NEW YORK — Even before Amazon said it was buying Whole Foods, the grocery industry was scrambling to adapt to changing habits. Now the deal will likely quicken those efforts.
Amazon's planned $13.7 billion acquisition of the organic and natural foods grocer signals a massive bet that people will opt more for the convenience of online orders and delivery or in-store pickup, putting even more pressure on the already competitive industry. Though online orders are estimated to account for just 1 percent to 2 percent of grocery sales, that figure is expected to grow.
It's not yet clear what specific changes are in store at either Amazon or Whole Foods, since the two companies are saying little about their plans. But to stay prepare for the threat of the combined company, grocers will likely speed up plans to make their stores more appealing, leverage locations to offer delivery and do a better job of collecting shopper data. They may also need to seek innovative partners of their own.
Here's a look at the changes that are expected to accelerate.
SHOW & SELL
Grocery shopping is likely to get more sensory, as retailers try to make stores a draw beyond just picking up staples.
Kroger Co., for instance, has touted the opening of Murray's cheese shops in some locations. Whole Foods, a leader in redefining the modern grocery experience, offers a "produce butcher" at a recently opened store in New York City.
"I think retailers are going to have to bring a lot of excitement to the store," said Stew Leonard Jr., CEO of Stew Leonard's, a grocery chain with five locations in Connecticut and New York.
Leonard noted his chain is known for free samples and costumed farm animals that walk around stores and greet shoppers. But he said he's looking for ways to modernize elements of the "show" his stores put on — such as the singing animatronics — to ensure that grocery shopping remains a family event.
Prepared foods are another way grocers are increasingly making their stores a destination. Some chains have classical musicians play as shoppers wander from wine sections to sushi stations or meet friends for a bite. And in a nod to the popularity of delivery companies like Blue Apron, Kroger and Whole Foods have been testing meal kits as well.
DELIVERY & IN-STORE PICKUP
Major grocery retailers were already stepping up their efforts in delivery and in-store pickup of online orders. And Amazon's purchase of Whole Foods underscores the value of physical locations in offering such options. Many also say they will always want to do some of their grocery shopping in person to see what they're buying.
"All stores are not going away, it's just a matter of finding the store/online equilibrium," Credit Suisse analysts said in a note.
Maintaining the right balance will be critical. Walmart has about 4,700 U.S. locations, with plans to offer curbside grocery pickup at 1,100 by the end of this year. Kroger has nearly 2,800 stores that operate under a variety of names. Whole Foods' footprint is far smaller with about 440 locations, though those are mostly in urban and affluent neighborhoods where delivery might be more in demand.
As sales declined at established locations, Whole Foods recently said it was hitting the brakes on expansion and that it no longer saw potential for 1,200 locations. The company hasn't said whether that thinking changes under Amazon.