Amazon in Grocery – What Customer Type Is Most at Risk?
With the recent news that Amazon is looking to not only expand into the grocery market, but to do so with physical extensions; traditional grocery retailers, superstores, club stores, and discount stores are all in the process of assessing the threat that Amazon represents to the food market.
Magid’s 2016 Health Pulse study, measuring customer attitudes towards food and grocery shopping behaviors, reveals that 17% of US consumers have shopped Amazon for food items in the past six months. While this 17% measure is relatively small considering that the vast majority of consumers have yet to engage with Amazon in shopping for food, understanding what these Amazon shoppers look like, what their preferences are, and why they are utilizing Amazon today is an essential step in understanding the threat Amazon represents to grocery.
Four Key Differences
With the above need to better understand the Amazon food shopper in mind, Magid has identified four overarching trends (see figure 1) that became apparent when Amazon food shoppers were compared with those that have yet to engage with Amazon for food.
Younger: While not all together shocking, given the fact that online purchases in general tend to be younger, the extent of the differences was surprising. 69% of those shopping Amazon for food were age 44 and under. Looking at the non-Amazon shoppers, only 47% were 44 and under. The implication is clear for retailers that desire to appeal to the growing millennials subset, which is becoming more and more comfortable with an online, on demand world: Amazon will play large in the mindset of these customers.
Family Focused: 43% of Amazon food shoppers had children in their household compared with only 33% of non-Amazon food shoppers. This trend holds even when controlled for age. For consumers under age 45, 55% of Amazon food shoppers had children in the household, versus 49% of non-Amazon food shoppers. This focus on family is even more important when one calculates how much more households with children spend on groceries.
Frequent Shoppers: Amazon food shoppers were more likely (28%) to shop grocery stores very frequently (more than once a week) compared with non-Amazon shoppers (19%). Amazon’s strength with these ultra-frequent shoppers is likely to be a red flag with many food retailers given the value they place on these types of shoppers. Frequent shoppers represent greater overall total sales opportunity and drive customer loyalty. Holding onto these frequent customers with loyalty programs is a top priority of nearly every food retailer. The thought that Amazon could skim off these high valued customers is a scary proposition.
Local Focus: While the data point that Amazon shoppers were more locally focused (59% of Amazon food shoppers indicated that they, “…make a point to eat and shop at local or independent business” compared to 42% of non-Amazon food shoppers who agree with this statement) seems somewhat ironic given that Amazon has, in many ways, led to the demise of so many local businesses, the “local” self-appraisal of Amazon shoppers is important to understand… and may explain why Amazon has chosen to pilot physical grocery stores. Grocery is one of the most locally focused categories in retail given the combination of distinct regional variations and the unique supply chain logistics necessitated by perishable foods items. The “eat local” mantra is clearly central to the segment of the population that also embraces online shopping. Without this local dynamic in place, Amazon would likely have a much larger share of grocery today. Thus, in order to combat Amazon’s threat, food retailers need to think through how they emphasize their local connection. Amazon will likely do what it can to erode these differences (and a 20 store pilot of physical Amazon stores is an obvious start), but this is an area where existing physical food retailers have a huge edge. In looking at these results, it is more likely to surmise that Amazon consumers are locally focused DESPITE their love of Amazon and not because of it.
Figure 1: Four trends that differentiate Amazon food shoppers (Source: Magid 2016 Health Pulse)
Views on Health Benefits of Food
Beyond the four high level trends demonstrated by Amazon food shoppers, Magid’s Health Pulse study also captured consumers’ attitudes towards food choices in terms of the health benefits of various food options. In looking at these differences, Magid compared health benefit terms that indexed high for Amazon food buyers relative to non-Amazon food buyers and then did the opposite for terms indexed high for non-Amazon food buyers. This specific analysis was limited to consumers under the age of 45 in order to control for the obvious health choice differences of older food shoppers.
The result (see Figure 2) is a list of health benefits that provides an interesting contrast in how Amazon and non-Amazon food shoppers look at food. Whereas non-Amazon food shoppers are more focused on disease preventative terms like “prevent cancer” and “lower cholesterol”, the Amazon food shoppers were more focused on quality of life terms such as “Keeps me alert” and “Promotes restful sleep”. The implication of these results is that retailers aiming to fend off Amazon’s push into grocery need to make sure they are catering to customers that seek quality of lifestyle benefits beyond disease prevention. Put simply, Amazon food shoppers define healthy eating as the ability to thrive beyond the absence of disease.
Figure 2: Health benefit of consumer (<45) views that differentiated Amazon food shoppers (Source: Magid 2016 Health Pulse)
Retailers’ Existing Customers’ Utilization of Amazon
Beyond the attitudes and demographic understandings of the differences of Amazon food shoppers, retailers will be looking to understand what percentage of their current customers are utilizing Amazon with the thinking that these will be the customers that are most at risk to the Amazon threat. Magid’s Health Pulse study asked respondents to list all of the stores that they purchased groceries from in the past six months resulting in a list (see Figure #3) that demonstrates what percentage of each retailer’s customer base is at most risk to Amazon based on their existing usage of Amazon. On the high end of this “risk” list was Whole Foods and on the low end was Walmart. The overlap of Whole Foods and Amazon customers fits with the profile of the younger, family-focused, and locally focused shopper. Retailers that are attempting to emulate the organic style strategy of Whole Foods need to be aware that they will likely face strong competition from Amazon in this space.
Figure #3: Percent of Each Retailer’s Grocery Shoppers that Also Shop Amazon for Groceries (Source: Magid 2016 Health Pulse Study)
While still in the early stages, Amazon’s move into physical grocery is prompting many questions as to how retailers can better understand how this threat applies to them. Over the years, many have played the “wait and see” game when it comes to Amazon moving into new categories realizing only too late that Amazon is nearly impossible to beat once it develops critical mass in a category. Magid recommends a proactive approach including a thorough investigation of a retailer’s customers’ attitudes and their usage of Amazon today (including an understanding of how customers are utilizing Amazon for categories outside of grocery). This approach can quantify this threat and determine the unique strengths that each retailer should utilize to best address this dynamic early in the cycle.