Americans are buying more and more of their groceries and household necessities online. And thanks to its acquisition of Whole Foods Market, Amazon.com (AMZN -2.26%) is perfectly positioned to capitalize on this enormous trend.
The U.S. lags much of the world in online ordering of everyday household goods, also known as fast-moving consumer goods (FMCG):
Data source: Kantar.
FMCG includes groceries, household products, and even pet food. It also happens to be the last holdout in a retail world increasingly dominated by e-commerce. Fortunately for Amazon, this dynamic is quickly changing:
Data Source: Nielsen.
Increased sales of FMC goods a boon for Jeff Bezos & Co. Amazon made online orders for books commonplace. Now, as consumers grow accustomed to ordering things like groceries from their computer, Amazon is the obvious solution.
Consumers win, but what should investors think?
Amazon success depends on its ability to grow and disrupt any industry that CEO Jeff Bezos believes it can compete in. As Bezos himself has said "...Your margin is my opportunity."
Amazon was notoriously unprofitable for years. In spite of this red ink, believers saw a future where Amazon achieved dominance in a market through fierce competition and then profits would abound. So far, the bulls have been right. Amazon Web Services (AWS) is a prime (See what I did there?) example of Amazon's business model. AWS is now the dominant web hosting service in the US, and an enormous cash-cow having generated $1.17 billion in operating income in Q3 2017 alone.
Image Source: Getty Images.
Amazon's strength in any market increases with the value of its ecosystem. Its overall profitability rises by offering customers more. By acquiring Whole Foods, Amazon instantly gained over 450 physical retail locations in prime urban markets. The move gave Bezos & Co. an instant physical presence in incredibly valuable markets. Ironic -- Amazon has been the poster-boy for e-commerce fueled disruption for 20 years.
Physical stores also allow Amazon to offer new services -- further increasing its value proposition. AMZN is already placing pick-up lockers and expanding its delivery capabilities at Whole Foods locations:
Image Source: Author Photo.
Image Source: Author Photo.
A retail presence feeds into Amazon offerings such as its Dash Buttons to instantly reorder common household items. An increased online ordering of FMCG items also lends itself to Amazon's recently announced Amazon Key service, which authorizes Amazon delivery personnel access to customers' homes.
Foolish bottom line
Currently, Americans buy far fewer everyday FMCG products online than other nations. This is changing. Thanks to Amazon's purchase of Whole Foods, it is ideally positioned to take advantage of this trend. As Americans increasingly order things like groceries and household necessities online, Amazon will be there to ensure timely delivery of everyday essentials.
