Beverages continue to dominate Amazon’s Grocery sales. Since the beginning, coffee, bottled water and energy drinks have made up a majority of the company’s Grocery market, and that trend shows no sign of changing. But that’s not to say that Amazon Grocery is struggling – quite the opposite, since in 2017 Amazon captured 18% of online grocery sales in the U.S., the largest share by far of any single retailer. As of Q2 2018, this product group continues to grow at a rate of 40% YoY, with nearly every category attracting more and more grocery shoppers to Amazon.

Amazon Grocery Q2 2018 Update

 

Coffee

Since the very beginning, Coffee has been at the top of Amazon’s food chain. Not only does it sell much more than any other single product type in the Grocery group, but it continues to grow by 40+ percent annually.

In Q2 2018, Coffee was worth an estimated $135 million in sales and was responsible for 7 of the top 10 bestselling Grocery items. The leading coffee item (which is also Amazon’s bestselling Grocery item overall) continues to be The Original Donut Shop Regular Medium Roast Coffee in a pack of 72 single-serve coffee-pods. This item was also the #1 seller in 2017 as well as in Q1 of this year, so it’s clear that The Original Donut Shop has a good strategy in place to retain the top rank in this competitive category.

It’s impressive that The Original Donut Shop was able to retain the top rank even after going out of stock for most of April. Third-party (3P) sellers picked up the slack until the brand (the 1P seller) came back into stock and sales quickly recovered, but these stock issues likely allowed competitors to narrow the gap. If The Original Donut Shop experiences more out of stock periods in the future, the brand risks losing its valuable “bestseller” status.

 

Amazon Grocery Q2 2018 Update

 

Despite holding the top spot, The Original Donut Shop is no way dominating the category. Each of the 7 competing coffee pods that rank in the top 10 Grocery items come from different brands, so competition is fierce. This fact also suggests that most consumers aren’t especially loyal to any one coffee brand, instead preferring to have a variety of options available to them. Case in point: while the first 6 bestselling items each represent a unique and successful coffee brand, the #7 item in this category (Amazon’s #10 Grocery item overall) is the K-Cup Coffee Lover’s Variety Sampler, a mix-pack sold by Keurig which features coffee from 11 different brands.

While most of the top-selling coffee products are medium roast coffee pods from 1P brand, the #3 item is actually 3P only item. The Nespresso Variety Pack Capsules is not actually produced by Nespresso, it’s a unique mix pack created by 3P sellers. Like Keurig with their mix pack, these 3P vendors have recognized the consumer demand for variety in their coffee purchases – a niche that is not being met by 1P coffee brands. The result is a variety pack that earns millions of dollars every quarter.

For most of the Nespresso Variety Pack’s time on the shelf, various 3P sellers have competed for the buy-box, but since late 2017 it has been controlled primarily by JPI-Products, now one of Amazon’s top coffee sellers. This is an example of how manufacturers can learn from resellers: 3P vendors have proven that Amazon shoppers are more inclined to purchase variety packs and by not offering that option, 1P brands are literally leaving millions of dollars of potential revenue on the shelf.

 

Amazon Grocery Q2 2018 Update

 

Convenience

The fact that every single Coffee item ranking as a bestseller in Q2 2018 is in the form of coffee pods is representative of the consumer trends toward speed and convenience. As if coffee pods aren’t convenient enough, we revealed in our Q1 Grocery report an emerging trend toward ready-to-drink coffee beverages. This subcategory remains much smaller than coffee pods, but grew by 80% in Q1 and continues to be one of the fastest-growing segments in the Coffee category.

Similarly, the #2 Grocery item of Q2 2018 was Soylent’s ready-to-drink Meal Replacement Shake. Soylent sells the same product in a powdered form at a lower price, but the pre-mixed version appeals to the consumer demand for convenience and as a result is much more successful than the powder. Additionally, more consumers are switching to tea to get their hot beverages fix, driving a 58% growth in the Other Warm Beverages category.

The Cold Beverages category is also driven by convenience. Bottled water, which has always been a major part of this category, grew by 65% YoY in the last quarter to now outrank Energy Drinks as the largest subcategory. Though Fiji still controls the bestselling bottled water (the 9th highest selling grocery item overall), the brand lost a significant share of the market in Q2 by failing to keep up with the category growth. While Fiji lost 5% of their market share in the last quarter compared to the same period in 2017, Essentia gained an additional 4% of the market and now ranks as the largest water brand on Amazon.

Private Brands

At the beginning of Q2, Amazon introduced a new line of products to their private label offerings: coffee pods. Considering how this product consistently dominates Amazon’s Grocery category, this brand expansion does not come as a surprise – the bigger surprise is that Amazon waited so long to do it.

The company’s new coffee pods, sold under the existing Solimo banner, were almost an overnight success. The flagship product already ranks among the top 25 coffee pods averaging an estimated $60K in weekly sales, comparable to established brands like Caza Trail, Peet’s, and Eight O’ Clock. Because this product only launched in Q2 and is technically still in its initial growth phase, these numbers do not properly illustrate Solimo’s potential as a coffee brand – it’s entirely possible that by the end of the year it could be one of the biggest Grocery brands on Amazon.

But not all private brands are homeruns. Despite having an incredibly successful 2017 during which it ranked as the #5 overall snack food brand on Amazon, Happy Belly has now fallen to #16, due in part to the discontinuation of its top-selling classic trail mix late last year. The brand has not recovered from Amazon’s strategic shift.

The company is not likely to complain, however, since they are having so much success with Whole Foods brand 365 Everyday Value. Though still only available online via Prime Pantry, 365 Everyday Value is now Amazon’s largest private Grocery label and is lending more fuel to Amazon’s subscription model. With Prime’s growing list of value-added “members only” features, Amazon is investing in what is arguablythe country’s largest customer loyalty program.

In 2017, Amazon controlled 18% of the online grocery market, double the share of the company’s closest competitor. With Whole Foods, Prime Pantry, Amazon Fresh, Solimo, and rapidly growing coverage for same-day and next day grocery delivery, Amazon’s central role in the future of grocery is undeniable.

 

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