Even Mighty Amazon Can’t Deliver on Grocery Delivery

by David Randolph, 15 Aug 2018

I tested Amazon’s grocery delivery service this past weekend and I’m left with the following thoughts:

  • Clunky shopping and product selection
  • AmazonFresh & Whole Foods confuses shoppers
  • Significant price premium
  • Complicated delivery
  • Wasteful packaging

For now, traditional grocery has nothing to fear. But I will say, if any company can figure out a way to deliver groceries smoothly, it will be Amazon.

Despite the segment being a famously low margin retail business, retail giants want your grocery dollar. Target and Walmart have proliferated while Costco has enjoyed remarkable success with grocery bulk sales. In the midst of all this, Kroger has quietly grown into the second largest retailer in America, but the key event is the acquisition of yuppie grocer Whole Foods — recently snapped up by Amazon.

Amazon acquired Whole Foods for its meticulously chosen, upscale and urban real estate. Whole Foods’ locations will become excellent “last mile” distribution points for the online giant. Amazon will also bring Prime membership into Whole Foods, further penetrating into the other half of American households that don’t subscribe to Prime.

But, the real value is data. Our purchases of household products and food items paint a robust picture of our homes. Building algorithms that predict future behavior, based on recording almost everything we buy today, is data that not even Google, Facebook or Experian can gather.

Product Selection is Clunky
Let’s unpack the consumer experience of Amazon’s grocery delivery service with the first problem — the shopping experience is not smooth. Ironically, the selection pales in comparison to an average Kroger store. Pinto beans? One brand. Parmesan cheese wedge? One brand. Plus, fresh produce is tough to wrap your head around — how much broccoli am I actually ordering? It is clunky and time consuming to go through a shopping list while looking at tiny little photos. 

 

                                  One measly parmesan wedge to choose from?

 

I used a full sized PC browser (not a phone) to shop for my grocery products. The screen real estate was very much needed. With time, I’m sure this will become more intuitive, but online grocery suffers from the same drawback as any ecommerce experience — you can’t see and touch items. Of course, this isn’t the hurdle for grocery that ecommerce is for clothing. The sheer tonnage of fresh broccoli that showed up is laughable… nobody needs that much broccoli.

AmazonFresh or Whole Foods?
Which brand is it? As I searched/selected products, Amazon annoyingly filled two carts - one for AmazonFresh and another for Whole Foods delivery. It was unclear during the shopping experience that this was happening.

I rang up $54 worth of stuff, but neither cart met the order minimum, and couldn’t be combined. I also found that items in the Amazon cart weren’t available from Whole Foods and vice versa. I ended up deleting the AmazonFresh items. My guess is that the items were coming from different local distribution centers and I’m sure this will be fixed someday.

           Watch out for items not available at Whole Foods - a new cart gets created.

Premium Pricing
Amazon understands better than any other retailer, the appeal of “consumer convenience” due to “human sloth” as restaurant and meals-to-go business continues its upswing. The convenience factor requires a premium, but it also will create a nagging feeling in consumer minds. 

I didn’t invest the time into item-level price comparisons (to Kroger), but the prices felt significantly higher, 25-40% higher perhaps? Ordering grocery feels like an occasional thing, not a replacement for the big weekly Kroger run. Price premium is a barrier to regular usage.

Delivery Complications
Kudos to Amazon for keeping tabs on my order progress. As it was picked and bagged, Amazon kept me informed with texts; it took almost three hours to arrive, when I was promised two hours. I was also puzzled to see my order generating from a much further Whole Foods location from my house (rather than my usual store). This long delay means that online grocery requires time schedule planning - it’s not a whim.

The driver leaves your products at the door. Since we live in a house, this isn’t an issue, but a large percentage of Americans live in condos and apartments. For the sake of collecting your groceries safely, as well as ensuring your perishables stay cold, plan to be home when the driver arrives. This is in stark contrast to traditional Amazon deliveries that can safely sit by the door for hours when nobody’s home.

                             AmazonFresh was preceded by several failed grocery startups.

Delivery logistics doomed Webvan, which followed the traditional approach of capital investments into trucks and employee drivers. But we are in the age of Uber, the ride-sharing pioneer has been a catalyst for the growing “gig economy” which crowd-sources labor and vehicles. My Amazon grocery delivery was almost certainly delivered by a freelance driver.

Wasteful Packaging
To make this point, I will channel both Al Gore and Warren Buffet. The “bags” containing my groceries were indestructible sealed pouches. My cold items were in an even heavier pouch with a space age insulation layer.

                      And I thought the thin Kroger plastic bags were bad for the environment? 

These Amazon pouches went straight into the trash can (thus into the landfill). I could hear Mother Nature crying in anticipation of the millions of AmazonFresh orders in the coming years. These are almost a Blue Apron level of environmental impact.

Beyond nature, these also hurt your wallet. The packaging must surely play a part in the premium pricing. AmazonFresh is so intent on making a good first impression, that it over engineered the bulky delivery pouches; and it displays the true challenge Amazon faces with grocery delivery.

Amazon wants to make grocery delivery work in the U.S. and is willing to throw billions into the enterprise. Marketers should keep in mind that Amazon is certainly facing headwinds in building this into a viable Kroger killer, but infrastructure geniuses can’t solve everything.

We are talking about the complexity of a FedEx delivery business that’s even too fast-moving for FedEx. Groceries are perishable and heavy, and most importantly, this whole grocery business is low-margin even when the customer does the picking and transporting.

As a heavy Amazon shopper, I’m in no hurry to place another grocery order, but I sure do love the 5% cashback on my Chase Amazon Visa at Whole Foods. Just as Amazon planned, there are many facets to the Whole Foods acquisition, and many more in development.

In 2015, John Mackey, CEO of Whole Foods, claimed that Amazon’s entrance into grocery would be its Waterloo. Only time will tell…

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