While Walmart is currently the largest retailer, its reign will end in 2022, when Amazon becomes the largest retailer in the U.S., a new report from research firm Packaged Facts suggests. The firm said its prediction is based on the expectation that Amazon sales will continue to grow at a much faster rate.
“Amazon already has an enormous impact on e-commerce sales, benefitting from its creation of an endless online aisle with products at competitive prices. Packaged Facts estimates that Amazon’s U.S. gross merchandise sales will comprise 43% of U.S. e-commerce sales in 2019, up from 28% in 2015. By 2022, we forecast that Amazon will contribute almost half of U.S. e-commerce sales,” said David Sprinkle, research director for Packaged Facts.
The report showed that in 2018, Amazon’s global net sales, including product and service sales, reached $233 billion, up an average of 27% annually from 2014. While product sales have grown at a very healthy clip (up 19% globally from 2014 to 2018), Packaged Facts said service sales have grown at a much faster rate of 48%.
Amazon’s “Subscribe & Save” service has also continued to trend upward. Citing June 2017 proprietary survey results, some 7.6% of Amazon shoppers used Subscribe & Save; by May 2019, that percentage had risen to 13.4%.
“In 2019, some 21% of adults and 23% of online purchasers bought products online as part of subscription service/repeat ordering service, up incrementally from 2018, suggesting that the services continue to become a successful means of locking in repeat purchasers, thereby increasing loyalty,” according to the report.
Further, 53% said they used Amazon most for subscription service/repeat ordering services. Among the categories showing declines since 2016-17, food/groceries uptake fell to 40% from 52%.
Despite Amazon’s continued growth, Packaged Facts said Walmart still has advantages Amazon presently cannot match, even when accounting for Amazon’s innovative incorporation of natural supermarket chain Whole Foods in 2017 or its partnership with department store retail chain Kohl’s. Most notably, Packaged Facts said Walmart’s in-store services strongly differentiate it from online competitors such as Amazon, which naturally cannot provide services, as well as from its brick-and-mortar competitors, many of which do not have the same breadth of offerings or cannot match Walmart’s pricing. These services, therefore, not only produce revenue but also significantly drive traffic, which Packaged Facts said is even more vital at a time when brick-and-mortar retailers of all shapes and sizes seek to revitalize in-store traffic.
Packaged Facts survey data reveal that more than 20% of Walmart purchasers use in-store services (including purchasing/using a range of financial services, on-site pharmacy and optical and photo processing). In addition, Walmart is the click-and-collect king. Among click-and-collector survey respondents, 43% identified Walmart as the pickup location for their last click-and-collect order -- three times the percentage of those who cited runner-up Target.
Walmart is also well positioned to capitalize on grocery click and collect. For one, Packaged Facts said Walmart has a significant advantage in terms of locations. Seizing on the opportunity to own the click-and-collect title, Walmart has scaled-up quickly: Its grocery pickup went from nonexistent in 2014 to 2,100 locations by 2019, making its click-and-collect offering available to roughly 69% of the U.S. population. The retailer also has more than 30,000 personal shoppers fulfilling customer pickup orders, and it can package orders for delivery from nearly 800 locations. Its efforts are already paying off, the report said. According to the company, those who visit Walmart locations and buy products online spend twice as much as those who shop via only one channel (just online or just in store). Also, online groceries are serving as a great halo brand for encouraging this behavior, the company has said.
According to the Packaged Facts report, when blending Prime, Prime Pantry, AmazonFresh, Prime Now and Whole Foods, Amazon has built its omni-channel grocery platform into a major competitor to supermarkets, discount stores and club stores in fewer than five years. In fact, as of 2018, according to Progressive Grocer, Amazon was not only well ahead of competitors in online groceries but had landed among the top 10 grocery businesses in the country.
However, Packaged Facts said in order for Amazon to conquer the grocery channel, extending its physical footprint is imperative. Whole Foods, the report suggested, is the lynchpin of this grocery strategy.
Amazon acquired Whole Foods, the largest retailer of natural and organic foods in the U.S. and the 10th-largest food retailer overall, for $14 billion in 2017. In 2018, sales at Whole Foods reached $15.9 billion, just behind Aldi. Sales are heavily weighted toward perishables. According to Whole Foods’ last annual report as a publicly traded company, this category comprised 67% of sales in fiscal 2016, with prepared food and bakery products contributing 19% to the total.
Online grocery segment growing
The report relayed that online food/grocery ordering is in a growth stage, with 211% usage growth during 2014-19 and full one-point percentage gains in usage penetration noted for 2017, 2018 and 2019.
Like online grocery ordering, online grocery delivery is also gathering usage momentum, Packaged Facts noted. As of 2019, some 5.3% of adults use online grocery delivery service, up from 4.1% in 2017.
Stand-alone meal kit delivery services also remain a niche offering, generating roughly 1% usage, while Peapod, a player that has been at grocery delivery longer than most, continues to register less than 1% usage.
Packaged Facts forecasts meal kit sales to rise at an average rate of 12.2% per year from 2018 through 2023.
“The meal kits landscape shifted with Amazon’s Whole Foods acquisition, which gave it prepared foods leadership and multi-channel retailing strength in one fell swoop,” the firm said.
For Amazon, meals kits make sense, the report suggested.
“For starters, age — between 25 and 44 years old — is the strongest predictor of who uses fresh meal kit subscription services, a demographic that already aligns with Amazon’s core users. Meal kit service subscribers are also disproportionately inclined to have ordered products or services online in the last three months and to have purchased something online in the last seven days. They are also heavier users of Amazon-based commerce,” Packaged Facts said.