In other words, the Journal writes, not much for competitive food retailers to worry about. Yet.

“The real threats are probably the triggers that Amazon hasn’t pulled yet,” the Journal writes. “With margins higher than those of supermarkets, it has room to cut prices if it wants to. Amazon’s full-year overall operating margin for 2020 was 6%, above the 4% for Walmart and 2% for pure-play grocers such as Kroger and Albertsons. That could be a potent and timely tool with food inflation well under way this year and consumers becoming more aware of rising prices.

“Amazon’s Prime membership program is another big advantage. Michael Lasser, equity analyst at UBS, said data from Prime can help Amazon determine optimal locations for its stores, as well as customizing products depending on the location because it knows shoppers’ spending habits … Amazon has a bigger budget to deploy on new stores or even faster delivery times if it wanted to. The company’s capital expenditures for last year were more than twice that of the four largest grocery chains by U.S. market share combined. It also has a much deeper well of expertise and funds to bring technological enhancements to shopping.”

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