Amazon deal will revolutionise the online food retail sector
The recent proliferation of acquisitions and partnerships in the global food retail sector will define the future of grocery retail says GlobalData, a recognized leader in providing business information and analytics.
The shareholder-approved Amazon-Wholefoods deal gives the company a sizeable bricks-and-mortar presence in food retail with the ability to revolutionise online grocery shopping, and leading retailers are well aware that they are under threat.
Walmart is partnering with Google. Ocado is developing its technology at an unprecedented rate. Aldi might be the first online Food & Grocery (F&G) discounter. Same-day delivery is common.
Molly Johnson-Jones, Senior Analyst at GlobalData, commented: ‘'These developments will shape the evolution of grocery retail. The level of disruption and disarray that Amazon will bring to the market usually evokes panic from the incumbent grocers. Look at the UK big four, for example, who panicked and cut prices across every range in an effort to protect against the discounters, but it didn’t work; it just sabotaged margins. Only now have they created a strategy to differentiate themselves from the discounters and fight on price with directly overlapping ranges.''
Another example of disarray comes from unconsidered entry into the convenience market. Growth in the convenience sector encouraged the supermarkets to buy up any convenience plots they could without considering the return on capital in the future, leading to store divestment and even market exit for some players. Disruption normally equates to panic, but not at the moment.
This time, the food retailers seem to be more strategic in their immediate approach. Walmart has just announced a partnership with Google to provide its products online and via voice ordering. Aldi is partnering with Instacart so that their groceries can be delivered in a number of cities, a potentially novel way to penetrate the US market where the discounters only have a small presence.
Maybe the considered approach has been taken because the online market is still only c1% of the US F&G market. Therefore the gains from success in online will be slower and less material at first, but there is clearly unanimous recognition that online will revolutionise the F&G market.
As online market share increases, and scale advantages are realised, the possibilities are endless. We could live in a world where offers are sent to our phones as we walk down an aisle; or where tills no longer exist as in AmazonGo’s concept store; or a world where when your fridge runs low it re-orders by itself through Walmart and Google.
The Ultimate Disruptor
Amazon is the ultimate disruptor, but it doesn’t have the advantage in the food retail space yet, even with its Wholefoods acquisition; dominant players in the food retail market can still block its pathway.
Johnson-Jones continues: ‘Amazon clearly has a long-term plan to take food retail market share - the incumbent grocers can’t let their guard down - but many of the grocers are fighting back. The investment into and consequent evolution of online will be a fascinating process to watch, and experience as a consumer.''