Our first look at the “Amazon Effect” late last year came on the heels of Amazon’s announcement of their first Amazon Go store in Seattle – their futuristic checkout-free grocery store. This inspired us to take a closer look at how Amazon’s growing success in Grocery fit in to the industry as a whole.

Four months later, it was announced that the opening of Amazon Go had been postponed due to technical issues. But resist the urge to rush to the conclusion that this is a nail in the coffin of Amazon’s efforts to corner this market – they’re still leading the pack in online grocery sales. In the first quarter of 2017, we’re seeing a consistent growth of 30% and the growing adoption of Amazon Prime is driving these sales.

Amazon Grocery Sales for Q1 2017Amazon-international-grocery-retail

Although online grocery sales are growing across all demographic groups, the largest group is men between the ages of 18 and 44, who are less likely to spend time in a brick and mortar store. In the U.S., the majority of men in this age group have purchased groceries online and the bulk of consumers who have are satisfied with their experience and plan to do so again.

After a slow 2016, AmazonFresh, a subscription service ($14.99/month) which gives subscribers access to same-day or next day home deliveries of groceries, had a successful first quarter in the U.S. Initially offering primarily non-perishable items, in Q1 2017 the increasing inventory of Perishables brought in $10 million in sales, with Produce and Dairy climbing to the top two best-selling AmazonFresh categories.

Top Selling Grocery Categories (U.S.)

  Amazon.com Amazon Pantry AmazonFresh
1. Snack/Granola Bars Energy Drinks Produce
2. Coffee Snack/Granola Bars Refrigerated Dairy
3. Tea Carbonated Beverages Bakery
4. Candy & Gum Salty Snacks Other Refrigerated
5. Wine Flour & Meal Frozen Novelties
6. Snacks Crackers Floral & Garden
7. Juice Bottles Water Frozen Meals
8. Baby Food Mayonnaise Frozen Breakfast Foods
9. Meal Essentials Peanut Butter Frozen Vegetables & Fruits
10. Baking Bottles Juice Frozen Deserts

Prime is proving to be a huge success for Amazon. The service, which Amazon users subscribe to for a nominal annual fee, gives members access to a number of additional products and features, including Prime Video, Amazon Pantry, and a variety of deals, discounts and private labels not available to regular Amazon users. With Prime membership growing rapidly, more members have access to Amazon’s growing inventory of groceries. More than half of Amazon Prime members have already bought groceries through the service, which in certain jurisdictions is now offering alcoholic beverages as well and are, along with young men, the largest growth driver in the online grocery sales markets in the U.S. and the U.K.

Top Prime Pantry Categories

  U.S. (Growth) U.K. (Growth) Germany (Growth)
1. Energy Drinks (50%) Beverages (350%) Snacks & Desserts (45%)
2. Snack/Granola Bars (45%) Snacks & Desserts (300%) Beverages (180%)
3. Carbonated Beverages (100%) Spirits (140%) Condiments, Spreads & Cooking (120%)
4. Salty Snacks (65%) Beer (160%) Pasta & Grains (150%)
5. Flour & Meal (75%) Wine (125%) Canned Goods (380%)

In late March, Amazon announced that it has been testing another feature for Prime members – a free grocery pickup service that allows consumers to place their order online and pick it up from a fulfillment center in as quickly as 15 minutes. Like Amazon Go, this service will initially be made available in Seattle, with plans to gradually expand from there.

This service is in direct competition with WalMart’s efforts to take a piece of the online grocery sales pie, which itself has been interpreted as an attack against Amazon, the clear market leader. While WalMart is second only to Amazon as one of the largest online mass merchandiser, it’s a very distant second, with only $14.4 billion in sales compared to Amazon’s $94.7 billion.

Top Selling Grocery Categories

  U.S. (Growth) U.K. (Growth) Germany (Growth)
1. Snack/Granola Bars (20%) Beverages (30%) Beverages (35%)
2. Coffee (35%) Snacks & Desserts: 5% Snacks & Desserts (20%)
3. Tea (15%) Condiments, Spreads & Cooking: 10% Baking Supplies (25%)
4. Candy & Gum (25%) Cereals: 5% Condiments, Spreads & Cooking (15%)
5. Wine (115%) Foreign Foods: 30% Pasta & Grains (40%)
6. Snacks (40%) Canned Goods: 15% Cereals (25%)
7. Juice (35%) Luxury Food & Drink (new for 2017) Canned Goods (72%)

The popularity of perishables is growing rapidly, not only because consumers are becoming more comfortable with buying their groceries online but also because Amazon is rapidly improving its delivery times and offering more fulfillment options. Regardless of this, the best-selling grocery products remain stable. Single-serve coffee pods (Keurig, Tassimo, San Francisco Bay) are the top two bestselling items in both the U.S. and the U.K., and the third bestselling in Germany, while whole bean coffees, teas and energy drinks make up many of the top 20 items in all three countries.Amazon-international-grocery-revenue-data

The other top spots are populated primarily with shelf-stable items that can be a bit expensive, such as chocolate, olive oil and nuts, and also with daily-use pantry items such as bottled water and energy bars. Another key sales category in all three countries is alcoholic beverages (beer, wine and spirits) which are helping to drive the adoption of online grocery shopping especially among young men.Amazon-international-ecommerce-grocery-trends

Growth Drivers

  • Online Product Reviews: Consumer-generated content such as ratings and reviews have a significant impact on purchasing decisions, with shoppers three times more likely to trust online product reviews than to trust the brand or retailer’s product description.
  • Men: Young men are the demographic most likely to buy their groceries online. Younger generations, who are already more comfortable with e-commerce, are remaining single further into adulthood, and the men of this particular group are opting to avoid a trip to the store by buying their food from Amazon.
  • Amazon Prime: There are now over 65 million Amazon Prime subscribers and, as a group, they are more likely to buy their groceries online than non-subscribers.

In general, grocery sales have been less susceptible to the shift towards e-commerce, both because consumers want to see and touch the food before they buy it and also because of freshness concerns. In 2016, for example, only 5% of U.S. grocery sales occurred online. But looking at the numbers for Q1 2017, which show the growth of Amazon’s grocery sales outpacing that of the total market by 15 to 1, it’s clear that this shift is happening and that Amazon is committed to leading the charge. As Amazon continues to corner the market, food retailers in the U.S., U.K. and Germany would be smart to engage with Amazon Prime members as their target audience.

“The Amazon Effect” series breaks down specific product groups, compares Amazon’s performance in that category to total retail sales (online and offline) and considers the effect Amazon has on that specific industry as a whole.  In this latest edition, we explore Amazon’s performance in the Grocery product group during Q1 2017.

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