Amazon’s (AMZN US) announced acquisition of Whole Foods Market (WFM US) triggered all sorts discussion about Amazon’s plans for the grocery business and which directions they plan to take the business.

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Amazon already offers food delivery services to Amazon Prime members in major U.S. cities for restaurant delivery in under an hour and Whole Foods also operates a delivery service for prepared meals and party catering for their customers.

So, when the e-commerce giant filed a trademark application in early July for prepared food kits, specifically for

“prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetables . . . ready for cooking and assembly as a meal”,

it refreshed speculation that Amazon would use the Whole Foods acquisition as a base to move aggressively into the food delivery and prepared food kits industry.

 

Food delivery is growing at 15% a year

U.S. consumers spend US$210 billion on take away restaurant food each year, 15% of which is delivered but only 5% is being ordered online. However, online ordering of food delivery is growing at 15% a year according to Morgan Stanley and is being driven by several factors:

  • Consumers are increasingly time-poor and turning to take away or prepared meals
  • Mobile technology has made ordering more user friendly
  • Delivery is getting cheaper

The National Restaurant Association in the U.S. estimates that consumers spend about 50% of their total food spend budget at restaurants, which is double the rate in 1955 when consumers only spent 25% at restaurants.

A large industry, which is growing at healthy rates and with still low penetration rates (there are over 350,000 independent restaurants that offer takeout or food-delivery options to U.S. diners but only about 20% offer delivery through an independent online delivery service) seems ripe for Amazon’s disruption.

Prepared food kits are subject to growing competition

Busier lives and the search for convenience and healthier eating has also driven the prepared food kits industry, where consumers are delivered boxes of pre-portioned ingredients and instructions to cook their own meals at home.

Prepared food kits are a natural extension of the general grocery industry, which is a US$800 billion industry in the U.S. with online sales being a mere 1.2% as consumers have shown a preference to shop in stores for fresh food. However, the recently listed Blue Apron (APRN US) believes online sales of groceries can grow 8.5% annually from 2017 to 2020 compared to the broader grocery market, which is expected to grow at 1.3% annual over the same period.

Despite the size of the potential opportunity, the prepared food kits industry is only a US$2 billion industry in the U.S. and already subject to growing competition. In the U.S. alone, rivals include HelloFresh, Sun Basket, Purple Carrot and Munchery while start-ups such as SpoonRocket, Maple and Sprig have already gone out of business.

 

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About Kevin Hua

Kevin Hua is a Co-Founder of AtlasTrend, an online investment platform that makes it easy for anyone to learn and invest in trends transforming our world. Kevin has over 19 years experience in financial markets including as Senior Portfolio Manager at Atrium Investment Management and Stark Investments.