Last month, tech and retail giant Amazon announced a deal to acquire the swish Whole Foods grocery chain for $13.7 billion. The move was a dramatic dive into grocery for Amazon, who have been testing the waters for years through Amazon Pantry, Amazon Fresh — a grocery delivery service introduced in fall 2016 in certain cities — and even restaurant delivery.
The logistical costs and challenges associated with online grocery, especially across the US’ vast landmass, and a slowness by US customers to take food shopping digital, compared even to UK shoppers, has made grocery difficult to crack. But if Amazon can, it may be worth it. In 2014 just under 20% of American households bought some groceries online, by the start of 2017 it was close to 25% and (optimistic) estimates put that up to 70% in the next 10 years. Overall, the value of online grocery sales could approach $100 billion over that time.
With Whole Foods under its belt, Amazon could take over a massive proportion of grocery retail, an industry estimated to be worth around $780 billion, and gain significant control over the inevitable transition as more and more grocery goes online. Amazon already has a massive sales platform and reach and penetration across a wide and desirable customer base. Providing food alongside retail and entertainment is just one more step towards Amazon becoming an even more indispensable and integrated member of the American household.
However, as of July 26, it looks like the Amazon Whole Foods deal might be delayed as Amazon is reportedly planning to resubmit their FTC paperwork. A group of Democratic congressional members has asked authorities to consider anti-trust concerns and how the deal may impact consumer choice, as well as consumer access to food shopping options. The anti-trust issue comes in the context of looser regulations and rising consolidation across US industries, notably telecoms.
On the one hand, delivery improvements and lower prices brought by Amazon might be great for consumers, and Walmart and Target are still healthy competitors. But the issue goes beyond debates over anti-trust and consolidation in the US. Grocery consolidation likely means lost jobs, but perhaps less obviously, it may also mean less choice for the less desirable customers.
Alongside other members of the Congressional Black Caucus, Cory Booker (D-NJ) objected to the merger on social grounds. He said, “We’re having a hard enough time getting supermarkets to move into urban communities, to give people choice, to give people price competitiveness, so that actually they’re paying for affordable groceries.” In a country where food deserts remain a concern the costs and challenges to Amazon’s grocery ambitions are social too.
While the Whole Foods merger dominates, other telling developments continue beneath the surface. Shortly after the Whole Foods acquisition was announced, meal delivery service BlueApron went public. A few weeks later, the New York Times reported that Amazon had registered a trademark in the US for a new service with the slogan “We do the prep. You be the chef”. It will cover “prepared food kits… ready for assembly as a meal”. BlueApron’s shares quickly dropped.
The meal kit market is a growing niche in grocery. According to Nielsen, one in four US adults has purchased a meal kit over the past year, and 70% of them continue to buy them after the initial purchase. The target for meal kits are either younger: Millennials and Generation Xers are 321% more likely to purchase them than older generations, or busy families with children, who purchase meal kits 326% more than households without children (2). Convenience rules, over cost.
Amazon already has a range of meal kits, including ‘Martha & Marley Spoon’ from Martha Stewart, within Amazon Fresh. Amazon Fresh costs $14.99 a month, on top of the requisite Amazon Prime, which is $10.99 a month. Kits currently available work out to roughly $10 per serving on average. It isn’t cheap. It is easy. So for a busy, well-paid professional in a major urban area, likely in distance of a Whole Foods, it works well.
Amazon’s push into grocery retail is both broad and deep: taking on Whole Foods while launching meal kits and quietly developing their own branded food products like Wickedly Prime, which offers foods like seaweed snacks and pea chips. But the target customers look select. Amazon does offer competitive pricing and product delivery that can reach difficult areas and Whole Foods has expanded stores into more lower income areas, and lowered some prices accordingly. But Cory Booker may be right to raise the social costs of the costs, convenience and access challenges for grocery shoppers outside of Amazon, or any company’s, most desired, desirable markets.