While Amazon is likely to add pressure to the supermarket industry with its latest brick-and-mortar strategy, it is hardly set to steamroll top grocers with its plans to open stores under a new, more mainstream brand. At least those are the thoughts of Joe McKeska, senior managing director at A&G Realty Partners in Melville, New York.
Amazon's latest plans include opening dozens of grocery stores in leading U.S. markets, but McKeska cautioned that it's important to remember that existing retailers boast years of experience. They have been heavily investing in digital and online capabilities already.
"The report of Amazon's plans to more aggressively grow its brick-and-mortar store base should be kept in context," McKeska says. "As Nielsen data published this month helps illustrate, grocery leaders Kroger and Walmart, among others, are making real inroads with their ecommerce efforts."
According to the March 14 Nielsen/Rakuten Intelligence report, the share of click-and-carry sales grew from 4% to 11% of all CPG e-commerce sales in just two years. "That's a remarkable result for the click-and-collect programs in which grocers have been investing so heavily," McKeska says.
Meanwhile, U.S. retailers are smartly maximizing their real estate in response to the changing marketplace, he says, while improving network efficiency and bolstering profitability with back-end technology strategies.
. "Several grocers are also testing and rolling out smaller formats and pursuing shorter-term lease commitments to provide themselves with greater flexibility," McKeska says.
Meanwhile, Amazon's grocery strategy faces significant challenges. "Given that Whole Foods has built a business model at the very top end of the market, from a specialty and premium product and pricing standpoint, it is difficult for Amazon to move very far into mainstream grocery using Whole Foods as the platform," McKeska says. "Amazon is playing a delicate balancing act with Whole Foods. They risk alienating core Whole Foods customers by making any significant changes to the chain's premium product offering, quality or service, even if those changes would drive efficiencies and make it possible to significantly reduce prices."