Amazon saw online grocery sales triple year-over-year during the second quarter as more customers get their groceries delivered versus going to a physical store amid the COVID-19 pandemic.
Amazon revealed the growth rate as part of its second quarter earnings report. The Seattle-based company blew past analyst expectations, reporting $88.9 billion in revenue and $5.2 billion in profits, despite spending $4 billion on COVID-19 initiatives.
Customers are relying on Amazon for online shopping as physical stores are closed or operating under social distancing mandates due to the health crisis.
Amazon, which owns Whole Foods, said it increased grocery delivery capacity by more than 160% and tripled grocery pickup locations during the second quarter.
“We’re reaching more customers with our grocery offerings,” Amazon CFO Brian Olsavsky said on a call with analysts Thursday.
A survey from RBC Capital Markets in April found an “accelerated secular shift to online grocery shopping” driven by the pandemic, with companies including Amazon, Walmart, and Instacart benefitting.
“We believe that online grocery shopping may now be coming a habitual practice among shoppers,” RBC analyst Mark Mahaney wrote.
Amazon doesn’t break out online grocery sales in its financial statements. Its physical store category, which primarily includes sales from Whole Foods, saw revenue drop 13% to $3.8 billion during Q2. But sales from customers who buy groceries for delivery or pickup from Whole Foods are included in Amazon’s online sales category, which was up 49% to $45.9 billion.
Amazon reported today that across delivery, pickup, and in-store shopping, Whole Foods sales grew year-over-year.
RBC said Amazon’s online grocery arm could produce $70 billion in gross merchandise volume by 2023 — more than 3X from 2019 — becoming a material portion of its total revenue.
The New York Times reported in April that orders for Amazon groceries were as much as 50 times higher than normal. The company was struggling to fulfill orders, with some customers reporting extended delays or no open delivery windows for weeks.
The spike in online grocery purchasing could help Amazon boost its Prime membership base. Amazon requires a $119/year Prime membership to access its 2-hour Prime Now delivery service and Amazon Fresh.
This past October, Amazon made grocery delivery a built-in benefit of Prime membership — no longer charging an extra $15 per month, or $180 per year, for Amazon Fresh delivery on top of the $119 annual Prime fee.
Olsavsky said existing Prime member renewal rates improved and the Prime member growth rate accelerated both in the U.S. and worldwide during the second quarter.
Amazon’s online grocery arm also includes its AmazonFresh Pickup service. The company also offers BOPIS (Buy Online PIckup in Store) at Whole Foods, which it acquired for $13.7 billion three years ago.
Aiding Amazon’s grocery delivery efforts is the company’s huge investment in its delivery network that is enabling 1-day delivery promises for Prime members.
Amazon’s other grocery-related initiatives includes its growing footprint of Amazon Go stores that feature cashier-less technology; the company is now selling that tech to other businesses. Amazon is also preparing to open its own grocery store in Woodland Hills, Calif., which is currently being used to fulfill delivery orders. And the company recently unveiled its first smart grocery cart earlier this month.
Groceries are an estimated $678 billion U.S. market that is increasingly going digital. Research firm eMarketer estimates that U.S. food and beverage e-commerce sales will grow 23.4% to more than $32 billion this year, making it “both the fastest-growing and least penetrated ecommerce category.” Those projections came before the COVID-19 crisis.
Amazon in May expanded online use of the Supplemental Nutrition Assistance Program (SNAP) benefits program, allowing more people to use SNAP benefits to buy groceries online.
