Mark Mahaney, Evercore ISI head of internet research, joins 'The Exchange' to discuss Amazon’s grocery store expansion. He says there's a potential for further growth.

Amazon has been steadily increasing its presence in the grocery sector, with recent figures showing about $100 billion in sales of groceries and household essentials. The company is leveraging its same-day delivery service to encourage customers to add groceries to their existing orders, reducing friction and delivery costs compared to competitors like Instacart.

Analysts note that a significant portion of new perishable goods buyers are existing Amazon Prime members, indicating a large untapped market. By integrating grocery options into the checkout process, Amazon aims to increase spending and purchase frequency among Prime households, potentially expanding its share in the low-margin grocery market.

Why Amazon's grocery could be a trojan horse to move revenue higher

Instacart and DoorDash all under pressure today with Instacart falling 15 percent just since yesterday. Joining us now Mark Mahaney head of Internet Research at Evercore ISI. Mark great to see you. Hey Melissa. Is it as disastrous as the declines we've seen over the past couple of days. I mean I would imagine with Amazon going in the only way to compete would be on price. And that could be sort of a race to the bottom for the sector. Well it's a low price low margin sector to begin with. Amazon's been trying to make inroads into groceries for quite some time. Guess what. They actually have made inroads. Last year they did about 100 billion in groceries and household essentials what you buy in kind of the middle of the grocery store in the middle of the supermarket. What they've done here is they've given themselves a chance to turbocharge that growth. And it's come because of this same day delivery service that a lot of households in this country and outside of the U.S. have really come to appreciate the ability to buy something and get it delivered same day. And now they've got this really interesting cross sell opportunity. So you just bought a book or a garden hose. You're going to have it delivered this evening while you're checking out. Do you want to throw in some bananas. Do you want to throw in some fruit. Do you want to throw in some fish or meat for the night and for the meal that evening. And I just think it's that they sort of tip the scale a little bit here. And by the way you don't have to pay excess delivery fees. By the way there's not tipping as there's the case with an Instacart. And I think this this could actually be a really kind of an interesting Trojan horse for Amazon to take that 100 billion go to two to three hundred billion. They only have 5 percent of this market. They should be a lot bigger. This may be what gets them there. It does seem like there would be a lot less friction for an Amazon Prime member in particular to just add those bananas or or add the apples to the cart to something that they're already ordering. What was surprising to me was the stat that three quarters of those who ordered perishable goods this past year. Those are new people. I mean those are brand new people. So the market opportunity is enormous. How do you think about where those people are coming from when we're thinking about how the competitive landscape shifts. Well I think we know where those people are coming from. They're the existing 100 million prime customers. Happy prime customers at Amazon. Amazon already has in the U.S. And the question is could you just tip them over to buy to buy groceries. And a lot of people weren't willing to do that. It's not most people don't go to Amazon and think I'm going to buy groceries. But if you put it in the checkout process and only for something that you already plan to get delivered that day that same day. I mean that's what may trigger the switch for a lot of those prime households that already have very strong brand identity brand association with with Amazon. We've done our survey work in the past. We saw that this same day delivery was kind of a force multiplier. It caused household spend. Amazon prime household spend to increase. It also caused the frequency to increase. And now I think it can cause category expansion. People are buying. Amazon has disclosed that these kind of household essential categories are growing to X faster than the rest of their business. And I think it's because you know like most of the household essentials and groceries you don't want next week. You don't want four days from now. You want today. And Amazon is already delivering you other things. So this is kind of a quick cross sell. It's a it's a smart strategy by Amazon. I think it'll pay off. But you know TBD.

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