Amazon revving up its grocery ambitions
Retailer quietly opens 11th Fresh store
As many businesses struggled to survive the pandemic, Amazon.com was quietly building a national grocery chain.
The first Amazon Fresh store opened to the public in Los Angeles in September. Store No. 11 opened Thursday in Bloomingdale, Ill., and Amazon is working on at least 28 more, from Philadelphia to the Sacramento suburbs. The company also is testing the Just Walk Out cashierless shopping technology created for its Go convenience stores at an Amazon Fresh store in Illinois.
More than a decade after it started selling groceries, Amazon has a tiny sliver of the $900 billion U.S. grocery market and has watched traditional chains finally start figuring out how to sell food online. Amazon Fresh, industry watchers say, is a way for the company to become even stickier with devoted Prime members, as well as appeal to a broad cross-section of America.
In a move industry insiders took as a sign of its ambitions, Amazon last year struck a deal with a large grocery distributor called Spartan Nash Co. that included the right to acquire a stake in the company.
“As with all things at Amazon, we innovate on behalf of our customers across our grocery businesses,” Jeff Helbling, vice president of Amazon Fresh, said in an emailed statement. “We know customers care about low prices, convenience, and great selection in their grocer, and we believe we offer that as well as a seamless online to in-store grocery shopping experience.”
Amazon Fresh stores have technological flourishes, including digital price tags and smart “Dash” shopping carts that tally up smaller purchases as customers browse the aisles.
But this is very much a mainstream grocery store, with a product assortment that falls somewhere between small specialists like Trader Joe’s and larger supermarkets.
The prices, at least so far, are low. A basket of 30 commonly purchased grocery
items in one of Amazon’s Chicago-area stores last month undercut Jewel-Osco, an Albertsons Cos. Inc.-owned mainline grocer, by as much as 20% when including items on sale, and is competitive with Aldi and Walmart.
Grocery analysts say Amazon Fresh stores are likely cheap to open and even cheaper to run — the perfect weapon to stake a long-term claim in a famously low-margin industry.
“In order for them to have a chance of growing market share in grocery, they had to cover their flank” among priceconscious shoppers, said David Bishop, a partner with Brick Meets Click, a grocery consultancy that conducted the pricing analysis for Bloomberg. “The store tends to be more functional, as opposed to inspirational.”
When the industry learned of Amazon Fresh from news reports in 2019, some wondered why the company needed another supermarket chain. Whole Foods Market, acquired in 2017 for $13.7 billion, was supposed to jump-start Amazon’s grocery effort. But the acquisition hasn’t been as transformative as some initially expected. Though Whole Foods cut prices and added online ordering, the upscale chain has struggled to reinvent itself as a mainstream destination, and store sales stagnated-even during a recent boom in home-cooked meals.
FORMATS TESTED
Amazon is known to experiment with shopping formats, only to quietly fold projects that aren’t working or have yet to fulfill their purpose, including dozens of pop-up electronics stores in malls. If Fresh’s leadership is any guide, this does not seem to be one of those.
The division is led by Helbling, a former technical adviser to Chief Executive Officer Jeff Bezos. Graduates of that chief-of-staff-like role often have the pick of high-profile jobs. Helbling works with two other Bezos understudies: Wei Gao, who oversees online groceries, and Dilip Kumar, who developed the Go stores and whose teams built the Dash smart carts.
Analysts have long expected Amazon to bring its cashierless technology to larger stores. The company currently operates two Go Grocery sites, the largest of which is about 13,000 square feet-or roughly six times the size of the original convenience stores. Fresh stores are substantially larger, ranging from from 25,000 square feet to 45,000 square feet.
The bigger the store, the harder it is to get the cashierless gear to work, but Amazon says the latest version of its Just Walk Out technology can be scaled up.
“Go is kind of nichey — a cool experience, but more experimental than anything,” said a former senior employee involved with Amazon’s grocery efforts, who requested anonymity for fear of violating confidentiality agreements. “Fresh stores are more of an all-in strategy for Amazon. A very strategic, longterm play.”
As always at Amazon, data played an outsize role in Fresh’s development. Employees analyzed the density of Prime members per ZIP code to help determine where to put stores, according to a person involved in the planning. The first 11 stores are mostly speckled in suburban, upper-middle-class areas. Many of the sites were vacant retail storefronts, including several former Toys R Us locations, and a smattering of shuttered grocery stores. Such repurposed real estate can dramatically lower a store’s breakeven point.