Economy

With Amazon deal, retailing revolution aims at your dining table

A shift in thought

A year ago, 28 percent of Millennials said they sometimes shop for groceries online. This year it's 43 percent. That doesn't spell the end of physical food stores, but times are changing.

A woman shops for produce inside a Whole Foods Market in Manhattan. Amazon's purchase of the food chain could bring greater digital savvy to in-store sales, while also taking aim at the rising market for online food sales and delivery services.
Carlo Allegri/Reuters
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On hearing that Internet retailer Amazon was buying her employer, grocery chain Whole Foods, cashier Belle Sequeira laughed.

“I’m the first of the robots to infiltrate the system!” she quipped, a huge smile under her dyed, white-blonde hair. “I do buy groceries online actually.”

In five years, says this Boston Whole Foods worker, she could be buying all of her groceries online.

And so could you.

Amazon, as well as competitors such as Walmart and Kroger, are all rapidly positioning themselves to be America’s online grocer. Already, they’re succeeding in convincing a growing number of shoppers to go online to buy the boxed, bagged, canned, and bottled groceries in the center of the store.

But this most basic of consumer needs and wants ​– food ​– is also one of the last to be upended by the online retail revolution. The tricky task of selling fresh meat, dairy, and produce online will involve a mix of online efficiency and bricks-and-mortar convenience and value that stores haven’t quite figured out yet. What Amazon's purchase of Whole Foods signals, though, is that this next step in the revolution is coming.

And it’s coming quickly, not just because of Amazon’s hunger to penetrate new markets, but for a broader demographic reason: Young consumers are suddenly shopping online for food. This year appears to be a  tipping point, as the share of Millennials saying they buy groceries online at least occasionally has surged to 43 percent, up from 28 percent in 2016, according to the Food Marketing Institute, an industry group based in Arlington, Va.

The buyout of Whole Foods, announced June 16, marries Amazon’s online tracking technology and deep knowledge of its customers’ behavior with Whole Foods’ physical stores, which are particularly attractive to urban Millennials who put a premium on quality fresh food. By targeting the audience most comfortable with online grocery shopping – which might be willing to pay a little extra for time-saving delivery – Amazon may be poised to become a dominant force in food retailing.

“This is obviously going to change the dynamics of the industry going forward,” says John Brick, an analyst with Morningstar. “The online component of grocery is going to be growing at some 20 percent a year.”

And it’s not just busy Millennials who are getting comfortable with the idea of online food buying. Monitor interviews ​– including with customers of Amazon archrival Walmart ​– suggest many kinds of shoppers are open to the idea that they might be buying groceries online in five years.

'It would be very handy'

“I think it’s crazy, but you never know,” says Cheryl Simeone, packing her trunk with groceries outside a Walmart supercenter in Hudson, Mass., on a Saturday morning. As someone who works all the time, as a food-service employee at a local school and a ceramics worker, she says she could see herself buying groceries online in five years: “I think it would be very handy.”

“In five years, I will be 63,” says Patty McGuire, a Walmart shopper from neighboring Marlborough, Mass. “So I might do it because of that.”

Some shoppers are already there.

“I shop for groceries online,” says Nicholle Cyr, a young lab technician who just moved from Las Vegas to Hudson. “It’s just that Walmart has the brand of kitty litter I like.”

“We rely on Amazon for most of our household purchases,” says Lauren Brewer, a thirtysomething from Nacogdoches, a rural community of 33,000 in East Texas. “We also have very little access to fresh, high-quality, organic foods, so I'm optimistic that this acquisition will mean more great foods for my family.”

A few are skeptical.

“Why would I shop online?” asks Ruben, a septuagenarian and Whole Foods shopper in Boston who doesn’t give his last name. “I live around the corner and can get everything right here. [But] my kids buy everything on Amazon.”

Walmart vs. Amazon

But it’s not just Amazon that’s urgently seeking the right blend of online convenience and physical-store tangibility for the new era. Walmart is coming at Amazon from the opposite end of the demographic universe. Whereas Amazon started in 1994, nearing the end of the Millennials' birth years, to become the world’s largest online merchant, Walmart started in 1962, the tail end of the boomer generation, to become the world’s largest retailer. While Amazon is targeting upscale urban Millennials and hopes to branch out to suburbia with its bricks-and-mortar grocery strategy, Walmart targeted value-conscious rural shoppers with its stores and worked its way into suburbia and cities.  

In its digital ramp-up, Walmart has been aggressive in nonfood arenas, acquiring specialty online retailers like ModCloth, Moosejaw, and ShoeBuy.com. The same day Amazon announced the Whole Foods deal, Walmart said it was buying online menswear retailer Bonobos. The number of products Walmart offers online has soared to 50 million, a five-fold increase in just a year.

With roughly a fifth of the US grocery business, the company is now encouraging customers to order online and pick up curbside by offering discounts on certain goods. To boost sales, Walmart is offering free two-day shipping on orders of $35 or more (quicker than the free shipping Amazon offers). It also has an Oklahoma City test of letting shoppers pick up their own online orders from an automated kiosk.   

Trouble for traditional chains

Big grocery chains have their own experiments under way, but generally saw their stock prices fall on June 16, as the Amazon news heralded stepped-up competition. Kroger, which had announced disappointing quarterly earnings a day earlier, lost a quarter of its market value in just two days.

Amazon still has lots of work to do in its own efforts to get the digital-physical shopping experience just right. It is testing deals for one- and two-hour delivery in dozens of cities. And it’s trying Amazon Go, an experimental Seattle store with no check-out required. When shoppers (currently just Amazon employees) walk out with their purchases, the store automatically bills their account.

In fact, what’s dawning appears to be some hybrid blend of physical and digital food buying.

The rise of online apps for ordering ready-to-cook meals ​– companies like Blue Apron and Plated ​– is one sign of how Americans, especially Millennials, are changing their habits. But the Food Marketing Institute reports that fewer than a third of online shoppers buy fresh bakery items, fresh meat or seafood, fresh produce, or refrigerated dairy goods. (More than half buy things like baby food, pet food, household cleaners, and snacks online.)

One trick for the online food purveyors is to win and retain value shoppers like Ms. McGuire of Marlborough.

“I used Peapod [a grocery delivery service] 10 years ago,” she says. “But you couldn’t pick out your vegetables…. And [delivery] got a little expensive.”