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A year after Amazon-Whole Foods deal, Canadian grocers aggressively investing in e-comm

As the online behemoth takes a bite out of grocery, Canada’s big players play catch up

One year ago this week, Amazon shocked the grocery industry with its $13.7-billion deal to buy Whole Foods.

The runaway online retail juggernaut had already disrupted most bricks-and-mortar categories and now, it was clear, Amazon wanted to grab a bigger piece of the grocery pie.

When the deal closed in August, Amazon moved quickly: more Whole Foods options were added online while some of the infamously high prices at Whole Foods (aka Whole Paycheck) were reduced in-store. According to Business Insider, a basket of groceries went from $97.76 pre acquisition to $75.85 after the deal went through.

But since then, the changes have not been as dramatic as initially expected. Amazon lockers have been added to some stores, boosting foot traffic; Amazon is starting to roll-out two-hour delivery services in the U.S.; Whole Foods is selling Amazon Echos and other hardware; and the Whole Foods loyalty program is being replaced by Amazon Prime membership. In Canada, the rewards program was shut down in early May, with only a vague invitation to “Stay tuned for additional announcements for Amazon Prime members.”

Because Whole Foods has such a small footprint in Canada with only 13 stores coast to coast (compared to more than 460 in the U.S.), the deal may not have done much to change consumer grocery patterns overall, but it was an unignorable signal about the increasingly online-focused future of the industry—the Canadian players had to respond. And fast.

“It was a disruptive event for the entire industry,” said Sylvain Charlebois, a professor in food distribution and policy at Dalhousie University. “Grocers are clearly trying to figure out ways to monetize their e-commerce platform, as quickly as they can. It is very much what I was expecting, but at a much rapid pace.”

“What it did was light a fire under the traditional retailers to expand their online initiatives,” added Jeff Doucette, general manager of market research firm Field Agent Canada.

Loblaw and Walmart have ramped up their click and collect offerings, Metro is committed to expanding its e-commerce this year and into 2019, and in January Sobeys announced it would partner with British online grocery business Ocado to expand the Canadian’s retailer’s online offerings.

And it’s clear the familiar Canadian grocery brands have some catching up to do. In an online survey of 1,004 Canadians by market research firm NRG, 62% of respondents who buy groceries online said they shopped at Amazon, while just 37% said Walmart, and 23% said Loblaws. On its own, Amazon had a bigger share of online shoppers than the traditional grocers combined.

“Canada is a lagging nation when it comes to innovation in food distribution, generally speaking,” said Charlebois. “Amazon is good at executing on delivering products, and the sector needs to get better at it.

“Grocers are still reacting, but I’m expecting majors to go much more on the offence over the next 18 months or so,” he said.

But, as much as Amazon is famous for its door to door delivery in the U.S., Doucette believes the grocery sector will continue to face Canadian-specific issues related to the unique delivery challenges of a dispersed population and low density markets. “You can build a distribution centre in the U.S. and service a really good size market from it,” he said. That is not the case in Canada and for that reason, he expects in-store pickup options to remain more popular in Canada in the near-term.

With distribution centres servicing larger geographic areas, delivery times increase and quality concerns rise with items such as fresh produce. A lot of Canadian consumers will find it more convenient to place the order online and drive to the store to pick it up. “The door to door piece is idealistic, but it is not overly practical,” he said of the supply challenges. “And what do you do when it is -20 and your order is being left on your door step and your produce freezes?”

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