Author(s): Raghu Gopal
For Amazon, the multitrillion dollar grocery business beckons. The company is currently ranked by Fortune as the 44th largest company in the world based on its revenue of $107 billion during full-year 2015. It's become the world's top e-commerce company selling both merchandise and services.
Although Amazon has become a massive company, its revenue is a quarter of Walmart's, which reached $480 billion in 2015. And Amazon is still smaller than Kroger, the largest grocery chain in the US, with annual revenue of about $110 billion and with nearly 2,500 stores across the country.
AmazonFresh provides same or next-day delivery to nine urban areas in the US including Boston, Los Angeles, New York, Philadelphia and Seattle. The service is also available in London. It costs Amazon Prime members $15 per month. In the UK, the monthly membership fee is £7 on top of the cost of Amazon Prime.
The entire e-commerce market in the US totalled about $340 billion in 2015 according to government statistics. This is still a fraction of the country's multitrillion retail market. The US grocery market alone is worth more than $600 billion per year.
There's something personal about shopping for groceries, particularly perishable foods. For many, it's part of life's social experience and will be hard to replace with a virtual walk-through. Amazon is expected to build out a physical retail presence using small corner stores and drive-through kiosks, combining clicks and bricks to get products quickly into its customers' hands. Amazon also has its line of Echo artificial assistants and its Dash service, which builds shopping lists for later fulfilment.
Grocery stores create ongoing relationships with customers who visit store locations as a matter of ritual. Amazon will find it difficult to recreate an aisle-browsing experience with a "dash-and-grab" sales model. Nonetheless, grocery chains and big-box retailers, particularly Walmart, will need to monitor the shopping behaviour of all segments of the population.
As Amazon encroaches on Walmart's store-front world, it's notable that Walmart recently advanced on Amazon's digital environment with its acquisition of e-commerce company Jet (see An Amazon Inspired Acquisition).
We expect Amazon to create a smooth screen-to-store experience on a limited scale. As the bricks-and-mortar sales model scales differently than software-based platforms, it will be interesting to see how Amazon builds out a large physical presence.