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The Shift from Traditional Grocery – Trends in Amazon Grocery & Gourmet Category

May 2018

The past couple decades have seen a shift in U.S. grocery retailers moving, in large part, to bulk purchasing and offerings with lower prices on a per item/unit/serving basis. Bulk retailers like Costco and Sam’s Club are great examples, and if the bulk product is not offered to the end consumer, then bulk purchasing is completed at the corporate level and the distributed at lower individual item rate. Walmart’s success of bulk-purchasing at the corporate level, and distributing those cost savings to their customers at the store-level is a great example

The Amazon Whole Foods acquisition in 2016 sparked huge interest and speculation in the macro trends of food purchase in North America. Specifically, interests squarely focused on Amazon’s Grocery & Gourmet product category where those products would be sold. Until this acquisition, Amazon had struggled with offerings in the food category outside of ambient, shelf-stable products like granola bars and canned goods.

Post-Whole Foods integration and after hundreds of conversations with brands looking to leverage Amazon as a sales channel, Amplio is well-positioned to speak with some authority on this topic. Some of these brands are our clients, and may we hope will grow to a point where we can further accelerate their sales efforts in the Marketplace of the world’s most “customer-centric company.”

Today, roughly 94% of the U.S. population still purchases their groceries in traditional brick & mortar grocery stores. 6% of consumers purchase groceries exclusively online, and 22% purchase in both brick & mortar and online. Supporting the online purchase has spawned a variety of third-party intermediary companies like Instacart that enable the food delivery process, and many brick & mortar retail brands have developed their own purchase and delivery enabling applications like Walmart.com’s free store pickup with orders of $30 or more.

Other notable trends in food include subscription/membership programs like Costco, offering significant bulk-discounting in their grocery stores, though an annual membership is required. Fresh, organic, sustainable, and local are other macro consumer trends that have seen significant consumer adoption.

Until now, it has been relatively cost-prohibitive to sell products under the $10 price point on Amazon or any e-commerce channel, primarily due to fulfillment costs which leave little, if any, remaining margin. This has left many brands that traditionally sell sub-$10 price point food products, to move into larger bulk or multi-pack sizes, which for many, was in-line with the product and packaging strategy they’d created anyway for the bulk-retailers like Costco.

Through the vision of being the most customer-centric company in the world Amazon has been determined to “GIVE THE CUSTOMERS WHAT THEY WANT,” and the access to a network of cold-chain ready warehouses through the Whole Foods acquisition, combined with Amazon’s proven expertise in operations, logistics, and distribution, allow consumers the ability to purchase lower cost products with a similar experience as their brick & mortar shopping. In many regions, consumers can even receive their order the same day, and sometimes in as little as a couple hours through Prime Now.

Launching programs like Prime Pantry, and Prime Sampling, are a direct shot toward offering the grocery consumer the same experience they’ve grown to expect in their local bulk retailer like Costco (samples and cheaper pricing), traditional national grocers like Kroger (smaller quantities), and all backed by the Amazon’s A to Z guarantee (quality) that e-commerce retail has traditionally been unable to serve.

At Amplio we’ve seen a trend shift in the Amazon consumer that is now equipped with new lower quantity options, shifting their purchasing behavior from bulk and multi-pack (traditionally necessary for brands to make the e-commerce economics work) to these Prime Pantry and Amazon Fresh options.

If you’re a brand considering the ideal product catalog for success on Amazon, we encourage you to “skate to where the puck is going to be.” While launching bulk or multi-pack SKUs certainly should be part of your strategy, look to be on the crest of the macro-wave of smaller, individual pack sizes which is really what consumers have been seeking anyway. They’ve only regressed to bulk retailers due to the additional price discounts offered, not because the majority of consumers needed a 10-pound jar of pickles.

This is what grocery used to be before bulk retailers, and likely why farmers markets and similar that allow consumers to only buy what they need now, have continued to flourish.

If Amplio can provide any additional clarity or if you’re interested in a potential Amazon partner, we’d love to hear from you.

Contact us anytime at: success@ampliodigital.com.

Topics: Uncategorized

Amplio Digital
Written by Amplio Digital

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