Stale Amazon grocery stores need a fresh approach
Photo: Amazon

Stale Amazon grocery stores need a fresh approach

An Amazon Fresh is not coming to a neighborhood near you just yet.

Andy Jassy, Amazon.com CEO, speaking last week on the company’s fourth-quarter earnings call, said that the company will delay opening new Fresh stores until it figures out how to differentiate the locations from established competitors in the market. He said Amazon is getting close to the answer and expects to be back opening stores at some point this year.

Mr. Jassy said getting Amazon Fresh right will build on its other grocery strengths.

If you think about the online grocery offering, we have a very large business there,” said Mr. Jassy. “It looks different from the typical mega physical grocery store. But if you think about the aisles in a grocery store, from packaged food to paper products to canned goods to pet supplies to health and personal care items to consumables, we have a very large business there that continues to grow at a rapid clip and that we think will continue to grow.”

Where Amazon is falling short, according to Mr. Jassy, is in perishables.

“If you really want to have significant market segment share in perishables, you typically need physical stores,” he said.

Amazon has some of that with its Whole Foods division, which has nearly 500 locations.

“I really like the progress that that business has made on profitability in the last year. And I like what I see in front of it, and I think that’s a very … it’s a premium product, but it’s a significant business. It’s a good business for us in the grocery space. I think if you want to have a mass physical store offering, you need a different offering,” said Mr. Jassy.

Amazon Fresh is intended to help Amazon reach a mass audience.

“We have a few dozen stores so far,” said Mr. Jassy. “We’re doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers [and] it’s differentiated in some meaningful fashion and where we like the economics.”

Amazon’s CEO said the company has seen “encouraging signs” from its tweaking to date.

“When we do find that equation, we will expand it more expansively,” he said.

BrainTrust

"The problem with Amazon in grocery is that it has tried to build differentiation around technology. That isn’t sufficient to lure consumers."

Neil Saunders

Managing Director, GlobalData


"As long as Amazon is steadfastly pursuing technology to replace labor content, it will underperform in grocery."

Mohamed Amer, PhD

Independent Board Member, Investor and Startup Advisor


"I like that they are pausing and pushing themselves to think out of the proverbial grocery 'box.'"

Susan O'Neal

General Manager, Promo Intel & Insights, Numerator


Discussion Questions

DISCUSSION QUESTIONS: How do you evaluate Amazon.com’s strengths and weaknesses in the grocery vertical? What changes need to be made if Amazon Fresh is going to convince consumers to switch grocery stores?

Poll

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Neil Saunders
Famed Member
1 year ago

The problem with Amazon in grocery is that it has tried to build differentiation around technology. That isn’t sufficient to lure consumers. Hardly anyone picks a store because it has Just Walk Out technology or smart carts. They choose stores on factors like price, range, quality, and location. Amazon needs to look at those areas to create something that is truly competitive with other food players. And that’s the critical point: the food market is crowded and competitive, so if Amazon want to grow they need to take share from others.

Lee Peterson
Member
1 year ago

It has always baffled me why Amazon doesn’t take more advantage of the powerful brand name they already own, Whole Foods, instead of trying to enter a very established market like grocery with their own brand name, known more for retail. But hey, I’m not Jeff Bezos so what do I know? Still, unless these Amazon grocery stores are just a technology test, they seem destined for the dust bin.

Dave Wendland
Active Member
1 year ago

I applaud Mr. Jassy’s acknowledgement that Amazon is “doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers.” They certainly haven’t cracked the code yet.

As Neil Saunders mentioned, consumers make their store choice based on quality, location, price, and assortment. Amazon has not effectively addressed these factors and has considerable work to do.

Will they be able to grab share? There are many vying for the grocery shopper (mass merchants such as Walmart and Target; traditional grocers like Kroger, Albertsons, Wegmans, etc.; value and limited assortment retailers such as Dollar General, Aldi, and Lidl; convenience stores; and online and grocery delivery players). At this point in time, Amazon is not gaining share as fast as others — and this is largely due to their lack of consistent differentiation.

Dion Kenney
1 year ago

Mr. Jassy is absolutely right that the perishables element of grocery stores is the challenging part. Shelf-stable products can be treated as any other product in Amazon’s business model, but perishables need to be ordered, stocked, and sold on a finite timeline. To benefit from Amazon’s data analytics superpowers, as opposed to their warehouse and delivery superpowers, will require an added dimension to their algorithms to account for changing demand patterns, the randomization of interest in specialty goods, and predicting cost/benefit of inventory vs spoilage. It in many ways will start to look like the analytic models for predicting sports outcomes.

