Online retail giant Amazon has expanded its six year ‘test’ of AmazonFresh and is now attempting to break open the US grocery market. With the market valued at $6 billion as more and more shoppers move online to do their grocery shopping, the competition for traditional grocers looks set to increase.
Earlier this week, AmazonFresh expanded to select Los Angeles ZIP codes, a service which has been running since 2007 in the retailer’s hometown of Seattle. The company is offering customers same-day and early-morning delivery on more than 500,000 products, and analysts expect the service to expand to nearly two dozen other markets by the end of the year.
The $6 billion US online grocery market has struggled for many years to be successful due to both the perishable nature of groceries and the fact that US shoppers have preferred to buy their groceries in-store. As Mintel researchers recently wrote, “Though consumers are becoming increasingly comfortable with Internet purchases of books, movies and the like, many appear to be hesitant to make food and drink Internet purchases.”
However with its Internet grocery push, Amazon is entering a sector that is now starting to gain some traction. Convenience is becoming key for US shoppers, as they have less time and inclination to shop in bricks-and-mortar grocery stores. According to Nielsen, 18% of grocery shoppers spend at least 75% of their time online, with 62% of Generation X’ers saying they rely on smartphones for product information in grocery stores.
IBISWorld predicts that the US online grocery sector will grow 9.5% a year to 2017, compared with just 1.2% growth from 2007 to 2012. As the market becomes ever more competitive with more shoppers preferring to shop online, retailers need to compete on price, product selection, time savings and customer service. If online grocers do not price their products competitively or offer products now easily found in physical supermarkets, they risk losing business to traditional stores.
Leslie Hand, research director of IDC Retail Insights, advises grocery retailers to bridge the gap between the physical and digital worlds, to avoid losing customers to competitors who are more flexible, accommodating or proactive. “While many shoppers may still shy away from AmazonFresh in the short term, early adopters have developed a real fondness for saving a couple of hours of shopping tedium at a cost of a small delivery fee. Early adopters were there for Amazon before, and they will prove the model out again in city after city.”
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