Dive Brief:

• Amazon’s online grocery sales tripled during the second quarter as shoppers shifted their buying from stores to e-commerce during the pandemic, according to the company’s earnings report.
• To accommodate the influx of online grocery customers, Amazon increased delivery capacity by 160% and tripled the number of grocery pickup spots in Q2.
• Amazon’s physical store sales, most of which come from around 500 Whole Foods locations, declined 13% during the quarter, to $3.7 billion.

Dive Insight:

The pandemic has given Amazon’s online grocery business a significant shot in the arm, pushing forward the timeline on its delivery and pickup services rollout.

Also notable is the accompanying surge in Prime membership spending, which promises to continue fueling grocery sales for Amazon as long as the virus remains active in the U.S. as well as long-term. Amazon’s Prime subscription income grew nearly 29% in Q2 as shoppers signed up and renewed the service at elevated rates. Amazon Chief Financial Officer Brian Olsavsky also noted during the company's earnings call Wednesday that Prime shoppers are spending more with the Amazon and shopping more frequently.

Prime has always been a leverage point for Amazon’s grocery offerings. Late last year, the company made Amazon Fresh free to Prime members in an effort to speed up adoption. Within months, sign-ups for the service climbed more than 30%, according to one estimate. Prime is required to shop online at Whole Foods, with fees waived on large orders through services like two-hour delivery.

The increase in Prime engagement, even if not primarily driven by grocery shopping, promises to funnel more sales into Amazon’s grocery properties and feed it with rich customer data.

Amazon has taken note of surging demand for pickup service, which was not a priority for the company pre-COVID. It’s unclear if all the threefold new pickup points Amazon referenced in its earnings release are Whole Foods stores, but it’s safe to assume a majority are. At the end of Q1, Whole Foods offered pickup from 150 stores.

Amazon’s double-digit decline in physical store sales is due in part to the closure of Amazon’s other retail locations, like its bookstores. It’s also likely due to Whole Foods narrower range of specialty goods, as well as the fact that several grocery locations closed down during the quarter and switched to online order fulfillment. Amazon’s online grocery sales through Whole Foods are classified under online sales.

The lackluster physical sales don’t seem to bode well for Amazon’s new supermarket chain, which was supposed to debut in February and will feature the company’s new Dash Cart. But the stores, at least two of which have been serving as dark stores during the pandemic, will likely have online fulfillment as a core part of their business strategy. Amazon has so far confirmed six locations for the new chain, and reports point to several other locations in places like Seattle and Washington, D.C.

Experts have told Grocery Dive that Amazon is targeting Prime member-rich geographies for grocery expansion in addition to building a grocery ecosystem that will encompass online and brick-and-mortar buying across specialty, convenience and mainstream retail. The e-tailer has been moving haltingly toward this goal, but the pandemic seems to be putting greater momentum behind all of its evolving grocery properties.