Part of the challenge may be that the majority of people say they actually like grocery shopping, and doing so in a physical store:

So it is very possible that, for the foreseeable future, there will always be a large segment of buyers who prefer to shop in-store. But then again, if you asked me these same questions, I would also tell you that I like grocery shopping and that I prefer buying in-store. However, that doesn't mean I wouldn't be open to alternatives. I just haven't explored and found a suitable online option.

At the same time, and according to the same Consumer Trends Survey, about 10% of Americans say they currently dislike grocery shopping. Maybe this is the same 10% who are right now shopping online. Either way, this is already a large segment of people who would rather not go into a grocery store.

Intuitively, as the online offerings get better, one would expect this number to grow. Here, for example, is an interesting overview of the service Hungryroot. One part "meal kit" delivery and one part online grocery shopping, the company uses machine learning and algorithms to determine what its customers might want to buy. Already, about 70% of what it sells is picked automatically.

On the back end, McKean explains, among other actions, Hungryroot is “clustering” its new customer with other users who have answered its onboarding survey similarly and have already been with the service for multiple years. “And so we can say, ‘okay, people who filled out that signup flow like you… they loved these top recipes with high probability, so we think you’re going to love these recipes with high probability’.”

What I like about this is that it requires fewer decisions; it has the potential to feel like you have a private chef (one that learns what you like and adjusts accordingly); and it promotes dietary variety. For the typical American, 75% of what they buy in a grocery store is the exact same as what they bought the last time. There's very little variety, because it's always easier not to have to think.

Given this stat, it is maybe surprising that this 75% hasn't become more automated for more people. Perhaps it's the 25% that keeps most of us going into stores. I'm not sure, but I think I'm ready to try a service like Hungryroot.

Part of the challenge may be that the majority of people say they actually like grocery shopping, and doing so in a physical store:

So it is very possible that, for the foreseeable future, there will always be a large segment of buyers who prefer to shop in-store. But then again, if you asked me these same questions, I would also tell you that I like grocery shopping and that I prefer buying in-store. However, that doesn't mean I wouldn't be open to alternatives. I just haven't explored and found a suitable online option.

At the same time, and according to the same Consumer Trends Survey, about 10% of Americans say they currently dislike grocery shopping. Maybe this is the same 10% who are right now shopping online. Either way, this is already a large segment of people who would rather not go into a grocery store.

Intuitively, as the online offerings get better, one would expect this number to grow. Here, for example, is an interesting overview of the service Hungryroot. One part "meal kit" delivery and one part online grocery shopping, the company uses machine learning and algorithms to determine what its customers might want to buy. Already, about 70% of what it sells is picked automatically.

On the back end, McKean explains, among other actions, Hungryroot is “clustering” its new customer with other users who have answered its onboarding survey similarly and have already been with the service for multiple years. “And so we can say, ‘okay, people who filled out that signup flow like you… they loved these top recipes with high probability, so we think you’re going to love these recipes with high probability’.”

What I like about this is that it requires fewer decisions; it has the potential to feel like you have a private chef (one that learns what you like and adjusts accordingly); and it promotes dietary variety. For the typical American, 75% of what they buy in a grocery store is the exact same as what they bought the last time. There's very little variety, because it's always easier not to have to think.

Given this stat, it is maybe surprising that this 75% hasn't become more automated for more people. Perhaps it's the 25% that keeps most of us going into stores. I'm not sure, but I think I'm ready to try a service like Hungryroot.

The big news on Friday was that Amazon has agreed to buy grocery chain Whole Foods for $13.4 billion.

Some people – such as Bruce Berkowitz, who manages the $2.3 billion Fairholme Fund and who is the second largest shareholder of Sears Holdings Corp. – believe that this says to the market that “there is a need for physical space in retailing.” Everything can’t be online.

I obviously agree that there’s value in real estate / physical locations, but I don’t see this as Amazon capitulating in any way. This is not Amazon saying to itself: “Well, AmazonFresh hasn’t grown as quickly as we’d like, so let’s forget this ecommerce thing.” No, Amazon is determined to win.

Indeed, the fact that shares of supermarket operators tumbled across the U.S., Canada, and Europe, probably signals that the market is expecting something other than the status quo following this acquisition. 

All of this is a big deal because grocery is a big deal. 

There’s a reason Wal-Mart ramped up grocery (and now derives over half of its revenue from it). There’s a reason why drug stores are proliferating across our cities (and expanding their grocery offerings). In Toronto it’s Shoppers Drug Mart and Rexall. In New York it’s Duane Reade.

We buy groceries frequently and we overwhelmingly still buy them in person. So online grocery is the holy grail of ecommerce of right now. Everyone wants to nail it first.

How does this acquisition help Amazon do that? Here are two thoughts.

1) The real estate still matters. 

Even in a world where most groceries are purchased online, you need still need physical distribution centers in close proximity to lots of customers. Whole Foods has more than 460 stores across the U.S., Canada, and Britain. Their formatting would obviously evolve, but the bones are there for Amazon to leverage.

Startups such as Instacart have tried to circumvent this requirement by fulfilling only the delivery portion. And arguably their pitch to other grocers may now be stronger: “You need to offer this to compete with Amazon/Whole Foods.” (Instacart currently provides this service Whole Foods.) But you can bet Amazon will want to squeeze/control this part of the supply chain.

2) The data.

Many analysts are already assuming that Amazon will work to automate away cashiers, similar to what it’s trying to do with its Amazon Go concept store. If you combine this with other offerings such as 15 minute pickup (Amazon Fresh PIckup), you can easily imagine a world where us customers get weaned off of in-person shopping.

