Eoin Treacy's view -
2) Removing Consumers’ Online Grocery Pain Points…to Better Attack the$780bn US Grocery Market: The addition of WFM materially improves AMZN’s grocery user proposition and its ability to penetrate the ~$780bn US grocery market (See Exhibit 6). Grocery eCommerce penetration is still low (estimated 3% see Exhibit 7) in part because (per our AlphaWise survey data) consumers enjoy selecting their own food, value the in-store experience as well as the certainty that the food is correct (See Exhibit 5). The addition of WFM and its 465+ stores (across 3 countries and 42 US states) solves these points of friction. Bigger picture, this speaks to the importance of brick and mortar in certain e-commerce categories as AMZN (through WFM) and BABA (though Intime) continue to expand their attack on consumers’ wallets
3) WFM + Prime Now = A 1-2 Hour Prime Personal Shopper: The combination of WFM’s store footprint and grocery inventory with Prime Now will enable AMZN to improve the Prime Now product…as Prime Now will be able to offer consumers grocery delivery in 1-2 hours. AMZN will also be able to leverage the store footprint to house other inventory, to expand its Prime Now selection. Prime Now just became a 1-2 hour personal shopper.
4) Changing Consumer Behavior Again as 1-2 Hour Delivery Could Replace 2- Day Delivery Expectations: In our view, AMZN’s core business is behaviour modification, and a stronger 1-2 hour offering has the potential to further increase consumers’ expectations for e-commerce shipping times. Just as AMZN pushed expectations from a week delivery time (13 years ago) to 2 days (with Prime, introduced in 2005), a more robust Prime Now could further move the goal-posts to 2 hours. This will only further AMZN's competitive offering vs other retailers.
5) A further driver of Prime Subscriber growth. Our Alphawise data show that ~62% of Whole Food Shoppers are Prime Members (See Exhibit 2). Amazon's ability to convert more Whole Foods shoppers into its Prime membership has the potential to lead to faster long term growth and wallet share growth. Bigger picture, 2 hour delivery could also drive faster Prime sub growth. In the words of Jeff Bezos on April 2016 "We want Prime to be such a good value, you’d be irresponsible not to be a member".
A link to the full report is posted in the Subscriber's Area.
There has been a great deal of media coverage of Amazon’s foray into brick and mortar grocery stores, albeit at the high end side of the market. Kroger and Target extended downtrends on the news amid widespread speculation that the middle of the market is being hollowed out and that is an argument I have sympathy with as German discounters Aldi and Lidl expand in the US.
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