Whole Foods' sales soar on Amazon (AMZN)

Whole Foods Sales BI Intelligence

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Whole Foods has already sold approximately $1.6 million worth of its private-label products through Amazon, just one month after its acquisition by the e-commerce titan, The Wall Street Journal reports.

Amazon sold $500,000 of Whole Foods products in week one, and while that dropped to $300,000 for each of the next two weeks due to stock issues, sales bounced back in the fourth week, according to One Click Retail as cited by WSJ. Selling the grocer's private-label goods like 365 Everyday Value through Amazon.com, AmazonFresh, Prime Pantry, and Prime Now was one of Amazon's first moves after purchasing Whole Foods.

Whole Foods' reputation for quality puts it in a unique position to tackle online grocery. Consumers’ main issue with online grocery is the inability to see and choose their own products, and many grocers have struggled to overcome this hurdle. Whole Foods, however, is known for its high-quality products and stringent standards, meaning consumers may be more confident purchasing the company's offerings online. In fact, over the past month, Amazon successfully sold snacks, candy, frozen produce, turkey breast, and beverages from Whole Foods, showing that shoppers will buy a variety of products from the grocer sight unseen. That could indicate the organic-focused company is well poised to see greater success online than its competitors.

This means focusing on Whole Foods’ performance online may bear more fruit than in-store efforts. Whole Foods saw foot traffic jump right after the acquisition, but inMarket projects the statistic landed at 4% below average in September, so Amazon won’t immediately be fixing Whole Foods’ falling sales with in-store improvement. These newfound online sales, on the other hand, could pull Whole Foods' performance up as Amazon provides it with more exposure and a much larger reach.

The e-commerce giant is not done tinkering with Whole Foods as it looks to maximize its value. Amazon has said it intends to introduce more discounts, add Amazon Lockers to stores, and make Prime the grocer’s rewards program. On top of these initiatives, it reportedly plans to move Whole Foods away from local products and toward more conventional items. It's worth noting that such changes could alter the core Whole Foods experience, so Amazon will have to take care to ensure its adjustments do not alienate shoppers, or erode the company's key differentiator — its quality. This will be critical as the online retailer takes aim at the online and retail grocery markets, which are projected to be worth as much as $100 billion and $400 billion, respectively, by 2025.

Brick-and-mortar retailers are caught on the wrong side of the digital shift in retail, with many stuck in a dangerous cycle of falling foot traffic, declining comparable-store sales, and increasing store closures. Over 8,600 retail stores could close this year in the US — more than the previous two years combined, brokerage firm Credit Suisse said in a recent report. Meanwhile, e-commerce pureplays are riding the rise of digital commerce to success — none more so than Amazon, which accounted for 53% of online sales growth in the US last year, according to Slice Intelligence.

In response, many brick-and-mortar retailers have started to use omnichannel fulfillment methods that leverage their store locations and in-store inventory in order to better compete in e-commerce. These omnichannel services, including ship-from-store and click-and-collect, can help retailers manage the transition to digital by:

Increasing online sales by offering cheaper, more convenient delivery options for online shoppers.
Limiting the growth of shipping costs as online sales volumes increase by leveraging store networks for delivery.
Keeping stores relevant by turning them into fulfillment centers that pull customers in to pick up online orders.

However, few retailers have mastered these new fulfillment services. While these companies have spent years optimizing their supply chain and logistics networks for delivering goods to their stores or directly to customers’ doorsteps, most have yet to figure out how to profitably bring their store locations into the e-commerce delivery process.

Jonathan Camhi, research analyst for BI Intelligence, Business Insider's premium research service, has laid out the case for why retailers must transition to an omnichannel fulfillment model, and the challenges complicating that transition for most companies. This omnichannel fulfillment report also detail the benefits and difficulties involved with specific omnichannel fulfillment services like click-and-collect, ship-to-store, and ship-from-store, providing examples of retailers that have experienced success and struggles with these methods. Lastly, it walks through the steps retailers need to take to optimize omnichannel fulfillment for lower costs and faster delivery times.

Here are some of the key takeaways from the report:

Brick-and-mortar retailers must cut delivery times and costs to meet online shoppers’ expectations of free and fast shipping.
Omnichannel fulfillment services can help retailers achieve that goal while also keeping their stores relevant.
However, few retailers have mastered these services, which has led to increasing shipping costs eating into their profit margins.
In order to optimize costs and realize the full benefits of these omnichannel services, retailers must undertake costly and time-consuming transformations of their logistics, inventory, and store systems and operations.

In full, the report:

Details the benefits of omnichannel services like click-and-collect and ship-from-store, including lowering delivery times and costs, and driving in-store traffic and sales.
Provides examples of the successes and struggles various retailers have experienced with omnichannel delivery.
Explains why retailers are having trouble managing costs with their omnichannel fulfillment efforts, which are eating into their profits.
Lays out what steps retailers need to take to optimize costs for their omnichannel operations by placing inventory where it best meets customer demand.

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