Amazon is reassessing its strategy in the brick-and-mortar grocery sector, a challenging arena for the tech giant despite its established success in online retail. Following a few years of mixed results, Amazon is consolidating its physical grocery operations, as reported by Marketplace.
The company revealed that it is reducing a small number of positions across teams supporting Amazon Go convenience stores and Amazon Fresh grocery stores. This follows the closure of around half of its tech-centric convenience stores in the last couple of years, and a slowdown in the expansion plans for its grocery stores.
While the company still operates over 500 Whole Foods locations, the upscale health food chain acquired in 2017, the focus seems to be shifting. Earlier this year, the CEO of Whole Foods was appointed to oversee Amazon’s wider grocery business.
Amazon’s venture into physical grocery stores began in 2020 with the launch of Amazon Go and Fresh stores. These stores, powered by advanced technology, allowed customers to select items and leave without traditional checkout lines, using a network of sensors to track purchases. “It didn’t go well,” according to Phil Lempert of SupermarketGuru. He noted that the novelty wasn’t enough. “When people go shopping for food, guess what they want? They want food,” Lempert said. “They want to talk to, you know, Betty the baker and Bob the butcher and, you know, Sal the seafood monger.”
Neil Saunders, a consultant at GlobalData, suggests that while Amazon has excelled in optimizing supply chains and logistics for its online operations, in-store retail requires additional “softer skills”. “You certainly need those skills, but you need softer skills as well. It’s about the customer service. It’s about the experience, about the ambience, it’s about how customers feel,” he said.
Last year, Amazon began revamping its grocery stores. This included improvements such as enhanced lighting, more vibrant signage, and a broader selection of products, with a stronger emphasis on fresh, prepared foods. The primary issue now, according to CFRA analyst Arun Sundaram, is the limited number of physical locations. “I think to really be successful in grocery, you need to have a strong physical footprint as well as a strong online presence,” he stated. He pointed to Walmart, which operates almost 5,000 stores, as a significant contrast.
Currently, Amazon operates 15 Amazon Go convenience stores and 60 Amazon Fresh grocery stores nationwide. The company has been cautious about its plans for opening new stores. “My guess is they’re kind of keeping this warm as to when there might be a day where it makes more sense to go after it,” said Dylan Carden, an analyst at William Blair. He also mentioned that the low-profit margins of grocery stores might not be a priority for major capital investments at this time. “Grocery is not the sexiest of industries, right?”
