Amazon – no stranger to most American households – is a clear digital winner in many regards. For this blog post, I’ll specifically focus on their “winning” status with respect to online grocery delivery, an industry that many companies have attempted to dominate with little success. I, myself, have been skeptical of online grocery businesses for years: doubting the quality of produce that I wouldn’t personally select; unwilling to pay additional fees for yet another subscription service; and ultimately afraid of spoilage during transport. Instacart, Walmart, and others have done their best to persuade me of their capabilities in mitigating these concerns, but it wasn’t until Amazon offered free two-hour grocery delivery for all Prime members in late 2019 that I finally decided to take a leap of faith. A true convert, I now conduct all my grocery shopping through Amazon.
Below are the three distinct reasons why I believe Amazon is uniquely “winning” in the online grocery business.
1. Amazon already has established and trustworthy customer relationships
In an age where new D2C retailers emerge daily, many consumers are reaching “subscription fatigue”, unwilling to sign up for yet another membership and entrust yet another online company with their payment information. This is somewhat due to security and identify theft concerns, and somewhat due to pure time constraints and convenience. Where possible, consumers generally prefer to buy through a retailer that already has their payment and shipping information saved, expediting the checkout process. Amazon has penetrated an enormous segment of the American consumer base, and therefore has virtually no barrier in convincing its existing users to trust it with purchasing new product lines. The main barrier Amazon faced for customer acquisition was an additional fee layer for the delivery service, which it ultimately eliminated for all Prime members.
2. Online grocery delivery presents a clear customer-value-proposition for Amazon’s user base
Many of Amazon’s Prime members are millennials and young working professionals who live in urban cities. Urban dwellers increasingly are choosing not to own a car and are relying on public transportation and ride-sharing apps. Carrying heavy bags of groceries across town is clearly a pain point for these non-car-owning individuals, especially if they are working long hours and have little time to fit in a shopping trip. These professionals are also already used to purchasing items online, so little behavior change is required. Additionally, increasing health trends are pressuring Americans to be more mindful of eating fresher foods, meal prepping for the week at home, and reducing reliance on take-out from restaurants. Lastly, Amazon’s tight delivery windows that are scheduled in advance ensure the freshness of produce, addressing concerns related to spoilage. These tight windows also provide customers with assurance that the groceries will arrive at a time that is most convenient for them, minimizing the amount of schedule-shuffling needed to ensure that the customer is home in time for the delivery. This model is vastly different to those of USPS, UPS, and FedEx, who deliver at times most convenient for the carrier, not the customer.
3. Grocery delivery leverages Amazon’s existing strengths
Amazon has developed a colossal distribution network, partnering with existing delivery services as well as building out its own delivery team. No other private business has successfully dominated the “last mile” delivery with the efficiency and scale of Amazon. While perishable goods present a unique challenge with respect to temperature control, Amazon was able to build upon its existing network with marginal investment instead of starting from scratch like its predecessors. Additionally, the data that Amazon has collected on its users has helped it to optimize its inventory and more accurately predict which items will be ordered in what quantity, location, and time. Lastly, Amazon’s acquisition of Whole Foods allows it to provide a wide range of products for its customers. Whole Foods inventory consists of premium and organic grocery items that serve customers with higher willingness to pay and more specialized SKUs. By contrast, Amazon’s Fresh service offers “lower cost” and more traditional grocery items for a more price sensitive customer base. Between Whole Foods and Fresh inventories, nearly every customer segment can find a selection of products that fits their individual needs.
For these reasons and more, I believe that Amazon has achieved what I previously thought was impossible – convincing a skeptic like me to trust a corporate behemoth with my precious weekly grocery selection and delivery. Looking to the future, I am optimistic that Amazon will continue to dominate online grocery delivery, as it will increasingly benefit from economies of scale.