Amazon’s Meal Kit Move Will Be More Than a Blue Apron Competitor

Jul 17, 2017

Any remaining doubts that Amazon wants to disrupt every nook and cranny of the food retailing world should have evaporated yesterday with the news that Amazon intends to make waves in the meal kit world currently dominated by Blue Apron (aprn).

“We know Amazon is jumping in with two feet now,” says Cooper Smith, director of Amazon research at digital branding intelligence firm L2.

The Times first reported on Sunday that on July 6, about a week after meal kit startup Blue Apron held its initial public offering, Amazon filed a trademark for the phrase: “We do the prep. You be the chef” related to “prepared food kits.” Meal kits, which provide recipes and the corresponding ingredients for consumers to prepare themselves, have picked up traction with time-starved eaters who are looking to eat more fresh foods. (Amazon did not respond to Fortune’s request for comment.)

When you put the pieces together of its meal kit trademark and its pending acquisition of Whole Foods (wfm), Amazon’s vision for food retailing becomes clearer. These moves are less about capturing more customers than they are about collecting more dollars from its existing set who are young, urban, and affluent—or, in other words, extremely desirable.

“Amazon is extremely targeted in what markets it wants to go after, and it’s going after 100% of Prime members wallet," Smith says, referring to Amazon customers who pay $99 for free two-day shipping, among a litany of other membership benefits.

Just take a look at how the customer stats break down for the Whole Foods-Amazon combo:

1010data found that of customers who shopped more than once at Whole Foods, 81% are already Amazon customers and just over half of Whole Foods shoppers are Amazon Prime members. Overall, Amazon gets only a 5% bump in new customers with the deal.

But its customers do spend more. 1010data found that regular Whole Foods shoppers (shopping at least six times during a 12-month period) who are also Prime members spent an average of $1,371 at the grocery store over the period, $306 more than Whole Foods shoppers who are not Prime members. Whole Foods shoppers are also more likely to shop for groceries online: 10% used an online grocery delivery service in the past 12 months versus 6% for Albertsons and 5% for Kroger (kr) customers.

Throw meal kits into the mix, and you've scooped up even more of their food spend.

If you consider the size of the meal kit market it's even more apparent that this not a volume play on Amazon's part. Research firm NPD Group says that only 5% of consumers have used a meal kit over the last 12 months. But NPD analyst Darren Seifer says with 60% of millennials having purchased something from Amazon in the last year, "it's not that much of transition to then buy meal kits."

The Blue Apron IPO filings revealed that meal kits have a high barrier to entry, with the startup spending $94 to acquire a customer. However, Smith says that Amazon will be able to it more efficiently by relying on Prime membership fees to offset costs. Amazon also has a supply chain already set up for it.

The move by Amazon “should be extremely worrisome” to the rest of the food industry, Smith says. “What’s good for Amazon is bad for everyone else.” Grocery stores and packaged food companies have recently started to turn to meal kits as a way to counter the industry's malaise as shoppers seek out fresher and less processed fare. Amazon is now disrupting that option, too, as it goes all in on the food market.

And it's clear why, says Smith: “Amazon has won many battles in retail." But since food is the largest category by far in retail, “the war of retail will be won in grocery.”

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