Amazon Buys Whole Foods: Has Food Fulfillment Come of Age?

Business Insider reported that Amazon grabbed 43 percent of online retail sales in the U.S. in 2016, while estimates from Needham & Co., published in Fortune Magazine estimates that Amazon will control 50% of ecommerce sales by 2021.

Amazon eCommerce Market Share Growth

Not content to control close to half of eCommerce sales, Amazon is branching out into a new frontier of fulfillment services: food fulfillment. On June 16, Amazon announced that it will buy Whole Foods, an upmarket grocery chain with more than 460 stores around the U.S.

The Whole Foods purchase will give Amazon a bigger toehold in the brick-and-mortar world. This will add to its recent forays into this market: several bookstores, a couple of grocery outlets close to its home base in Seattle, WA, and a retail experiment called Amazon Go, which seeks to replicate the online shopping experience in a physical space.

But the acquisition gives Amazon something else that may be even more valuable: grocery warehouses in dense urban centers. From there, it can create food fulfillment operations.

The big question isn’t Amazon’s ability to get deliver products to consumers; we know they can do that exceptionally well. The most common consumer question is simply, “Do I really want an Amazon warehouse picking out my steaks, fruits, and vegetables for me?” While the concept at present seems foreign and lacks trust from many consumers, early adopters of Amazon’s food delivery service are in for a treat that will keep them coming back for more and more of their grocery shopping.

Overcoming Consumer Resistance to Food Fulfillment

If you’re like my mother, you want to feel the tomatoes you buy. You trust your judgment to pick the best bunch of grapes, the juiciest steak, or the ripest mango. Food is one area where touch, feel, and smell are very important to shoppers.

To overcome this, Amazon will need to use savvy in rolling out its grocery vertical. There is a way that Amazon can succeed — and it will benefit the early adopters of Amazon’s new service.

The Path to Success for Amazon’s Food Business

If Amazon is smart, the first deliveries from any new food fulfillment service will be picked, packed, and shipped with exceptional care. Only the juiciest oranges and the snappiest snap peas will make it into delivery boxes. Bread will go fresh from the bakery to customers’ homes. Every item will be premium, grade A, and scrutinized for any blemish or imperfection.

Because Amazon lives and dies by good reviews, the eCommerce giant will make sure that its first grocery delivery service customers are beyond satisfied. There should be a big upside in being an early adopter of online grocery shopping through Amazon, as Amazon will look to impress you to the extend that you feel you never need to stop at your local grocery again.

Amazon has grabbed its huge market share by opening new frontiers in eCommerce, establishing new levels of customer expectations, and by building on the successes and learning from the mistakes of smaller companies. In food fulfillment, it has a chance to do both.

Consumer Expectations of ECommerce Fulfillment

Food fulfillment is coming of age at a time when customer expectations of eCommerce fulfillment are at an all-time high. Customers expect two-day shipping, free returns, and error-free orders.

In a way, this makes it the perfect time to add food fulfillment to the mix. ECommerce companies have figured out how to deliver more goods to more people with greater accuracy. New technologies promise even better results. Using drone delivery, Amazon hopes to offer same-day delivery in many areas in the future.

These emerging technologies will work well for grocery deliveries. In the near future, customers may be able to order the ingredients for a meal and have them at their doorstep in time to cook for dinner.

Food Fulfillment and the Last Mile Problem

The wholesale food supply chain is already in place. Farmers and food distribution networks have food fulfillment down to a science. Truckloads of tomatoes, bushels of cherries, and shipments of steaks travel safely from farms and processing plants to fulfillment centers and from there to local grocery stores. In fact, unless you buy your produce directly from the farmer, that’s probably how your groceries get to you.

When you shop at the grocery store, you provide your own food fulfillment service. You take responsibility for the last mile from the store to your home. If your toddler throws a banana onto the floor, you won’t blame the store for the resulting brown spots.

When an eFulfillment center brings your groceries home, however, you will want everything to be perfect. The last mile to your house is the hardest. Keeping a shipment of tomatoes or chicken breasts fresh is easy; delivering three tomatoes and one chicken breast while storing each at different temperatures to preserve flavor and freshness is a much bigger challenge.

Food Fulfillment: The Final Frontier

More than 10 percent of all retail purchases happen online. That figure drops to less than 5 percent for food purchases.

“Jennifer Carr-Smith, Peapod’s chief executive, says she hopes Amazon’s purchase of Whole Foods will ultimately encourage more people to shop for groceries online, where about 10 percent of all shopping in the United States happens now. The numbers for food are less than half that, according to data from FMI-Nielsen.”

Delivering groceries to your doorstep presents a bigger fulfillment challenge than the fulfillment of almost any other product. The canned beans and juice boxes will be fine, but what if the tomatoes are mushy or the peaches are hard? Will shoppers be willing to accept Amazon’s judgment about which cantaloupe is ripest or which avocado will be perfect in three days?

Online grocery shopping market share

Amazon is not the first to enter the food fulfillment market. In fact, many startups, most of them focused on select metropolitan areas, have come (and gone) in recent years. Companies like Peapod and Instacart have food fulfillment operations in multiple markets across the country.

These eCommerce companies deliver anything you might find on a grocery store shelf, from breakfast cereal to ground beef to paper towels. A recent New York Times article that followed a Peapod delivery driver around Manhattan highlighted the biggest challenge of food fulfillment: getting perishable and sometimes fragile food items from the fulfillment warehouse into customers’ kitchens without cracking the eggs or shortening the shelf life of the butter lettuce.

The fact remains, however, that more and more shoppers want the convenience and simplicity of ordering everything online. Millennials are more likely to shop online than older generations. As these digital natives come of age — and have children and lead ever busier lives — food fulfillment will have to follow. Amazon has the market share and reach to make online grocery shopping an everyday experience.

Food Fulfillment Comes Full Circle

Food fulfillment in eCommerce sounds like a radical idea, but it’s actually a throwback, in a way. Anyone over 50 may remember weekly deliveries of milk and cottage cheese from the local dairy, left in an insulated box by their doorsteps. Older generations bought fresh vegetables and other foods from vendors who rolled down residential streets with delivery carts.

Informal food fulfillment still happens today, especially in smaller towns. Customers can call a local grocery, give an order to the owner or a manager, and receive their groceries at their front door.

Americans like our food to come to us. Mobile food trucks are one of the hottest culinary trends of the past decade, and ice cream trucks still offer sweet treats on demand in many neighborhoods.

With Amazon’s purchase of Whole Foods, more convenient food fulfillment is surely in our future. In a few years, we may have a hard time remembering a day when we couldn’t click a button on Amazon and have all our groceries dropped at our doorstep, fresh and ready to eat.

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