E-Commerce Comes to Food Shopping: Amazon-Whole Foods Mix Seen as Game-Changer for Grocery Stores

Part I of Two: Amazon and Customer Brands Introduce Major Incursions into the Grocery Company

Credit: Whole Foods Market
Credit: Whole Foods Market Supermarket, as soon as thought about more immune to risks from online competition compared to its clothing and outlet store equivalents, might not be as durable as many have long idea– and still think. After Amazon (Nasdaq: AMZN )dropped the bombshell news that it prepares to buy Whole Foods Market Inc. (Nasdaq: WFM) for$ 13.2 billion, some investors and experts are reassessing the prospect for e-commerce to make more fast incursions into the food retail service.

” Once Amazon/Whole Foods’ complete frontal attack on this space begins, I have no doubt that there will be at least a couple of grocery banners that disappear,” Garrick Brown, who manages Cushman & & Wakefield’s retail research, commented.

Other skirmishes in between grocers and online sellers have actually been growing for the previous couple of years and are likewise now heightening. National name-brand food product makers are redirecting millions of dollars into e-commerce efforts to increase sales straight to consumers.

This month, Campbell Soup Co. (NYSE: CPB) revealed strategies to accelerate the company’s digital and e-commerce capabilities by forming an e-commerce system in The United States and Canada and setting a goal of creating $300 million each year in e-commerce sales over the next 5 years.

” E-Commerce is a significant growth opportunity for Campbell, and it represents the future of food commerce,” stated Mark Alexander, president – Americas Basic Meals and Beverages, for Campbell Soup “Only those who arrive in a quick and clever way will win, and Campbell intends to do just that. We have an accelerated method to invest and grow in this space.”

Editor’s Note: While there will constantly be need shops, the type and format of future physical markets are being changed by the growing benefit and cost-savings of online shopping. In this very first of a two-part report, we take a look at the quick changes occurring in the grocery market and their possible influence on retail realty. Part 2 examines the prospective impacts of these changes on retail property. Mark Alexander, president- Americas Basic Meals and Beverages, for Campbell Soup. The relocation is also seen as an action to dropping natural sales in the United States Campbell’s sales, which reduced 1% over the last nine months, driven by a 1% decline in natural sales, showing higher advertising costs and lower volume. In its Americas Simple Meals and Drinks division, the most current sales numbers were down 2%.

In truth, equivalent weighted equivalent grocery store sales development within the market is reducing across the industry. Year-over year grocery sales were increasing a little bit more than 4% each year 3 years ago; that flattened to about 0.3% in fiscal year 2016, according to analysis by CoStar Portfolio Strategy. It deserves keeping in mind that some grocery heavyweights, consisting of SuperValu Inc. (NYSE: SVU) and Whole Foods, recently posted negative exact same shop sales growth.

Campbell’s objective to reach $300 million in e-commerce sales would represent 3.6% of the brand’s annual sales – a low penetration compared with a current report from a Food Marketing Institute/Nielsen Holdings report. That research study projects that online grocery costs might grow throughout the 2016-2025 forecast duration from 4.3% of the overall U.S. food and beverage sales to as much as a 20% share, or reaching more than $100 billion, based on the most upbeat situation. In 2015, online grocery sales were about $20.5 billion.

While such sales forecasts for e-commerce are modest compared with the total store-based sales, any additional decreases in store-based sales is viewed as having actually an amplified impact on grocery revenue margins, which are currently razor thin – one to two cents per dollar according cuts to industry estimates. Food wholesalers, on the other hand, post margins closer to 13 cents on the dollar, according to these same industry estimates.E-Commerce Impact Differs by Goods, Area Julie Calcao, a senior credit analyst in Stone, CO

. For the previous numerous years, grocers have basked in thinking their business model was largely insulated from the impact of e-commerce. Julie Calcao, a senior credit expert at a bank in Stone, CO, is a good example of why it has actually taken longer for e-commerce to make its mark on the grocery service.

” I am a big online buyer when it comes to non-perishable items,” Calcao stated. “However, I want to pick my produce and meat as I am really particular. So, given that I cannot purchase all my groceries online as I want to choose my own, I will continue to drive to the store.”

Nevertheless, U.S. grocery shoppers are warming to online retail as 28% now choose to acquire groceries online regularly, as reported in Acosta’s most current Hot Topic Report, Bricks & & Clicks survey.


Colin Stewart, senior vice president at Acosta. “Amazon’s acquisition of Whole Foods is the perfect example of how the CPG [customer packaged goods] landscape is changing and how innovation and online retail have created a shift in the method people shop for groceries,” stated Colin Stewart, senior vice president at Acosta, a full-service sales and marketing firm.

However, the Acosta report found the effect from online grocery shopping varies depending on where in the country shoppers live and their age.

