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What will Amazon do with a conventional grocery banner?

Written by Tom Ryan

Whole Foods 365, a low-priced format soon to be retired by Amazon - Photo: RetailWire

Amazon plans to open “dozens” of grocery stores in a new lower-priced concept distinct from its upscale Whole Foods format, according to The Wall Street Journal. The new stores, expected to average about 35,000 square feet and opening across U.S. cities, appear to address the challenges Amazon faces in bringing prices down at Whole Foods. That chain’s organics focus and strict guidelines — such as not selling products containing high-fructose corn syrup, MSG or artificial colors — tend to require higher pricing. The new banner would also enable Amazon to significantly expand selections of popular CPG brands. Sources told the Journal that Amazon is open to acquiring regional grocers and has been signing leases. The first location could possibly open by year end in Los Angeles. The reporting indicated that, like others, Amazon has had “mixed results” with grocery delivery and the new concept is expected to further its reach. Whole Foods is expected to remain a growth vehicle for Amazon. Reports at the start of the year said Amazon is planning to ramp up Whole Foods’ expansion in large part to support its two-hour Prime Now grocery delivery service. In an interview last week with the Texas Tribune, Whole Foods CEO John Mackey inferred that the chain’s “marriage” with Amazon was going well and hinted at the new formats coming. Amazon is also expected to ramp up expansion of cashier-less Amazon Go in coming years. In an interview with CNBC, Loop Capital Markets analyst Andrew Wolf said Amazon likely learned some lessons owning Whole Foods for just over a year and is ready to reach for a broader audience. “They're the everything store. So if you want to sell the people food, you have to go where people go, which is conventional grocery stores,” he said. Brian Yarbrough, an analyst with Edward Jones, told The Washington Post, “The main thing is driving that Prime membership and giving [customers] a ton of selection at a good value.” Shares of food retailers all fell Friday on the Amazon news, with Kroger Co., the nation's biggest traditional grocery chain, sliding 4.5 percent.

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