By Nathan Rigby, VP Sales and Marketing at One Click Retail

In February, Amazon began to introduce free two-hour grocery delivery from Whole Foods Market to Prime members, initially released in several trial markets and later expanding to San Francisco, Atlanta and Los Angeles. This service, available through Prime Now, allows Prime members to have fresh groceries delivered to their door within two hours of order, free of charge, or within one hour for a $7.99 fee.

This is just the latest in a long line of strategic moves from Amazon in the company’s effort to capture the coveted online grocery market. And it seems to be working: though growth slowed slightly in Q1 2018 compared to 2017, grocery sales on still grew by nearly 50% YoY, an increase of over $200 million by our estimates.

Amazon Grocery Data Comparison Q1 2018

That being said, Amazon remains in the trial-and-error stage, experimenting with a variety of private brands, brick-and-mortar innovations such as Amazon Go, repurposing Pantry as a subscription service, and identifying the best way to integrate Whole Foods with the platform.

With Amazon throwing so many things at the wall, it’s hard to predict what’s going to stick. What we can do is take a look at what’s big and what’s growing in Q1 2018, and what that could mean for brands going forward.

US Top Amazon Grocery Categories Q1 2018

What’s Big: Beverages

Coffee remains Amazon’s largest Grocery category by far as well as one of its strongest growers. Both Coffee and the #2 category, Cold Beverages, grew by at least 40%+ year-over-year to earn $140M+ in Q1 2018 by our estimates. Together, these two categories more than quadruple the size of the #3 category, Snack Foods.

Beverages have always been responsible for the bulk of Amazon’s Grocery volume and in Q1 2018 they made up 9 out of 10 bestselling items on Five of these items were K-Cup coffee pods, compatible with Keurig single-serve coffee makers, driving Coffee Pods to be the largest Coffee subcategory with about 25% of total category sales. The number one item was a 72-pack from The Original Donut Shop, but the top 5 Coffee Pods were from 5 different brands – this suggests that shoppers are not overtly loyal to any one brand but prefer a variety of options, meaning brands in this space have an opportunity to reach consumers by offering something they haven’t tried before.

The success of coffee pods is indicative of a wider trend toward speed and convenience. Many coffee drinkers are now skipping the Keurig machine entirely and just buying ready-to-drink coffee, driving growth of this subcategory to climb to 80% YoY in the first quarter of this year. This trend is also a contributing factor in the growth of Cold Beverage, with the top subcategories – Energy Drinks, Sports Drinks and Weight-Loss Drinks – all growing by over 50% in Q1. The top items in the category were two different flavors of Soylent Meal Replacement Shake in a 12-pack of 14oz bottles. Soylent also sells the same product as a powder at a lower price, but without the same success; most consumers prefer the speed and convenience of bottled, ready-to-drink beverages over those that require preparation and on Amazon this trend appears to be growing. 

What’s Growing: Staples

It looks like it will be some time before beverages are dethroned as Amazon’s top Grocery categories, but it’s promising that household staples are starting to take off. The fastest-growing subcategories in Q1 this year included Milk & Cream, Shortening & Oil, Baking Mixes and Salad Dressing. Each of these was only worth approximately $5 million, but if the high growth rates keep up, they’ll be major categories soon enough.

The subcategory with the highest growth, an impressive 152% YoY, was Milk & Cream. This is especially significant because Milk & Cream are perishable goods. It has taken a long time for consumers to get comfortable with buying perishables online – which is why non-perishables like Coffee and Snack Foods dominate the Grocery space – so the growth of Milk & Cream signals a long-awaited shift in consumer behavior. Consumers are becoming less selective about what groceries they’re buying online and are beginning to treat Amazon just like any other grocery store.

Amazon Pantry

That being said, not everything is growing. Amazon Pantry sales are leveling out, with YoY growth falling to 14% in Q1 2018. Currently, Pantry is a service exclusive to Prime members which packages everyday consumer packaged goods, including non-perishable grocery items and other household goods such as shampoo and laundry detergent, into a single box deliverable for a flat fee of $6. In early March, Amazon announced that they will be repurposing Pantry as a subscription service, separate from Prime, costing $5 per month.

Pantry sales are not insignificant – estimated at $55M last quarter – but because they are growing so much more slowly than the rest of the Grocery category, Amazon is trying to make the service both more profitable for the company and more attractive to consumers. Shifting to a membership-based service is a natural choice considering the success they’ve had with that model in the past – in Q4 2017 Amazon’s subscription-based revenue grew by nearly 50% according to Bloomberg.

Whether or not Pantry’s fortunes improve, Amazon’s clear commitment to subscription-based services is going to have a strong impact on brands. With the ongoing rollout of Prime Now two-day grocery delivery into more jurisdictions throughout the US and the success of other value-added “members only” features such as Amazon Fresh and Prime Day, Amazon is growing what is essentially the country’s largest customer loyalty program – loyalty not only to the platform but also to the brands that sell through it.

There is no question that Amazon is winning the online grocery race – while Walmart (Amazon’s top competitor) is actively improving their grocery delivery capabilities, that company only captured 9% of the online grocery market in 2017, half of Amazon’s 18% market share. Amazon is investing in Grocery from numerous angles – Whole Foods, Amazon Go, Prime Now, Pantry – and no matter what sticks and what doesn’t, every quarter Amazon’s share of the online grocery sales channel is getting bigger.

One Click Retail is the industry’s most accurate source of sales data for the world’s top eCommerce marketplaces. Using a combination of website indexing, machine learning and proprietary software, OCR estimates weekly online sales figures with market leading accuracy in order to deliver the best insights, analytics and strategies to their brand manufacturer clients. To catch a glimpse of how OCR gives brands critical edge on online platforms with our unique data and expertise, subscribe to our weekly eCommerce insights blog, and follow us on Twitter and LinkedIn.

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