Grocery store chain Albertsons is taking the fight to Amazon.com (NASDAQ:AMZN) opening a digital marketplace for third-party consumer product companies to sell their goods online. While it gives smaller vendors an opportunity to have their products and wellness merchandise reach a wider audience than they might otherwise be able to find, it also gives Albertsons a chance to capture a larger share of such sales that would have probably ended in Amazon's pockets.
A digital grocery experiment
The Albertsons marketplace isn't exactly unique in that Walmart (NYSE:WMT), for instance, launched a digital channel for third-party vendors in 2016. And though it pales in comparison to Amazon.com, which has millions of vendors compared to about 1,000 or so on Walmart's channel, it provides an alternative for those who shun the e-commerce giant. Industry site eMarketer says Amazon sold nearly $197 billion worth of merchandise through its online marketplace last year while Walmart sold over $16 billion.
What is different about Albertsons is that it is a grocery store chain attempting to become an e-commerce platform, and one that is dedicated to smaller consumer products companies. The companies will have the ability to dropship the product on their own, though the customer service portion of the transaction will be handled through the Albertsons platform. Albertsons is a grocery store chain with a presence in 35 states under 20 different banners, including Acme, Safeway, and Vons, this reach -- both geographically and in its recognizable brands -- gives younger companies on its marketplace national exposure.
Vendors will list their products for sale on the marketplace, and when an order is placed Albertsons will process the payment and deduct a commission before depositing the rest into the vendor's account.
The changing face of supermarkets
Albertsons has been ramping up its e-commerce presence. Last year, it expanded its click-and-collect offering to 80 stores in 2017 with plans for rolling it out to 200 stores by the end of its current fiscal year. It's also upgraded its mobile app and expanded its digital loyalty program. In January, the supermarket chain launched Albertsons Performance Media, a means of helping smaller brands better target their advertising.
Last year, Albertsons also bought meal kit delivery service Plated with the expectation that online sales would continue to grow, but that the company could also sell the meal kits in-stores. Leading rival Blue Apron has also finally latched onto the idea that selling meal-kits in stores may be its key to survival.
Albertsons is owned by private equity fund Cerberus Capital Management. In February, it announced a merger agreement with Rite-Aid to combine one of the largest supermarket chains in the U.S. with the drugstore chain to create a unified grocery, health, and wellness giant.
The shift to become more things to more people is a result of Amazon.com's push into groceries, particularly with the acquisition of Whole Foods Market last year and the launch of its own branded grocery store, Amazon Go. But by keeping more customers in its ecosystem, Albertsons will be able to build better consumer loyalty.
Looking beyond groceries
The marketplace, which is scheduled to launch this summer, will enable the small consumer product companies to make a pitch for placement in Albertsons stores if their products do well online. The ability to move between the digital and physical grocery stores will benefit both the vendors and Albertsons, which will gain greater insights into customer buying habits.
If the experiment is successful, there's nothing to say Albertsons couldn't start to add merchandise to the platform beyond consumer food products. Kroger, for example, is adding apparel and an Ace Hardware department to its brick-and-mortar stores, so Albertsons putting vendors of such wares on its website might not be such a stretch. There's nothing to say Albertsons can't follow Amazon's footsteps.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.