What to expect from Amazon in grocery

Research and advisory firm Brick Meets Click's newest report is taking a look at how it expects Amazon to build out its growing grocery business. The online retailer will target affluent U.S. households, executing three key strategies: use Prime to push more purchases by affluent consumers, place grocery-driven stores in areas where they already have high-usage consumers, and grab shoppers with premium private label.

In the Barrington, Ill.-based firm’s newly published report, the analysts don’t see Amazon struggling against stronger, traditional grocers but rather differentiating itself by leveraging its robust digital connections in a physical store network.

More on the three keys in the report:

1. Aggressive customer acquisition
   Using Prime to attract more affluent grocery shoppers, Amazon’s first move was to roll in Amazon Fresh into Prime, no longer requiring a separate fee. Secondly, Amazon included in Prime an “Ultrafast Grocery Delivery” option in nearly 90 U.S. markets that delivers groceries and meals in an hour or two. The firm says these are moves targeting upscale shoppers.
2. Strategic site selection
   As Amazon moves further into grocery, Brick Meets Click says it’s not lost on the company that 90% of grocery is purchased in-store, so there will be more physical stores coming. Whereas the acquisition of Whole Foods was aimed at accomplishing this, the report said Prime hasn't converted a lot of members into Whole Foods shoppers. It also doesn't see the Amazon Go stores, which are in dense urban areas, fulfilling this need. Amazon's forthcoming grocery stores will be the trend, and where Amazon places them is the question. The firm sees the retailer building in areas where they have a high concentration of shoppers. The retailer has eyes on 3,000 locations, according to the report, and has a wealth of household grocery purchase data to identify optimal areas to build as well as how to stock those stores to fit a community.
3. Optimal product mix
   Yes, Amazon will harness the power of advertised brands but it will offer high-quality private label, the firm says. The trend in grocers rolling out premium private label will not be ignored by Amazon. The e-tailer offers private label now but will only take it further with grocery going forward, the report says.

The complete, Brick Meets Click report is available here.