Let's consider what we've learned and imagine the perfect grocery retailer for Covid. It would be a retailer that wouldn't have a building so shoppers could avoid lining up to get in, navigating one-way aisles and meeting potentially infectious crowds. It would be a retailer where shoppers could save time and avoid a slow, laborious trip to the store, a trip during which they might even find the items they were looking for are out of stock. It would be a retailer where shoppers could avoid encountering the Coronavirus by buying groceries from the safety of their own homes. As a bonus, this retailer would have great price perception, because why not save money as well as stay safe and save time?
Turns out we don't have to imagine this retailer. We just have to look in our pockets and touch an app on our phones to find it. Or reside in one of the cities with Amazon Go or Amazon Fresh stores with smart baskets and walk-out and pay technology for speedy check-out.
Covid created a perfect storm that played right into the unique strengths of Amazon's customer value proposition. Amazon easily blew every other retailer out of the water on our Covid Momentum Metric and customer Safety ratings. The distance between Amazon and second place on these measures is much wider than the distance between second place and the rest of the pack.
Edge Ascential estimates that Amazon will grow grocery market share easily more than any other retailer in the U.S., picking up +0.731% of the U.S. grocery share (this increase is just for Amazon.com). This increase – about 3x higher than 2nd placer retailer Target on the Covid Momentum Metric – equates to $5.8B, compared to if Amazon had just held market share steady. And Edge Ascential may be underselling Amazon's potential 2020 performance, since they predict a year-over-year grocery sales growth rate of only ~33%. In Q2 of 2020, Amazon reportedly tripled their online grocery sales. In Q3, only online sales in total were stated, but this rose 49% for Amazon, and online grocery has been growing faster than general eCommerce.
For retailers who aren't Amazon, does this mean they should rush even faster than they already are to expand their click and collect and delivery capabilities? Not necessarily. Online grocery shopping is still a hard place to make profits for most, and from the ability to subsidize their grocery business with profits made in other business units like Amazon can. Additionally, we've covered in previous versions of the RPI what prerequisites are for a great eCommerce platform to also deliver great overall top line growth. Many regional grocers struggle with these prerequisites, namely great Price perception and a product category DNA that is strong in center store, non-perishable items. Lastly, eCommerce's share of grocery sales was ~5.0% in 2019 according to Edge Ascential, and even though it is set to grow ~50% for 2020, that still puts eCommerce's share of grocery sales. So, if you're a legacy brick and mortar retailer, your customers, even after the Covid eCommerce bump, will be getting most of their groceries from your physical stores. If you do invest in eCommerce to chase top line growth and provide a competitive response to Amazon, there must not be any drop-off in the Quality of the store experience or an increase in Prices – two things which would harm a retailer's Value Core and hinder their chances of long-term success with customers.
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