Andrew Blatherwick
Member
1 year ago

Amazon are finding that physical retailing is harder than they thought. They are able to show a significant advantage in the technology space and hence online is great — try and replicate that in physical retail and it is significantly harder. The operation has to be spot on, especially with fresh produce. Pricing has to be right, the shopping environment enjoyable and staff well trained. It is going to be interesting to see what they come up with in the future and who knows, they may change the look of grocery retailing. My guess is that there are a lot of very smart retailers who have been working on this for a long time and it is not going to be easy.

Cathy Hotka
Trusted Member
1 year ago

My local grocery store is an Amazon Fresh. There are three problems:

  1. Product availability. The store starts with a limited number of SKUs, then sells out of them.
  2. Pickers. There are so many staff in the store pulling online orders that it’s difficult for an in-store customer to get to the merchandise.
  3. Carts. They’re too small. A typical family would have to shop several times a week.

This experiment has not been successful.

Gene Detroyer
Noble Member
Reply to  Cathy Hotka
1 year ago

#1, #2, and, #3 are enough to keep anybody away.

Tara Kirkpatrick
1 year ago

I agree with Neil and will add that the technology they try to build around — Just Walk Out — is too sophisticated to lure people in. If Amazon Fresh focuses on doing something more standard — like scan and go — better than Walmart-owned Sam’s Club does, then it could move the needle today and introduce Just Walk Out over time. In the last year, Apptopia’s app review intelligence reports consumers leaving their local store in favor of Walmart for the convenience of the mobile experience. Convenience is Amazon’s bread and butter, so no doubt they could execute and get people to churn to their experience if they entered the competition, but they are losing time now as more grocery stores invest competitively in mobile.

Melissa Minkow
Active Member
1 year ago

This honestly makes me wonder why Amazon is so adamant about being in the grocery space. Consumers are so routine with their grocery behaviors, and it is a very delicate category to get right (think about how much Target has struggled here). Is it even worth it?

Gene Detroyer
Noble Member
Reply to  Melissa Minkow
1 year ago

Good point. Whole Foods has a reason for being. I fail to see one for Amazon Fresh.

James Tenser
Active Member
Reply to  Melissa Minkow
1 year ago

I think it should be worth it, as grocery yields the most frequent transactions and the richest shopping data of any product sector. Those are the same reasons – recency, frequency, monetary — that led Walmart to enter the category in the early 1990’s.

But Amazon is discovering how little it understands about this business – particularly perishables, which require a specific set of practices around timing, pace and rhythm.

Technical tricks like just-walk-out do absolutely nothing to build shopper trust in the freshness of chicken cutlets or the ripeness of a mango.

At this point I feel like Amazon Fresh owes its continued existence to the deep pockets of its corporate parent, not its own contribution to the bottom line.

Dave Bruno
Active Member
1 year ago

Am I missing something? Differentiation is absolutely the key to finding share in the crowded grocery space and, to date, I have not seen much to differentiate Fresh from Whole Foods, let alone other players with established clientele (and share). My last Fresh delivery order was filled with Whole Foods’ 365 private label products, with slightly lower prices than Whole Foods. Seems to me this strategy will only dilute the value of the Whole Foods private label brand while doing little to establish the Fresh brand.

Gene Detroyer
Noble Member
Reply to  Dave Bruno
1 year ago

Hopefully they will apply what they learn in Amazon Fresh to make Whole Foods better.

Ken Wyker
Member
1 year ago

One tweak I’d suggest is the name. If it is focused on Amazon, customers will naturally think of all the things that Amazon means to them — none of which are associated with great food.

Kenneth Leung
Active Member
Reply to  Ken Wyker
1 year ago

What’s strange is they own a brand that is associated with great food, which is Whole Foods. If you want to add tech experience to grocery, call it Whole Foods Concept stores. Amazon’s brand is associated with delivery, not food.

Ryan Mathews
Trusted Member
1 year ago

Amazon is experiencing growing pains in the grocery space, but Amazon is also a company that learns from its mistakes. Out-of-stocks are a problem for all grocers, but they are a real Achilles’ heel for Amazon Fresh. Whole Foods works because it launched a (real or perceived) clearly differentiated format, and differentiation is critical to changing long established consumer buying patterns.

Gary Sankary
Noble Member
1 year ago

It’s hard for me to have an opinion on this. My market only has the zombie version of Amazon Fresh stores. They’ve made significant investments in real estate and work to get the stores ready to open, only to have it all grind to a halt.

