Amazon deal to speed grocery-store changes
CANDICE CHOI
NEW YORK - Even before Amazon said it was buying Whole Foods, the grocery industry was scrambling to adapt to changing habits. Now the deal will likely quicken those efforts.
Amazon’s planned $13.7 billion acquisition of the organic and natural foods grocer signals a massive bet that people will opt more for the convenience of online orders and delivery or in-store pickup, putting even more pressure on the already competitive industry. Though online orders are estimated to account for just 1 to 2 percent of grocery sales, that figure is expected to grow.
It’s not yet clear what specific changes are in store at either Amazon or Whole Foods, since the two companies are saying little about their plans. But to stay prepared for the threat of the combined company, grocers will likely speed up plans to make their stores more appealing. Changes that are likely to accelerate:
Grocery shopping is likely to get more sensory, as retailers try to make stores a draw beyond just picking up staples.
Kroger, for instance, has touted the opening of Murray’s cheese shops in some locations. Whole Foods, a leader in redefining the modern grocery experience, offers a “produce butcher” at a recently opened store in New York City.
“I think retailers are going to have to bring a lot of excitement to the store,” said Stew Leonard Jr., CEO of Stew Leonard’s, a grocery chain with five locations in Connecticut and New York.
Prepared foods are another way grocers are increasingly making their stores a destination.
Some chains have classical musicians play as shoppers wander from wine sections to sushi stations or meet friends for a bite.
Major grocery retailers were already stepping up their efforts in delivery and in-store pickup of online orders.
And Amazon’s purchase of Whole Foods underscores the value of physical locations in offering such options.
Many also say they will always want to do some of their grocery shopping in person to see what they’re buying.
“All stores are not going away, it’s just a matter of finding the store/online equilibrium,” Credit Suisse analysts said in a note.
Maintaining the right balance will be critical. Walmart has about 4,700 U.S. locations, with plans to offer curbside grocery pickup at 1,100 by the end of this year.
Kroger has nearly 2,800 stores that operate under a variety of names. Whole Foods’ footprint is far smaller with about 440 locations.
To try to compete with Amazon — which has become a goto destination online for a range of products — other chains may look outside themselves to build up their operations.
Walmart, which gets more than half its revenue from groceries, will expand with its acquisition of Jet.com last year and last week said it was buying online men’s clothing seller Bonobos.
The highly competitive and saturated grocery industry has been consolidating but is still fractured.
The top 10 grocery retailers plus Amazon control less than half the market, according to John Blackledge, an analyst at Cowen & Co. Several hundred grocery chains, convenience stores, dollars stores as well as momand-pop stores account for the rest.