While e-commerce giant Amazon is gobbling up a larger share of U.S. retail, there is one sector where its efforts to compete with brick-and-mortar stores are likely to fall short.
Continue Reading Below
Despite its $13.7 billion acquisition of Whole Foods Market in 2017, the grocery aisle is likely to remain resistant to pressures from Amazon throughout the near future, according to a report released on Thursday from Moody’s Investors Services.
The firm said that online penetration for food represents less than 2 percent of the $1 trillion in food retail sales for a number of reasons, including scalability and logistical challenges, and a greater consumer emphasis on fresh and healthy products. Even if aggressive strides were made in the area over the next five years, online sales would still only account for less than 6 percent of overall U.S. food sales.
Moody’s even pointed to Amazon’s acquisition of Whole Foods as an “admission” that it actually requires a physical store presence in order to scale up and compete in the grocery business.
Still, the acquisition has spurred other retailers, like Walmart and Costco, to invest in their own digital grocery operations, but Moody’s maintains that overall e-commerce penetration will remain low.
In addition to grocery stores, Moody’s says dollar stores, drug stores, discounters and warehouses will be able to fend off the digital takeover – at least throughout the near term.
Overall, however, Moody’s noted that Amazon has upped the stakes across the entire retail sector, “where the stakes are survival, staying relevant and capturing elusive growth.” The e-commerce giant will continue to be a “powerful disruptive force,” pushing retailers to adapt, especially when it comes to same-day shipping and delivery initiatives.
But as retailers have adjusted to the trends introduced by Amazon, Moody’s estimated that about 85 percent of overall retails sales are still being completed in physical stores.
“Amazon's initiatives are reducing the inherent advantage of retail's brick-and-mortar – but we do not see these efforts stealing retail's competitive edge any time soon,” researchers concluded.