I applaud Amazon for recognizing that they need to change their strategy and quickly fail, and using that to drive change is good. And Amazon has been very good at being nimble over the years.

At the same time, I don’t understand how they’re justifying holding these spaces and leaving work unfinished for months and in at least one case, in my area, over a year. This is also on the minds of Amazon investors, who, I would bet, aren’t all that satisfied with the responses.

The reality is physical grocery is a very different business model for Amazon. At the time of the Whole Foods purchase, I conjectured that a big motivator for this purchase would be to learn how to run grocery. Their strength in logistics gives them an excellent base to build a grocery business. Learning how to run a store and making it a compelling place to shop in a crowded market? What’s the Amazon value prop here? It will be interesting to see how they solve this issue.

Lisa Goller
Trusted Member
1 year ago

Amazon is smart to pause to align with shifting consumer needs and competitive jockeying in grocery.

Its strengths in grocery include:

  • Efficiency: Processes save shoppers time and money;
  • Data: Insights improve agility (assortment, pricing, promotions);
  • Range: Attracts value to premium shoppers across its banners;
  • Growth: Retail media leadership attracts CPG advertisers and relationships;
  • Loyalty: Trusted brand, enthusiastic Prime members and solid private labels;
  • Logistics: Robust supply chain and reliable delivery;
  • Tech leadership: Smart carts, cashierless tech, e-grocery, robotics.

Weaknesses in grocery:

  • Reach: Few physical stores, affecting assortment (perishables, hot prepared foods) and the multisensory nature of grocery shopping;
  • Relationships: Certain regional players’ human touch keeps customers loyal.

Acquisitions or partnerships (such as food apps) could turn things around for Amazon to grow grocery share. Amazon’s unique blend of convenience and customer obsession will be its differentiator.

Dave Wendland
Active Member
Reply to  Lisa Goller
1 year ago

Great observations, Lisa. I think you’re spot on.

Lisa Goller
Trusted Member
Reply to  Dave Wendland
1 year ago

Thanks, Dave!

Doug Garnett
Active Member
1 year ago

I don’t think Mr. Jassy said anything more than “grocery is tough.” Certainly he is right about that. But there’s nothing here that makes me think Amazon has anything unique to offer in grocery. Of course, this lack of vision makes sense as his latest actions appear to be trying to finally, after 20 years, put Amazon on track to generate profits in proportion to its revenues. Mr. Jassy’s main problem at this point runs far deeper than what to do with Amazon Fresh stores. So we will have to see what happens.

Ricardo Belmar
Active Member
1 year ago

As others have pointed out, most consumers choose their grocery store based on location, price/value, assortment, and quality. For mass market success, as Mr. Jassy is looking for, they will need to hit on all four of those to a certain degree so that it aligns with large groups of consumers. This means they need to determine who that mass market consumer is they are targeting – are they chasing an Aldi/Lidl customer, a Walmart customer, a Kroger, or a Wegmans customer? Amazon Fresh stores don’t seem to appeal to any of these customer profiles right now because they are so focused on the technology experience. That alone isn’t enough, they need to pick a customer profile and tailor the stores to match, while finding the right level of technology to create a unique experience for that customer profile. It does not seem Amazon has done that yet.

Mark Heckman
1 year ago

I believe many of the issues Amazon is facing in operating both a store and grocery delivery system out of the same facility are shared with other retailers who have bolted forward, head first into this space during COVID-19. Most all are now facing the vagaries and inefficiencies of food delivery that have existed since the early days of Peapod and others. Picking orders in live stores while competing with shoppers for space in the aisle is not profitably scalable or conducive to a good shopping experience. Picking, handling and delivering perishables is complicated, even for seasoned grocery retailers. Using “dark stores” or specially equipped facilities for picking — solves some of those problems, but the costs associated are prohibitive for most. As we emerge from the current recessionary consumer mind set and home delivery becomes more of an affordable luxury, some of these woes can be solved by investing into technology and operations and be absorbed by price increases. Meanwhile, Walmart is subsidizing their curbside business by eliminating cashiers and training them to pick orders. With that said, operating in multiple channels out of the same store will most like always be challenging and a break-even proposition at best.

Mark Self
Noble Member
1 year ago

Amazon should redirect their focus on improving the shopping experience at Whole Foods. Since the acquisition of Whole Foods (combined with the pandemic in fairness) the shopping experience at WF is oftentimes focused on “dodging” the remote shoppers looking at their phones to inform whether or not they are putting the right item in the cart, or what Cilantro looks like compared to Parsley. Tedious.

