Grocery business ripe for disruption by Amazon, analysts say

When Amazon officially took over Whole Foods this week, the e-commerce giant immediately made changes. It drastically cut prices on some organic foods, by as much as 43 per cent, and set up in-store displays to sell its smart speaker, the Amazon Echo. 

But the biggest disruption may still be in the works: an expansion of its online grocery ordering and delivery service.

"Consumers should be able to win because hopefully Amazon will bring to the grocery industry what they were able to bring in terms of online commerce," said Marion Chan, a consumer analyst at TrendSpotter Consulting.

Amazon first changed the way consumers buy books, then expanded to sell almost any product a consumer could want — and deliver it when they want it.

Amazon has tried to make itself part of consumers' everyday lives, from introducing its Dash button for the home that customers can press when they want to order more of a product, to Amazon Prime memberships that give access to online streaming and free shipping.

Virtual shopping carts 

But grocery delivery is a relatively new and challenging sector. Shipping perishable, easy-to-bruise items requires a greater level of care than a book does. Plus, it requires consumers to change long-entrenched behaviour.

"They actually go to the store," Chan said. "That's the way Canadians have learned to shop."

That's not stopping Amazon from trying it out. It's already testing the waters with AmazonFresh grocery delivery in 20 cities across the U.S., as well as in London, Berlin and Tokyo.

The company wouldn't confirm to CBC News whether it has plans to expand AmazonFresh to Canada.

But in some parts of Canada, variations of online grocery delivery already exist, and Amazon's interest in the space is a clear message to the industry.

"It validates the fact that the online space is here to stay and there's true demand from a consumer standpoint," said Julian Gleizer, founder and CEO of grocery delivery startup InstaBuggy.

Through InstaBuggy's app, customers can order from a variety of different grocery stores. Their order is then hand-picked, packed and delivered by InstaBuggy in as little as an hour.

"It makes sense for customers to place their order from their couch or from their office, as opposed to having to go to the store, spend that time, and carry stuff," Gleizer said.

Chains already move groceries online

Major grocery chains are also recognizing the potential in adding digital and delivery options.

Longo's operates an online delivery service called Grocery Gateway in the Toronto area; Metro, which has stores in Ontario and Quebec, just made a deal to buy a meal kit delivery service called MissFresh; and Loblaws introduced a "click and collect" program, where customers pick out their groceries online, then pick them up in person.

Chan expects the threat from Amazon will spark even more innovation in the grocery business.

"Just because this is happening between Amazon and Whole Foods — the Loblaws, the Sobeys, they are all going to have to respond," she said. "I think that the grocery industry in Canada is ready for a change and in fact we need a change." 

Buying into Amazon's ecosystem

Grocers could have a tough time competing with Amazon though. Some analysts say the company isn't entering the grocery business for the money — it's more interested in getting consumers to buy further into Amazon's entire ecosystem.

"They're looking at increasing volume essentially, and that's Amazon's playbook. Looking at revenues and profitability is not as important," said Sylvain Charlebois, a business professor at Dalhousie University in Halifax who specializes in food distribution.

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Charlebois sees Amazon's latest move as a way to further disrupt how consumers shop, and move them from stores to online.

"They're trying to build that bridge between the two worlds, and Amazon is well positioned to do that because it is able to understand consumers better than consumers themselves," Charlebois said.

TrendSpotter's Chan isn't convinced Canadian consumers will have an appetite to do all of their grocery shopping online. But if Amazon enters the market and others innovate, she says consumers will win.

"If [consumers] aren't excited about this change, they should be excited."