Amazon seeks the green in groceries
Retail giant to open new type of store in LA next year
LOS ANGELES — Amazon.com Inc. said this week that it planned to open a new type of grocery store next year, another step in the e-commerce giant’s multipronged effort to capture a larger piece of the massive U.S. grocery business.
The company said the store, which will be in Los Angeles, would be distinct from Whole Foods Market Inc., the higher-end chain Amazon bought in 2017 that specializes in natural and organic groceries.
But Amazon declined to say how the new store would be different or what it would be called. It did say the store would have a traditional checkout system rather than the high-tech, cashier-less system used at Amazon Go, its 16-location chain of smaller convenience stores.
Amazon already has listed four job openings in Los Angeles for food and grocery associates and a “zone leader,” a type of manager.
The planned store is the latest example of the measured, patient, steady march into the grocery world that the Seattle company has taken since its $13.7 billion purchase of Whole Foods, which now has 506 stores.
When Amazon made that deal, it sent shock waves through the industry. After all, Amazon had revolutionized the sale of books, electronics and countless other consumer goods with low prices, easy ordering and fast delivery, and now it was taking aim at the grocery business.
Amazon, the thinking went, was about to bring radical change to Americans’ food-buying habits using Whole Foods as a springboard.
That hasn’t happened. Whole Foods remains a relatively small player in the grocery market.
But that doesn’t mean Amazon isn’t working on eventually becoming a major influence in the industry.
Although the Whole Foods stores appear little different from they did two years ago, there have been three rounds of price cuts on selected items. Whole Foods deals particularly target Amazon Prime members — who for $119 a year get fast shipping of products they buy on Amazon’s main website, as well as access to streaming video and other benefits.
Meanwhile, Amazon is “mining data, experience and knowledge about the grocery business” through Whole Foods and its other projects, said Juozas Kaziukenas, founder of the research firm Marketplace
Pulse. “They’re trying to understand what you need to run a grocery supply chain and how to take that supply chain and, in particular, apply it to online grocery delivery.”
Amazon also has expanded online grocery ordering and delivery. Last month, it began offering Prime members two-hour grocery delivery for free in 2,000 U.S. cities. Whole Foods stores also serve as part of Amazon’s “locker” system where items ordered on Amazon.com can be picked up.
Amazon Go — with stores in San Francisco, New York, Chicago and Amazon’s hometown of Seattle — is another part of the effort. In those stores, the company uses cameras, sensors and other technology tied to Amazon’s phone app, enabling customers to pick up ready-to-eat food and beverages and leave without waiting in line to pay a cashier.
Analysts said that although Amazon, as usual, was keeping it strategic aims close to the vest, the company undoubtedly is learning how it can bring innovation to grocery shopping just as it did with other consumer goods.
“Grocery spending is one of the major parts of consumer spending,” Kaziukenas said, “and as it moves online, Amazon doesn’t want to be left out the transformation.”
This new store could be a game changer, or it could be just a small experiment. Amazon has shown a willingness to tinker with formats and innovations that don’t always keep growing.
Early this year, for instance, Whole Foods quietly decided to no longer expand its chain of Whole Foods 365 stores, which are smaller, more affordable versions of the chain’s conventional outlets. There are just a dozen 365 stores nationwide.
Amazon has a few other brick-and-mortar efforts, including Amazon Books bookstores; Amazon 4-Star stores, which carry highly rated or new products; and Presented by Amazon stores, which offer a themed selection of top brands. Each of those has fewer than 20 locations.
Amazon’s sales last year were $232.9 billion. Its physical stores, mostly Whole Foods, accounted for $17.2 billion, or 7.4%, of the total.
Although it’s not entirely clear to the public how Amazon sees its future role in groceries, the company long has said that it has no intention of simply imitating the way retail is run by others and that it’s willing to spend years finding an innovative new format that works.
Amazon Chief Executive Jeff Bezos said as much several years ago in a television interview with Charlie Rose.
“We like to pioneer, we like to explore,” he said. “Every new business that we have ever invested in has taken years.”
Bezos also said that “if you’re going to invent new things ... you’ve got to be willing to endure a lot of criticism.”
That was evident again Monday, when the United Food and Commercial Workers International Union, which represents workers at major supermarkets, blasted Amazon’s plan for a new type of store.
“Launching this grocery chain is an aggressive expansion of Amazon’s market power as it seeks to fundamentally change our country’s food retail and service economy while eliminating as many retail workers as possible,” UFCW President Marc Perrone said in a statement. Amazon workers are largely not unionized.
John Rossman, a former Amazon executive and author of the book “Think Like Amazon,” said he expects the company to combine what it’s learning from its various grocery formats — including the high-tech Amazon Go stores — into a significantly different grocery store of the future.
“Once they get the technology and operations really pressure-tested and proven, then they’ll figure out how to roll it over” into Whole Foods or a chain of another name, said Rossman, who managed the Amazon Marketplace where third parties sell on Amazon.com.
“It will take a long time and it will feel like Amazon is crawling,” Rossman said. “It won’t be like a light switch flipped on and off.”