“The Amazon Effect” is a new series from One Click Retail that breaks

down specific product groups, comparing Amazon’s performance in

that category to total retail sales (online and offline) and considering

the effect Amazon has on that specific industry as a whole.

Grocery: The Amazon EffectBy Nathan Rigby, VP Sales & Marketing at One Click Retail

With its transformation from online bookseller to eCommerce

megastore now complete, many industries not traditionally

associated with eCommerce are feeling “The Amazon Effect” –

and one of these is the Grocery industry.

Amazon has experienced significant growth in 2016

On Monday, Amazon published a video announcing Amazon Go,

a new kind of physical grocery store. The first of them, which

will open to the public in Seattle early next year, will be the

eCommerce giant’s first brick-and-mortar grocery store after

already operating a number of physical bookstores in the US.

Customers download the Amazon Go app and tap their phones against

a scanner when they enter the store. Amazon’s proprietary “Just Walk

Out” technology tracks what you pick up from the shelves and

automatically charges your account when you leave. No checkout

required.

Amazon Go doesn’t operate like other stores: it is checkout-free

The question is, how will Amazon’s significant commitment to

Grocery affect the industry as a whole? To understand this, we

need to consider the performance of Amazon’s Grocery

product group so far and in relation to total U.S. Grocery sales,

both online and in-store.

$800 billion: The total value of the U.S. Grocery market.

$33 billion: The online sales value of the U.S. Grocery market.

$1 billion: Amazon’s total Grocery sales YTD 2016.

55%: The growth of the U.S. Grocery market since 2014.

The Numbers

Grocery as a major product group on Amazon is a relatively new

development, but rapidly growing. However, it’s important to

realize that eCommerce and brick-and-mortar Grocery sales

are two very different things, at least until the Amazon Go and

other proposed Amazon grocery store formats begin to

meaningfully compete.

Americans spend about $800 billion per year on groceries, while

the entire U.S. eCommerce market is worth less than half that. So

when we talk about online grocery sales, far from the largest

eCommerce product group, we’re talking about a small share. Then

when you consider that Amazon’s share is a fraction of that, we can

understand why established bricks-and-mortar grocery chains are

focused on developing their own eCommerce platforms.

Our numbers support the assertion that shopping for groceries

online and in-store are different. When we compare Amazon’s 2016

YTD sales in the Grocery product group to total retail grocery sales,

we find that only 3 categories make the Top 10 on both lists:

Coffee, Chocolate Candy and Snack Bars/Granola. Cold Cereal,

Soup and Crackers appear on the brick-and-mortar list, while Energy

Drinks, Bagged Tea and Spices/Seasonings appear on Amazon’s.

When consumers go online, what they’re currently looking for is different

from when they walk into a store. This is true to some degree in all

industries, but the differences stand out in Grocery. If you’re shopping for

dinner tonight or breakfast in the morning, you’re not going to go to

Amazon. But if you’re looking for the best price on something bulk,

lightweight and non-perishable, you’re likely to check online offerings.

Whether or not Amazon can fundamentally change this behavior is a

question that may be answered by how well Amazon Go succeeds.

At the moment, most major grocery chains don’t appear to be investing

in a siloed eCommerce strategy. Rather, they’re focusing on an

omnichannel approach of online, offline and mobile to deliver the

ultimate in-store experience, which they see as their major competitive

advantage. Due to logistical complexities and consumer shopping habits,

it is no surprise that online grocery sales account for very little of the

total share. But if there’s one company that knows a thing or two

about logistics and how consumers shop, it’s Amazon.

While some brands are experimenting with direct-to-consumer sales, as in

Oreo’s new holiday-season e-commerce site, most brands are leaving the

logistics to online retailers like Amazon, and for good reason. Amazon’s

best-selling categories are gaining an impressive amount of penetration,

with Drink Mixes at 6.7% and Bagged Tea at 5.5%, and with the top-

performing Coffee category pulling in over $200 million so far this year.

The trend points squarely in the direction of Amazon’s success

It’s also a proven sales channel for new brands, since both brick-

and-mortar incumbents and new, online-only market entrants

are finding success through Amazon, bolstered by innovative

products and smart investments.

• When Walkers encouraged repeat consumers by offering Subscribe ‘N Save and

Bai Bubbles leveraged promotions, both climbed to the top of their categories.

• Orgain Protein Powder leveraged consumer relevant key words to optimize their

Amazon search presence.

• Bob’s Red Mill and Viva Labs both innovated an eCommerce-specific approach:

the former developed eCommerce-optimized packaging; and the latter

concentrated their eCommerce optimization on the products that were generally

lacking in brick-and-mortars.

For example:

The success of the Grocery product group on Amazon, largely thanks to the

investment they have put into optimizing their logistics and supporting new and

niche brands, has no doubt encouraged their expansion into the brick-and-mortar

space. With the advent of Amazon Go and its other proposed grocery formats in the

U.S. and elsewhere, there is every reason to believe that Amazon’s investment in the

Grocery industry is going to pay off for them and for the brand manufacturers that

develop a comprehensive eCommerce strategy.

To get the latest and most accurate industry insights and reports, check out our weekly articles at

www.oneclickretail.com/insights, and following us on Twitter and LinkedIn.

One Click Retail (OCR) is a market leader in eCommerce data measurement, sales analytics and search optimization for brand manufacturers in North America, Europe and Asia. Thanks to our proprietary sales calculations that are 98.5% accurate down to the SKU level, OCR’s accuracy is unrivaled in the marketplace. The OCR Product Suite provides 1st and 3rd party business intelligence across the 30 largest retailers such as Amazon, Walmart, Target, Staples and Home Depot. The world’s top brands, such as Procter & Gamble, Panasonic, Nestle, Hamilton Beach and HP, rely on OCR insights to drive sales and profitability across eCommerce.

Founded in 2013 by eCommerce experts from Amazon, Walmart, Target, Overstock and other leading retailers, OCR was acquired in 2016 by Ascential plc (LSE: ASCL.L), a UK-based international B2B media company with a focused portfolio of market-leading events and information services products.

To learn more about how OCR can provide your brand with the competitive edge in today’s ecommerce marketplace, visit www.oneclickretail.com.

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