One of the world’s leading online retailers, Amazon can now expand their reach with its purchase of Whole Foods Market for $13.7 billion. Many now wonder if this will possibly speed up a merging of the grocery and e-commerce industry.
Amazon already has some experience in electronic grocery. AmazonFresh delivers groceries, prepared foods and fresh ingredients with recipes to customers. Now Amazon also has the resources of Whole Foods Market’s 400 plus stores to increase sales.
The acquisition’s first victim appears to be the grocery start-up Blue Apron, which made its debut on the New York Stock Exchange with its IPO at $10 a share, down from 40% from its expected price range of $15 to $17 a share. According to Business Insider, at this price, Blue Apron stands to raise about $300 million and be valued at $1.9 billion. This is below the start-up’s original valuation of $2 billion.
Amazon’s acquisition of Whole Foods Market has caused some worry among Blue Apron and its stock holders about a such a powerhouse taking a huge step into the grocery delivery industry. Blue Apron co-founder, Matt Salzberg is staying optimistic, saying that if Amazon “can help accelerate bringing online dollars into the offline grocery world and accelerate that transition from offline to online, we think that is good for us, and good for others players in online grocery,” in an interview with CNBC.
However, there was still some initial anxiety among investors regarding Blue Apron’s high marketing costs. For example, despite doubling its revenue to $795.4 million last year, the company still reported a net loss of $54.9 million from money poured into logistics and marketing.
While Amazon’s purchase of Whole Foods Market is creating concern among e-grocery platforms, brick-and-mortar retailers can breathe a sigh of relief that e-grocery still has a long way to go before brick-and-mortar grocery stores are in danger of becoming obsolete, according to an article in Forbes. Perhaps the most telling sign of this is Amazon’s push into brick-and-mortar.
“Amazon didn’t go out and lease, build or rehab millions of square feet of industrial space in order to ramp up its grocery delivery platform,” said Ben Conwell, Cushman & Wakefield (C&W) senior managing director of the Americas in their report, quoted in Forbes. “It bought existing retail assets and it did so because the final mile delivery issues for grocery are traditionally different than those for other retail goods.”
Indeed, there are many obstacles keeping online grocery from flipping the industry in its favor. Online-to-door delivery of perishables is very risky and requires that the food stays at the right temperature and isn’t bruised or spoiled during transit. Declining food prices paired with expensive shipping costs is also an issue. Brick-and-mortar retailers are currently fighting lower profit margins brought on by competition from retailers such as Aldi’s and Lidl, causing existing players like Walmart and Kroger’s to drop prices in order to compete. This, and the expense of online delivery costs is preventing e-grocery from seeing significant.
Last year online grocery sales accounted for 4% of total grocery sales, according to C&W. Another problem is that people in suburban areas are less likely to do their grocery shopping online. C&W reports that more than 52% of U.S. online grocery store sales were in urban markets. In more densely populated areas it makes more economic sense.
Amazon now having access to hundreds of physical stores may mean the start of a transition to online grocery all the same.