Bloomberg reports that even as Amazon integrates Whole Foods into its operations, data shows that it is selling more groceries than ever on its website - $650 million worth during the first quarter, 48 percent more than during the same period a year ago.
But, the story says, an analysis of the data suggests that these sales come at a cost:
“Despite the boon in sales, Amazon’s grocery push is taking a toll as the company looks to compete with big-box retailers like Walmart Inc. on price and delivery. Amazon has been willing to absorb losses of millions of dollars a year on certain products to make sure it has the items in stock and to be competitive. But those costs are rising as the company sells more low-margin household goods. Fulfillment expenses - the cost of storing, packing and shipping goods - surged 43 percent in 2017 to $25 billion, outpacing annual revenue growth of 31 percent.”
And, there’s more work to do, as Bloomberg writes: “A separate study released this week from Coresight Research found that shoppers frequently use Amazon for small grocery purchases of a few items, while most people still go to brick-and-mortar retailers like Walmart to fill online shopping carts and then retrieve them at the store. Smaller orders of household goods are more difficult to deliver profitably because the shipping cost makes up a bigger percentage of the overall order.”
But, the story says, an analysis of the data suggests that these sales come at a cost:
“Despite the boon in sales, Amazon’s grocery push is taking a toll as the company looks to compete with big-box retailers like Walmart Inc. on price and delivery. Amazon has been willing to absorb losses of millions of dollars a year on certain products to make sure it has the items in stock and to be competitive. But those costs are rising as the company sells more low-margin household goods. Fulfillment expenses - the cost of storing, packing and shipping goods - surged 43 percent in 2017 to $25 billion, outpacing annual revenue growth of 31 percent.”
And, there’s more work to do, as Bloomberg writes: “A separate study released this week from Coresight Research found that shoppers frequently use Amazon for small grocery purchases of a few items, while most people still go to brick-and-mortar retailers like Walmart to fill online shopping carts and then retrieve them at the store. Smaller orders of household goods are more difficult to deliver profitably because the shipping cost makes up a bigger percentage of the overall order.”
- KC's View:
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This is something that Amazon is going to have to get into balance in the long term, but I suspect that it is willing to endure some pain for now because this plays into its ecosystem approach to the business. Amazon wants to be the first, best choice for everything, and the Coresight analysis suggests that it isn’t there yet.
What we don’t know at this point is whether some of its current moves - like trying to shift its Prime Pantry service to a subscription model - will move it in the right direction. My instinct tells me that this may not work - if I wanted a subscription service, there were options for me on Amazon - but maybe that’s just me.
