Matt Lindner
Matt Lindner joined Mintel as Senior eCommerce Analyst after covering omnichannel retailing for a leading business publication.

Amazon began its push to leverage Whole Foods’ store footprint as a competitive advantage with Prime members on Thursday, February 8, a move that will likely force others in the grocery space to respond and quickly.

Amazon, which captured 18% of the total online grocery market in 2017, according to research firm One Click Retail, today announced plans to offer online grocery delivery from Whole Foods locations in four markets – Austin, Cincinnati, Dallas, and Virginia Beach – through its Prime Now two hour or less delivery program. Amazon notes that shoppers will be able to get free two hour delivery of online orders from Whole Foods. If a shopper wants their order delivered quicker, Amazon will charge $7.99 for one hour or less delivery for orders of $35 or more. In announcing the move, Amazon says that it “plans to expand across the US in 2018.”

Prime is Amazon’s wildly popular subscription service that charges shoppers an annual fee of $99 or a monthly fee of $12.99 for access to perks such as free shipping and streaming video. Amazon doesn’t release the exact numbers of Prime members, though data from securities research firm Consumer Intelligence Research Partners (CIRP) indicates that the figure could be as high as 90 million in the US. Per Mintel’s report on retailer loyalty programs, seven in 10 Americans participate or are interested in Amazon Prime.

Why this is a big deal?

Low risk/high reward

  • For Amazon, this is a relatively low risk test run which will allow the company to test same-day grocery delivery from Whole Foods at a limited number of stores.
  • Amazon gets to see how shoppers are going to use the offering, learn about what it needs to do to handle the produce to allay any potential concerns about shoppers buying it online and work out other kinks before expanding it to other major markets.

Online grocery is expected to grow, and quickly

  • Amazon testing integration of Prime Now with Whole Foods comes at a time when shoppers’ attitudes toward online grocery shopping are changing and online grocery sales are expected to grow quickly. Investment banking firm Cowen & Co. projects that online grocery sales will grow at a compound annual rate of 20.21% in the US from a projected $70.6 billion in 2017 to $177.3 billion by 2022, a growth rate that far outpaces overall e-commerce growth in the US during the same period.
  • According to Mintel’s grocery retailing research, a third of consumers who are primary grocery shoppers in their household buy groceries online; however, three in five report that they have some interest in buying groceries online.

Shoppers aren’t buying produce online – yet

  • In announcing the Prime Now integration with Whole Foods, Amazon stressed that shoppers will be able to buy fresh produce, meat and seafood online. This is a key part of the announcement because data shows that shoppers are hesitant to buy those products online and when Amazon’s $13.7 billion acquisition of Whole Foods was announced last year, industry experts thought that Whole Foods’ reputation for quality produce was one of the main enticements.
  • Mintel consumer data shows that only 6% of all US consumers  purchase produce from an online-only retailer, while just 5% buy fresh meat, poultry or seafood from an online-only retailer, among the lowest of all categories surveyed. Mintel’s vegetables market research shows that only 18% of US shoppers buy fresh vegetables from an online retailer such as Amazon or
  • Shoppers knowing that they’re getting these products quickly and from Whole Foods, which has an excellent reputation for quality produce, will likely be an enticement for them to buy those products sight unseen. Shoppers also know that the products are coming from a local store, which can help alleviate concerns regarding freshness or quality.

Younger shoppers will be driving growth

By testing out same day grocery delivery of Whole Foods orders, Amazon potentially gives itself a leg up with younger shoppers, who have shown that they are more interested in buying groceries online. Three quarters of 25-34-year-olds who are responsible for household grocery shopping have some interest in buying groceries online, as well as seven in 10 18-24-year-olds, compared to just over a third of primary grocery shoppers who are 65+.

Mintel research also shows that younger shoppers are more likely to buy fresh vegetables online, with a quarter of 18-24s and a third of 25-34s reporting they buy fresh vegetables online, compared to just 9% of those aged 55+.

So, should grocers be worried?

The answer is…well, kind of.

Any time Amazon does anything in any space, competitors are forced to follow suit, lest they get left behind. In this case, brick-and-mortar grocers do need to start thinking about how they’re going to distinguish themselves and expand their own online offerings. Not all Amazon shoppers are Whole Foods shoppers, and not all Whole Foods shoppers are Amazon Prime members. That being said, once Amazon begins to expand the Prime Now offering beyond the four markets that it’s currently being tested in, there is the potential for more of those non-Whole Foods shoppers who have an Amazon Prime membership to be wooed away based on the simple fact that Amazon is removing some of the barriers to entry to online grocery shopping, which in this case are time, cost, and concerns about the quality of produce.