Will Amazon's 2-Hour Whole Foods Delivery Skew Retail Pitch?

Groceries, until recently an insular market in the fiercely competitive retail zone, may see a radical shift in the days to come. The landscape is seeing a rapid change, with more players jumping on the offline bandwagon. The latest move in this space comes from Amazon (NASDAQ:AMZN) , which is offering free, two-hour delivery from Whole Foods stores to its Prime members in four cities — Austin, Dallas, Cincinnati and Virginia Beach. This is perhaps the beginning of a battle that will only intensify in the days and months to come.

The move comes within a year of the e-commerce giant’s $13.7-billion acquisition of supermarket chain Whole Foods. Customers in Austin, Dallas, Cincinnati and Virginia Beach can now order fresh produce, meat, seafood, flowers and other items that their local Whole Foods stores stock.

Such a move was expected by Amazon given that it has specific plans of exploring and adding novelty to the untapped online groceries market, and the Whole Foods acquisition was a giant leap toward this direction. Needless to say, this will most likely set alarm bells ringing for brick-and-mortar grocers that so long rested assured of business safety.

Consumer Focus Route to Success

That said, besides sparking fear among the traditional brick-and-mortar stores, the two-hour free delivery service has been introduced keeping in mind customer demands. Consumers look for convenience and good bargains and Amazon is focusing on both. Per a Walker Sands survey, 40% would buy groceries online if they were less expensive and 23% would for it if it were more convenient.

The Whole Foods acquisition was certainly a strategic move by Amazon and perhaps the best option, as most of its other technology-driven food delivery initiatives such as Amazon Go have faltered. The acquisition immediately gave Amazon access to Whole Foods’ 450 stores across the United States, thus giving it enough power to compete with brick-and-mortar giants like Walmart (NYSE:WMT) , Target (NYSE:TGT) , Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) . Target has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In doing so, the first step taken by the e-commerce behemoth was to slash prices of avocados, eggs, fruits, fish and prepared food by as much as 50%. Now, its two-hour, free-delivery service is only going to heat up competition for brick-and-mortar grocers. The idea is to lure more customers on the convenience quotient.

According to David J. Livingston, a supermarket analyst for DJL Research, people generally buy the same groceries every week. And the biggest question in their mind is if they really need to go and spend an hour at Walmart or Giant for that.

Grocery War at Its Height

While Amazon is clearing thinking big and taking bold steps, the likes of Walmart, Dollar Tree and Dollar General too are going the online way, thus creating a perfect setup for an intense war in the groceries space. According to NPD Group, about 7% of U.S. households bought groceries online last year. Among them, most prefer their orders delivered to their doors, while the rest pick up from the store. While Walmart, the country’s largest grocer is leaving no stone unturned to tap this area by offering customers the option to order online and a free pick-up from the store, Target brought online grocery-delivery company Shift to add muscle to it online delivery arm.

However, Amazon seems to be playing to its strength — a strong delivery wing. The company will pull items from Whole Foods stores, bag them but get the goods delivered by its own drivers. Moreover, it is all free and within two-hours. That certainly is a big challenge for those that are trying to go the online way.

More in Store

Understandably, there is a lot more that can be expected from retail giants in the near future. Walmart has already entered into a partnership with Japan’s Rakuten to sell e-books in the United States and strengthen its online grocery business in the Asian nation. Amazon’s move may have just ignited a fierce competition that’s only going to flare up. However, the others too seem very much in the race.

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