For example, if my regular grocery store made better use of its data, it would probably come to the conclusion that I generally buy things like orange juice, milk, and avocados (I’m a Millennial) every X days. I’m sure if you look at my shopping habits, I’m pretty predictable. Whenever I go to a new store it always takes me 100% longer to shop because I don’t generally wander. I target my stuff.

Now if I could get somehow prompted to re-order my regular items every X - 1 days, chances are I would gladly tap order. And now I’m shopping for groceries online. Get ready for the grocery wars.

Given the option, I will buy online as opposed to offline. About the only thing I consistently buy in-person is groceries. Food shopping remains a persistently in-store activity for most of the market. Though some European countries seem to have much higher online food shopping rates.

It is for reasons like this that Amazon opened a new small-format grocery store this past Monday called Amazon Go. The big game changer – which is currently making the rounds on the internet – is the fact that there are no check out counters. You simply check-in with their app when you walk into the store and then leave with whatever you want. Your phone will automatically charge you for whatever you picked up.

Finally! Grocery store check outs suck. (The store is currently in beta and will not open to the general public until 2017.)

But perhaps even more meaningful is all the data that Amazon will be collecting about our grocery shopping habits. This will scare some of you, I’m sure. But I can tell you that there are a slew of things that I buy regularly. And I bet that if you analyzed the data, the purchases would happen at fairly regular intervals: bananas every x days, orange juice every y days, etc.

So once Amazon Go learns what I like to buy, I am sure that it will then start to try and sell it to me online, along with some sort of subscription. If it can assure me that the produce is fresh and the expiry dates are far out (if they’re not, I want to be able to take a picture and get a refund), then there’s probably a good chance that I, as well as others, could be converted to online food shoppers.

The big news on Friday was that Amazon has agreed to buy grocery chain Whole Foods for $13.4 billion.

Some people – such as Bruce Berkowitz, who manages the $2.3 billion Fairholme Fund and who is the second largest shareholder of Sears Holdings Corp. – believe that this says to the market that “there is a need for physical space in retailing.” Everything can’t be online.

I obviously agree that there’s value in real estate / physical locations, but I don’t see this as Amazon capitulating in any way. This is not Amazon saying to itself: “Well, AmazonFresh hasn’t grown as quickly as we’d like, so let’s forget this ecommerce thing.” No, Amazon is determined to win.

Indeed, the fact that shares of supermarket operators tumbled across the U.S., Canada, and Europe, probably signals that the market is expecting something other than the status quo following this acquisition. 

All of this is a big deal because grocery is a big deal. 

There’s a reason Wal-Mart ramped up grocery (and now derives over half of its revenue from it). There’s a reason why drug stores are proliferating across our cities (and expanding their grocery offerings). In Toronto it’s Shoppers Drug Mart and Rexall. In New York it’s Duane Reade.

We buy groceries frequently and we overwhelmingly still buy them in person. So online grocery is the holy grail of ecommerce of right now. Everyone wants to nail it first.

How does this acquisition help Amazon do that? Here are two thoughts.

1) The real estate still matters. 

Even in a world where most groceries are purchased online, you need still need physical distribution centers in close proximity to lots of customers. Whole Foods has more than 460 stores across the U.S., Canada, and Britain. Their formatting would obviously evolve, but the bones are there for Amazon to leverage.

Startups such as Instacart have tried to circumvent this requirement by fulfilling only the delivery portion. And arguably their pitch to other grocers may now be stronger: “You need to offer this to compete with Amazon/Whole Foods.” (Instacart currently provides this service Whole Foods.) But you can bet Amazon will want to squeeze/control this part of the supply chain.

2) The data.

Many analysts are already assuming that Amazon will work to automate away cashiers, similar to what it’s trying to do with its Amazon Go concept store. If you combine this with other offerings such as 15 minute pickup (Amazon Fresh PIckup), you can easily imagine a world where us customers get weaned off of in-person shopping.

For example, if my regular grocery store made better use of its data, it would probably come to the conclusion that I generally buy things like orange juice, milk, and avocados (I’m a Millennial) every X days. I’m sure if you look at my shopping habits, I’m pretty predictable. Whenever I go to a new store it always takes me 100% longer to shop because I don’t generally wander. I target my stuff.

Now if I could get somehow prompted to re-order my regular items every X - 1 days, chances are I would gladly tap order. And now I’m shopping for groceries online. Get ready for the grocery wars.

Given the option, I will buy online as opposed to offline. About the only thing I consistently buy in-person is groceries. Food shopping remains a persistently in-store activity for most of the market. Though some European countries seem to have much higher online food shopping rates.

It is for reasons like this that Amazon opened a new small-format grocery store this past Monday called Amazon Go. The big game changer – which is currently making the rounds on the internet – is the fact that there are no check out counters. You simply check-in with their app when you walk into the store and then leave with whatever you want. Your phone will automatically charge you for whatever you picked up.

Finally! Grocery store check outs suck. (The store is currently in beta and will not open to the general public until 2017.)

But perhaps even more meaningful is all the data that Amazon will be collecting about our grocery shopping habits. This will scare some of you, I’m sure. But I can tell you that there are a slew of things that I buy regularly. And I bet that if you analyzed the data, the purchases would happen at fairly regular intervals: bananas every x days, orange juice every y days, etc.

So once Amazon Go learns what I like to buy, I am sure that it will then start to try and sell it to me online, along with some sort of subscription. If it can assure me that the produce is fresh and the expiry dates are far out (if they’re not, I want to be able to take a picture and get a refund), then there’s probably a good chance that I, as well as others, could be converted to online food shoppers.

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