Amazon has been stretching its wings to fly into more and more areas, and grocery shopping is one of its newest areas of interest. The timing may be apt too, as a new study found that the age group that purchases groceries online the most is entering the stage of life when their grocery spending rises to its peak.
Amazon to quickly become a big player in groceries
Cowen and Company analysts John Blackledge and Oliver Chen predict that Amazon will be one of the top ten biggest players in the U.S. food and beverage grocery market by 2019, based on the results of their recent survey focusing on Amazon and its grocery efforts this week. They estimate the value of the total market at about $795 billion.
They expect Amazon’s Prime platform to drive its success in the grocery business and believe it will benefit greatly from the generational shift that’s occurring as online spending in food and beverages grows. The Cowen survey found that 23% of all the U.S. consumers they surveyed said they’re likely to purchase groceries online at some point, so taken in total, Blackledge and Chen say the results imply that 34% of consumers in the U.S. might buy groceries online at some point.
Unsurprisingly, Millennials are leading that shift, with 21% of U.S. consumers between the ages of 25 and 34 buying groceries online as of February, according to Cowen’s survey. The findings also indicate that 28% of consumers in that age group say they’re likely to buy groceries online at some point—the highest percentage of all the age groups surveyed. These numbers imply that about half of U.S. consumers between the ages of 25 and 34 might buy groceries online in the future.
This is a key finding because this age group is just entering or is about to enter their time of peak grocery spending. Cowen said that consumers between the ages of 35 and 54 account for 43% of the spending in the U.S. food and beverage grocery industry.
Amazon well-positioned in a rapidly growing market
Cowen estimates the online food and beverage grocery market in the U.S. to be worth about $33 billion this year, which would give it a retail penetration of 4%. That’s lower than the total U.S. online retail penetration, which the Cowen team said is closer to 7.5%. However, they expect the size of the market to expand rapidly, climbing to $70 billion by 2021 with an 8% retail penetration rate. By 2036, they expect the online grocery market in the U.S. to balloon up to $230 billion with 18% retail penetration.
Blackledge and Chen see Amazon as being in an excellent position to benefit from the generational shift. Millennials are spending more and more of their grocery money online, and Amazon is working to improve its online food and beverage platforms to service the growing demand. In fact, the company already dominates in online grocery shopping.
The size of Amazon’s opportunity
They estimate Amazon’s gross merchandise volume in grocery at $8.7 billion this year and rising to $23.2 billion in 2021, representing a compound annual growth rate of 22%. They said this suggests that the online retailer will become one of the ten biggest players in the grocery industry by 2019. Currently Amazon isn’t even in the top 20 grocery stores. In fact, they believe the company will take 38% of incremental online food and beverage sales in the U.S. between this year and 2021.
Blackledge and Chen see the company’s Prime platform has being the main driver of its share gains as it can get food and beverage items to consumers in one to two hours or at least the same day with Prime Same Day or the next day. Also Prime Pantry delivers even more items in several days, they add. Many first- and third-party goods are available, increasing the selection as well.
Further, they think it makes sense for Amazon to expand in groceries because names like Wal-Mart and Target are also strong contenders in the retail category, likely attracted by the high frequency of purchases made in groceries. But Amazon is stealing share from both traditional retailers and others in other retail categories, so they expect the same to happen in groceries as well.