Dick Seesel
Trusted Member
1 year ago

If Amazon thinks that Just Walk Out provides enough differentiation, its expansion into grocery will not succeed. (The irony is that Amazon already owns a highly successful food retailer — Whole Foods — but has not leveraged its growth quickly enough.) This is not like Amazon’s entry into other brick-and-mortar retail — which has had limited success anyway — because there is a vast array of formats and competitors already in place, from Walmart to Kroger to Aldi.

Susan O'Neal
Member
1 year ago

An Amazon Fresh store, or a Whole Foods “powered by” Amazon, might be the only grocery store I’d effectively login to if there was a reason to do so. If I were to make up a compelling reason to do it, it would be because Amazon already knows what I likely need to pick up and they have it ready for me to review, revise if necessary, pick up and go. They would add not only efficiency to my trip, but some delightful recommendations of things I or my family might enjoy (based on items other people like me, or who buy the things I buy, often purchase). I like that they are pausing and pushing themselves to think out of the proverbial grocery “box.”

Ahsen
Active Member
1 year ago

Amazon Fresh stores are under pilot-test with a fair bit of experimentation on store format that differentiates the stores from other established local grocery retailers. Amazon has proved its capability on the online format and now it is working on to prove its competitiveness with physical stores. With same-day delivery, BOPIS/store pick-up and technology differentiation already under its belt, Amazon Fresh has to create a perceived differentiation for factors such as price, range of assortment, quality, location and perishable products for drive more walk-in or BOPIS at each local location.

Mohamed Amer, PhD
Mohamed Amer, PhD
Active Member
1 year ago

In grocery, perishables are the means of differentiating the store. The center store, when assorted from the big CPG players, is the definition of sameness. Desiring increased segment market share and improved profitability is a bold proposition even for Amazon. Investing in suitable systems to manage perishable inventories and easy-to-adopt store processes is just the start. Labor content in perishables will never be replaced by technology while pursuing market share and profitability improvements. As long as Amazon is steadfastly pursuing technology to replace labor content, it will underperform in grocery.

Brad Halverson
Active Member
1 year ago

Grocery shopping is primarily defined by trade area, format and customer fit. Amazon should consider whether shoppers are to be more motivated by low price/price sensitivity, or more by quality and freshness. Next, variety, selection, convenience, and service will drive the intended experience — in customer journey, merchandising, messaging, store design, and brand.

Amazon is still missing the core essence of a compelling brand experience for grocery shoppers. Neil Saunders points out correctly, Just Walk Out technology, as good as it is, isn’t driving enough customers to become primary shoppers. Will Amazon fit JWO tech into a clearly defined go-to-market strategy and well-designed store? They’ve got the muscle for it. Embracing the rest of it takes hard work, but can be done.

John Hennessy
Member
1 year ago

Popped into my local Amazon Fresh store prompted by this article. Problem starts at entry. A women walking in with me couldn’t figure out how to enter store. I guided her to the one traditional entry lane. No Amazon assistance nearby. The remainder of entry lanes required app scan to enter. As with all prior visits, more order pickers than shoppers. 2:1 easily. The store is primarily an ecomm order fulfillment center. But it permits shoppers. Fewer out-of-stocks than in past visits but no unique offerings as commented here.

The visit reaffirmed why it takes a RetailWire article to nudge me into a visit. No compelling reason to shop the store. Limited selection. Aisles clogged with picking carts. I don’t see a place in the market for this version of the experiment.

AlRetail
1 year ago

Amazon felt if you build it, they will come. They were not prepared for the complexities and challenges that is grocery. Their product selection is very thin, they have not established much of an identity or niche and they have close to 50 stores operating in about 10 different markets coast to coast.

How do they learn the customer and what they want in each market, how does the customer get to know them, where are the efficiencies in distribution, marketing, etc.? Then if you can’t capture sufficient traffic, how do you properly stock perishables without excess spoilage? Traditional grocery margins, even for a successful grocer, are only a fraction of typical retail and also much lower than the high-end Whole Foods niche. They still have much to learn here, though I would be surprised if they gave up that easily.

Georges Mirza
Member
1 year ago

Is the tide shifting? The talk was Whole Foods Market shifting toward Amazon, but are we now seeing the reverse?
Technology can give you a boost, but it has to be purposeful to be long lasting. Always, back to basics saves the day, assortment, price, quality, service … especially for large retail formats.