Even with Whole Foods, Amazon would need more warehouses to reshape grocery delivery

san francisco — If Amazon.com hopes to revolutionise grocery delivery, then its bid to buy Whole Foods Market for $13.7 billion will be just the start of a long and costly process.

The e-commerce giant would need to add a large network of specialised grocery distribution warehouses, former AmazonFresh employees and logistics experts said. This is something Wal-Mart Stores and other competitors have already done. Whole Foods, with a relatively small distribution footprint of its own, does little to change the picture for Amazon, they said.

Amazon has a little more than 3 million square feet of US warehousing dedicated to its existing AmazonFresh and Prime Pantry grocery programmes — a tenth of the warehouse space Wal-Mart has for specialised food distribution, according to logistics consulting firm MWPVL International.

“AmazonFresh really was for lack of a better word an after-thought,” said Brittain Ladd, who until March was a senior manager for the grocery delivery program, which launched in 2007.

If Amazon wants to become a dominant grocery company in a short period of time, then there would be an investment required, and it would be big Marc Wulfraat, president of MWPVL

One key to Amazon’s success in general retail sales has been its speed in delivering products to consumers, facilitated by warehouses located strategically throughout the United States. As of 2016, the company had about 100 million square feet of space in its fulfillment and data centers, some of it outfitted with state-of-the-art robotics to boost efficiency.

Facilities for distributing fresh food are far more complicated than ordinary warehouses. A single facility can need a half dozen or more temperature settings to house products from Popsicles to berries. Some require certification from the US Food and Drug Administration, and extra care must be taken to keep shelves clean and prevent pests from contaminating food.

Whole Foods has over one million square feet of warehouse space for distribution to its markets, and a chunk of its inventory goes straight from suppliers to stores, MWPVL said. “It’s a peanut. It’s nothing,” MWPVL president Marc Wulfraat said of Whole Foods’ distribution. “If Amazon wants to become a dominant grocery company in a short period of time, then there would be an investment required, and it would be big.”

Amazon, which did not return requests for comment, has not detailed its plans for Whole Foods.

Amazon’s fulfillment expenses jumped 31 per cent in 2016 — a bit faster than in prior years and faster than its retail sales growth — to $17.6 billion, according to its annual regulatory filing.

Industry experts estimate the company would have to add a dozen or more grocery warehouses, particularly if it wanted to supply Whole Food stores in addition to homes. The cost to do that is unclear.

They said Amazon would likely continue to rely on United Natural Foods to supply Whole Foods with hard-to-source products, but would probably aim to cut costs and handle more of the distribution for conventional items. — Reuters