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Amazon Briefing: Amazon makes modest gains in grocery but still lags behind Walmart

This is the latest installment of the Amazon Briefing, a weekly Modern Retail+ column about the ever-changing Amazon ecosystem. More from the series →

Amazon has steadily grown its grocery business over the last five years, according to a new report, but the e-commerce giant is still far from realizing its ambitions as a grocery juggernaut. 

Thirty-five percent of customers in the U.S. have bought groceries in their most recent order in the twelve-month period ending with the March 2024 quarter, according to a Tuesday report from Consumer Intelligence Research Partners, which has tracked and analyzed U.S. Amazon Prime memberships for the past decade. It’s a 2% increase from the same period a year prior. The most recent data indicates that Amazon has seen a gradual increase in grocery sales over the last five years. 

The coronavirus pandemic gave Amazon’s grocery sales a bump, with 27% of customers adding groceries to their Amazon order in the twelve months ending March 2020, when the pandemic started. That figure rose to 32% the following year as customers battling Covid-19 variants and varying degrees of pandemic lockdowns kept close to home. 

“Of course, virtually a hundred percent of Amazon customers buy groceries, or someone buys groceries for them,” analysts Michael Levin and Josh Lowitz wrote. “Its staunch competitor Walmart is the largest grocery retailer in America. So, the Everything Store selling groceries in about one-third of customers’ most recent orders is not satisfactory.”

The new report comes as Amazon looks to retool its grocery-store strategy. Its latest strategy is a grocery-delivery subscription service for its estimated 180 million Amazon Prime members. The subscription is priced at $9.99 a month for unlimited deliveries from Whole Foods or Amazon Fresh on orders over $35. Amazon has also begun to sell its Dash Carts to other retailers. 

These are just the latest in a series of examples over the years of Amazon trying to position itself as a grocery retail leader. In 2017, Amazon bought high-end grocery chain Whole Foods, now the main engine of the tech giant’s grocery-delivery subscription service. Amazon has also introduced and tested out various types of brick-and-mortar grocery retail locations, including Go and Fresh. 

“Grocery, I would argue, has been Amazon’s nemesis,” Jason Goldberg, chief commerce strategy officer at Publicis Groupe, said. “Amazon’s got to invent a value proposition for grocery, and I don’t think we’ve seen it from them yet.”

Despite the steady growth, Goldberg believes the e-commerce company’s grocery business is thriving primarily when it comes to non-perishable times. “Walmart and Instacart are doing much better at the perishable, fresh and frozen side of grocery,” he said. “It’s totally believable to me that 35% of Amazon’s customers put a grocery item in their last order, but I can guarantee you it’s probably a paper towel and not a banana.”

Allison Smith

3 takeaways from Amazon’s first-quarter earnings

On Tuesday, Amazon reported its first-quarter earnings. And, for the most part, the company continues to see business grow. Most of the headlines focused on the e-commerce giant’s huge profit. Its net income tripled from $3.17 billion last year to $10.4 billion now.

But there were a few other numbers to help contextualize this growth — as well as some of the headwinds Amazon is facing. Here are a few other standout numbers from the report:

Advertising growth: 24%
While Amazon’s retail business used to be one of its main drivers, Amazon continues to see huge gains from its advertising business.

Advertising services grew 24% year over year, hitting $11.8 billion this past quarter. While the company said that sponsored products drove most of this growth, it also pointed to other new services that launched in the last year that are now beginning to bear fruit.

“We still see significant opportunity ahead in our sponsored products, as well as areas where we’re just getting started like Prime Video ads,” CEO Andy Jassy said at the earnings call. “Prime Video ads offer brands value as we can better link the impact of streaming TV advertising to business outcomes like product sales or subscription sign-ups, whether the brands sell on Amazon or not. It’s very early for streaming TV ads but we’re encouraged by the early response.”

According to Andrew Lipsman, an independent media analyst at Media, Ads + Commerce, these numbers show that Prime Video ads are really working. “That’s a big growth driver in the ads business over the next couple of years,” he said.

Indeed, Amazon has been pushing more brands — including those that don’t sell on the platform — to launch streaming TV advertising campaigns. It’s part of a great push to prove itself as a media player akin to major streaming companies, but one with better first-party data.

Third-party seller services: 16%
The other cash cow Amazon has been pushing for years is its seller services. For the most part, this translates to fulfillment offerings like Fulfilled By Amazon. Revenue from this part of the business shot up 16% year over year, hitting $34.5 billion.

This comes as Amazon implements a major shake-up to its overall fulfillment program. Over the last few months, Amazon has been introducing new fees and structures for third-party brands that sell on the platform. While many sellers have balked at these changes, saying they’ve hurt their bottom lines significantly, Amazon told investors the changes are helping both merchants and the company save money.

“Part of what we did with our change in seller fees, we lowered the outbound fees in a meaningful way, but then we added an incentive for our sellers to inbound into locations that allow us to be more cost following and allow both our sellers and us to enjoy in those cost savings when we’re able to do so,” Jassy said at the earnings call. “And we’re seeing very optimistic signs there, too. I think we’re still early with respect to how we can continue to optimize the number of units per box, which has all sorts of good benefits.”

Still, there were some signs that other parts of the seller business is softening. Online store sales grew 7%, which was less than last quarter’s 8% growth. This could mean the overall business of product sales is beginning to hit a wall.

“The question of whether Amazon is losing customers to marketplaces offering even lower prices, such as Shein and Temu, is worth asking,” wrote Neil Saunders, managing director of GlobalData, in a recent note. “And from our data, we believe this is happening at the margins.”

AWS: 17%
Amazon’s cloud service unit growth is another sign that the company’s services are the engine keeping the business moving forward. Amazon Web Services grew 17% year over year hitting $23 billion, compared to 13% growth the quarter before.

“AWS definitely outperformed expectations,” said Lipsman.

While other cloud services like Microsoft Azure and Google Cloud also recently reported big gains, it’s clear that Amazon is also keeping up with the competition.

A lot of this likely has to do with Amazon’s recent moves in the AI space — over the last year, it has launched new generative AI services for AWS, as well as invested $4 billion in the AI startup Anthropic. And Amazon specifically pointed to that during the earnings call.

“Our AWS customers are also quite excited about leveraging GenAI to change the customer experiences and businesses,” Jassy said. “We see considerable momentum on the AI front where we’ve accumulated a multibillion-dollar revenue run rate already.”

Cale Guthrie Weissman

Amazon news to know

  • Amazon deliveries are faster than they’ve ever been. The company disclosed that it delivered 2 billion items to Prime members either the same day or the next day.
  • Amazon is expanding its generative AI offerings to developers and has renamed one of its core services as Q Developer.
  • Signal has become a popular messaging app given its privacy functions. Now, the FTC is probing how Amazon executives used Signal to share information.

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