E-commerce grocery buyers are multi-faceted, though unsurprisingly, they alter towards Millennial age groups and individuals living in densely inhabited urban areas: 23% of older Millennials (ages 30-34), and 14% of younger GenXers (ages 35-39) are thought about regular CPG e-commerce shoppers, indicating they purchase groceries online approximately 50% or more of the time.


Ben Conwell, senior handling director and practice leader for Cushman & Wakefield.” Last year, over 52 % of all online grocery sales in the United States came from just eight states. More specifically, they originated from thick city markets within those states; New york city City, San Francisco, Chicago, Philadelphia, Miami,” said Ben Conwell, senior handling director and practice leader for Cushman & & Wakefield’s e-commerce and electronic satisfaction specialized practice group. “We have still yet to see any large scale successes in the e-grocery area when it comes to sprawl markets or more sparsely inhabited areas.”

And, like the shopping patterns of Calcao, online sales have grown – specifically in dry-goods categories, nonfoods and health and charm care – however brick-and-mortar retail continues to be preferred when grocery shoppers wish to personally choose their fresh meats, fruit, veggie, cheeses and other cooled categories.

” Whether a consumer is clicking online for groceries or browsing the supermarket aisles, it is essential for brand names and merchants to recognize the value and distinct advantages provided by both purchase pathways,” Acosta’s Stewart continued. “E-commerce does not suggest the end of brick-and-mortar shops, but it offers brand-new and various development chances for merchants, which requires them to form a new method tailored to how grocery buyers prefer to buy their foods.”

Not Simply Online, Grocery Stores Confronting More Competitors from Each Other.

While Amazon’s entry into the grocery organisation holds the possibility of brand-new competitors from a free-spending goliath set on blending e-commerce with a physical shop network, more competitors is also coming from a broad range of other grocery business that have actually devoted to considerable store expansions.

The patterns are putting pressure on traditional grocers, specifically the country’s 2 largest– Kroger and Albertsons Cos.– to make some sort of tactical moves.


Kroger’s influence includes $115 billion in grocery sales
per year in 4,000 properties. Rodney McMullen, Kroger chairman, informed analysts last month that it is taking a more hawkish look at expense cutting– one that will “de-emphasize” brand-new shop growth in favor of facilities and digital costs.

The goal, McMullen said, is to get in touch with the customer directly in anyway the client wants to– whether it be in-store shopping, grocery pick-up or shipment. McMullen stated Kroger currently has enough scale to contend in this environment against the likes of Wal-Mart Stores Inc. (NYSE: WMT) and Amazon. Kroger racks up about$ 115 billion in grocery sales each year and owns or leases about 4,000 residential or commercial properties.


Albertsons development prepares consists of more like its 2015 acquisition of Safeway.

The next largest conventional supermarket chain, privately held Albertsons Cos., has invested the year constructing a digital marketing and e-commerce department under Narayan Iyengar, a former e-commerce executive with the Walt Disney Co. In his brand-new role at Albertsons, Iyengar is accountable for leading all elements of digital marketing including loyalty programs, buyer marketing and the general digital existence, as well as the e-commerce business, including house shipment.

” After being fairly untouched by digital for several years, the grocery industry is starting to see several parts of the customer journey being changed by digital. In this context, we have to continue to enhance our digital capabilities,” Iyengar stated.

Albertsons growth strategy is multi-faceted and consists of organic growth through new ground up shopping mall, as well as acquisition of existing operating or closed retail centers.

Publix is set to open 20 brand-new stores this year, with Wegmans preparing a similar growth, mostly in East Coast suburban communities. Kroger plans to open 55 stores and Sprouts is scoping for 40 brand-new places nationwide. German grocer Aldi has revealed a $3.4 billion remodel of its existing storefronts together with a U.S. expansion that will include 900 new areas by 2022. Another German chain, Lidl has started an aggressive entry into the U.S., with prepare for 100 East Coast places by the middle of next year, according to Aaron Martens, research analyst for Marcus & & Millichap Research Services.

Target Corp. (NYSE: TGT) is wanting to open 100 + brand-new small-format stores in city and dense suburban areas– a market penetration just like Whole Foods.

Walmart this year is slowing its brand-new store opening expansions in favor of growing comparable store and club sales and e-commerce. Still, in the very first quarter of this year it opened or expanded 305 shops. That compares to 588 in the same quarter a year ago.

[http://www.costar.com/News/Article/E-Commerce-Comes-to-Food-Shopping-Growing-Competition-for-Grocery-Sales-Altering-Outlook-for-Retail-Real-Estate/192841?rpt=1″ target=”_blank”> In Part II of this report, CoStar takes a look at how the competitive pressures in the grocery industry will play out in the retail property arena too. As goes the grocer, so goes the center.]

Leave a Reply

Your email address will not be published. Required fields are marked *