Consumables and everyday essentials might not have the appealing allure of AI, but they could have a prominent role to play in Amazon’s (NASDAQ:AMZN) growth in the years ahead.
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Morgan Stanley analyst Brian Nowak reckons that US offline spend on grocery, household products, and personal care is $1.6 trillion, equating to around 47% of what remains in offline US retail spending.
“Capturing a larger share of these dollars is important to AMZN’s long-term growth algorithm and its ability to continue to deliver faster than average retail top-line growth,” says the analyst. In fact, starting in 2026, Nowak expects grocery, household products and personal care to “drive ~45% of incremental US e-commerce growth.”
Nowak also thinks consumables have an above-average “advertising attach” rate (that is, advertising as a percentage of GMV) due to the traditional reliance on advertising to “build/expand/defend” brands, as well as the use of trade-spend dollars to boost sales in physical retail stores. “As such,” he goes on to say, “the extent to which AMZN’s consumables business becomes larger should enable AMZN to build an ever larger high margin ad business.”
The analyst has also often highlighted Amazon’s influence on consumer behavior, such as reducing the tendency to shop around, getting more online shoppers to start their searches on Amazon, and fostering “repeat behaviors.” Consumables and groceries, being high-frequency and “habitual purchases,” play a key role in this. If Amazon can capture a larger share of these purchases, it could drive significant behavior changes, leading to increased long-term repeat purchasing across all categories.
While at 20%, margins for consumables/essentials are lower than the rest of Amazon’s business at around 28%, essentials have been growing at an above-average rate (around 20% in 2023), and Nowak anticipates this trend will continue, with growth expected to be in the mid-teens in 2025 and 2026. “This implies company-wide merchandise margins could stay around 26%,” he said on the matter.
Bottom line, Nowak rates AMZN shares an Overweight (i.e., Buy), backed by a $210 price target. The analyst, therefore, expects the stock to climb by ~20% over the coming months. (To watch Nowak’s track record, click here)
Elsewhere on Wall Street, one analyst prefers sitting this one out, but all 41 others are currently on board, making the consensus view here a Strong Buy. The average target currently stands at $222.75, suggesting AMZN stock is primed for ~27% gains in the year ahead. (See Amazon stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
