Food Fight! Amazon/Whole Foods deal expected to transform grocery purchases

Supermarket chains are girding for heated battle for the consumer food dollar with the Amazon/Whole Foods deal.

More food choices. Faster home deliveries of groceries. Lower prices.

Those are some of the promises that consumers could see from the $13.7 billion merger of the online juggernaut Amazon and Whole Foods Market.

Expect the entire grocery sector, which generates about $1 trillion in annual sales, to buckle up for a major food fight as it settles such questions as: Do most consumers even trust a company to pick out and home-deliver groceries in the first place?

What’s clear is that grocery stores, already contending with thin profit margins and strong competition from discounters (such as Walmart, Target, Dollar General), will face a smorgasbord of enhanced competition. “It only gets more challenging,” said Michael Niemira, principal of the Retail Economist LLC. “The customer will benefit.”

Consumers will see a convergence of online purchases and pickups at physical stores, predicted Ben Conwell, e-commerce practice leader for the Americas at Cushman & Wakefield, whose previous job was overseeing the build-out of Amazon’s distribution network in North America.

“Amazon went from one location in downtown Seattle with Amazon Go, a grocery that utilizes technology in place of checkout lanes, to 400-plus physical locations with the Whole Foods deal,” Conwell said. “The whole notion of physical retailers with a big online platform, whether it’s Walmart, Target, Macy’s, or Best Buy, is to drive more of their online customers to do pickup in stores, known as click-and-collect.”

Produce on display at a Whole Foods Market in Andover, Mass. Amazon is acquiring Whole Foods for $13.7 billion, or $42 a share. (ELISE AMENDOLA / AP)

Whole Foods already has disrupted the grocery industry, forcing others to follow consumers’ desire for more organic products and inspiring new competitors, such as Sprouts Farmers Markets.

Likewise, Amazon has been ramping up its own private label business in food categories, including canned goods, housewares (such as batteries), baby items, cosmetics, and apparel.

“Acquiring Whole Foods gives them additional shelf space to showcase and sell Amazon branded items, such as Kindles or the Alexa artificial-intelligence unit – like those that are given shelf space in four Amazon bookstores,” Conwell said. “We can expect to see Amazon broaden the selection of what will be on sale at a Whole Foods location.”

Others say the rivalry between Amazon and Walmart, the undisputed physical retailing giant with more than 5,000 U.S. stores, will further intensify. About 56 percent of Walmart’s business is food. It generated nearly $200 billion in food sales last year.

Walmart “will be pressured to continue to innovate” in delivering groceries and non-groceries alike, predicted Conwell. “They will continue to make it easy for online shoppers to pick up their order in a physical store. Maybe not even going into the store, but curbside pickup, which Walmart has test-piloted the last few years and is rolling out in additional markets.”

Walmart declined comment.

Others are also girding for battle.

“Kroger already seems to be rethinking its store expansion as its sales have been soft, but other grocery stores are adding more local products,” Niemira said. Wegmans is beefing up more prepared foods, while high-end grocers such as Vons in California are using draws involving more wines, cheeses, and flowers.

Melissa Tyrrell, 27, a social worker from Roxborough, is an Amazon Prime member who has never shopped at a Whole Foods. Her preference? The Target on City Avenue, where she gets groceries at least twice a month.

Although she has bought nearly everything else from Amazon, including a mattress, treadmill, kitchen table, appliances, and clothes, food won’t be added to her list.

“I see the practicality of ordering online for one thing if you’re in a pinch,” Tyrrell said while picking out ingredients for a pasta dinner, “but I don’t see it when buying online for volume. I try to come with a list of what I need for the week. I love to browse and I take my time and compare prices. Target has really good prices.”

Food and beverage make up 20 percent of Target’s annual sales, according to the company. In February, CEO Brian Cornell announced that the retailer was investing $7 billion over three years toward improving online delivery and cutting prices on food and household essentials across the store, among other things.

Melissa Tyrrell, 27, a social worker from Roxborough and an Amazon Prime member, says she has bought just about everything from Amazon, but food won’t be on that list. She buys her groceries regularly from the Target on City  Avenue.

Nearby in the frozen-food section of the same Target that afternoon was Shauquis Scarcy, 19,  who was helping his mother, Cynthia Scarcy, 42, pick out a pizza. They were in town from North Carolina, visiting family.

Shauquis said he, too, wasn’t keen on buying groceries online.

“I’m very particular about food,” he said. “I want to see it.”

Instacart spokeswoman Dacyl Armendariz said its service — where Instacart workers fill carts with items on a customer’s list — is focused on ”helping grocers compete online.”

“That’s more important than ever given Amazon just declared war on every supermarket and corner store in America,” she said.

She said Instacart over the last month has created or expanded partnerships with Publix (fifth-largest grocer in the U.S. based on store footprint), Ahold Delhaize (fourth largest, with a number of U.S. chains), and Wegmans (11th largest). It has also expanded its partnership with CVS, which too has a growing grocery business, and formed new ones with Bashas’ and Homeland, among others.

On Wednesday, Instacart launched grocery-delivery service into the Lehigh Valley area, allowing residents there to order from Wegmans, Whole Foods Market, Petco and Costco, and have their groceries delivered straight to their doorsteps in as little as one hour.

“Whole Foods is [less than] 2 percent of the U.S. grocery market and less than 10 percent of our revenue and declining as we partner with more retailers,” Armendariz said.

Erik Keptner, Giant/Martin’s senior vice president of marketing, said its produce and bakery departments have been revamped to deliver more variety, organics, and local items. There are 84 Giant stores in the greater Philadelphia area.

The German chain Aldi is making a $5 billion investment to build 900 additional stores in the U.S. over the next five years. By 2022, it wants to have as many as 2,500 locations. It will also spend $1.6 billion remodeling its 1,600 existing stores.

Meanwhile, Aldi’s archrival, Lidl – also based in Germany – just opened its first U.S. stores last month and plans to ramp up to 100 by mid-2018.

As he left an Aldi at 1445 Street Rd. in Bensalem last week, Benzi Colon, 27, said he already orders online prepared meals from HelloFresh and was open to what the Amazon-Whole Foods marriage will offer.

“I’d order vegetables [from Amazon] because I know I’ll get them fresh from Whole Foods,” said Colon after making a $60 purchase at Aldi. “I may even order my meats from Amazon.”

Benzi Colon of Bensalem, at a nearby Aldi to get his groceries. He said he was open to ordering his vegetables from Amazon after it acquires Whole Foods.

But longtime Whole Foods customer and Instacart user Tracy McGinnis,  39, who was in town last week visiting family and friends in King of Prussia, said food shopping was sacrosanct for her.

She said she uses Instacart only because it sends a shopper to her local Whole Foods store in Phoenix, where she now lives. “And with my list, they hand-select everything I am asking for and I can leave them notes with specific instructions.”

“When Amazon is in charge, I worry that Whole Foods will lose their curated selection,” she said. “I do not want my groceries coming from the shelf of a warehouse.”

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