Ever since Amazon.com Inc. bought Whole Foods in 2017 for $13.7 billion, shoppers and investors alike have wondered how the e-commerce giant would integrate the upscale grocer into its sprawling online operation. Now, after two years of tinkering, Amazon is betting big on quick delivery from Whole Foods.
In August, the company began a pilot project in select cities including Denver and Portland, Oregon. Mining the purchase histories of Whole Foods shoppers who use their Prime memberships for discounts, Amazon zeroed in on items they buy routinely in physical stores. Then, the company began suggesting the same products on its main website with an enticement: free two-hour delivery.
Previously, Prime subscribers looking for speedy grocery delivery needed to download a separate Prime Now app, which limited use of the service. Amazon is betting that offering the service on the main site will pull in more shoppers. The Prime Now app had only 1.8 million monthly average users in August, according to monitoring firm App Annie. Amazon’s website draws more than 200 million unique monthly visitors while its primary shopping app attracts 125 million users on average each month.
As it has done before, Amazon wants to change shopping habits—in this case getting consumers more comfortable buying perishable products like bananas and yogurt online. That’s crucial if Amazon is to take on Walmart Inc. in the $840 billion U.S. grocery market.
Encouraged by what it calls “very positive" customer feedback, the company has quickly extended the service to almost 30 cities, including Los Angeles, Houston and Detroit. “Most grocery customers buy the same things over and over again," an Amazon spokeswoman said in an e-mail after Bloomberg asked about the program. “The past purchases feature enables customers to quickly add favorite products to their cart."
The industry is grappling with how best to mesh physical and online grocery stores, a topic that drew 3,000 executives to the GroceryShop conference in Las Vegas in mid-September for panels on delivery, the future of stores and consumer behavior.
Despite trying upend the grocery market for more than a decade, Amazon remains a tiny player. Walmart and its Sam’s Club capture 25% of all grocery spending in the U.S., according to Morgan Stanley, compared with 2% for Amazon and Whole Foods. Walmart has more than 4,500 U.S. stores, about 10 times the number of Whole Foods locations.
Meanwhile, competition is intensifying. Walmart and Target Corp. are both investing in delivery options as well as in-store pickup of online orders, all geared toward time-strapped customers looking to simplify their errands. Walmart this month announced it was expanding its $98 annual grocery delivery service to 1,400 cities, undercutting Amazon Prime's $119 annual fee.
Persuading shoppers to buy fresh food online isn’t Amazon’s sole challenge. Getting groceries to customers quickly is another. Offering two-hour delivery requires Amazon to show shoppers only products that are close to them, which isn’t easy because the 25-year-old website was designed to let anyone with an internet connection buy a product anywhere in the world.
For that reason, Amazon launched its two-hour delivery service Prime Now in 2015 as a separate app detached from the main website, according to a personal familiar with the matter. That enabled Amazon to get the service up and running more quickly but limited participation because users had to download a new app. Moreover, Prime Now has offered a narrow selection of convenience store-style staples.
The expanded service could help solve those challenges. Shoppers in cities where the option is available see a Whole Foods storefront on Amazon’s website. The storefront offers visitors discounts to entice them to try fast delivery of perishables and shows them previous purchases they made in stores. An optional filter lets them limit their search to what’s on the shelf in nearby Whole Foods locations in case they’d rather pick up the order themselves.
“Amazon has been critiqued for not making full use of the Whole Foods acquisition, and this is about to change that," says Juozas Kaziukenas, founder of New York e-commerce research firm Marketplace Pulse. “Having local stores act as two-hour delivery hubs is exactly why Amazon acquired the company."
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.