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How Amazon Could Change The Country's Grocery Game

Credit from Rachel Siegel

If Amazon is able to satisfy these lofty goals, it will be “the most aggressive expansion of a giant company in the history of modern business.” Building a bigger retail presence gives it the chance to attract more people to Prime program.

Reports that Amazon is launching its own line of grocery stores raised eyebrows about how their debut could ricochet through America’s trillion-dollar grocery industry. Amazon owns Whole Foods, but that business revolves around higher-priced natural and organic groceries. Now as its rivals amp up their own grocery delivery and pickup services, experts say Amazon could be forging a path to lock into another part of customers’ shopping habits -- and convert those people to Prime members along the way.

On Friday, The Wall Street Journal reported that Amazon plans to open its first grocery store in Los Angeles, possibly by year’s end. The Journal reported that Amazon had signed leases for at least two other grocery locations that could open early next year. Sources told The Journal that the company was looking into locations in San Francisco, Seattle, Chicago, Philadelphia and Washington, D.C.

Amazon is also reportedly looking to buy regional grocery chains, according to The Journal.

Amazon declined to comment. (The company’s founder and chief executive, Jeffrey P. Bezos, owns The Washington Post.)

Amazon’s stock was up nearly 2 percent Friday afternoon on the news. Meanwhile, Kroger’s was down 4.3 percent, and Walmart’s was off 1 percent.

Amazon planted a flag in the grocery sector in 2017 when it bought Whole Foods for $13.7 billion. The deal gave the retail giant a foothold in brick-and-mortar stores nationwide, and expanded options for the company’s pickup and delivery programs. Amazon sells its Echo and other devices in Whole Foods stores, and Prime members can access discounts on some groceries and delivery services.

Plus the merger handed Amazon troves of data on grocery sales. Much of Amazon’s consumer data stems from what people shop for online. But in a physical store like Whole Foods, that data includes the choices shoppers make in person.

On Thursday, Whole Foods co-founder and chief executive John Mackey said the company would be rolling out new store formats, though he didn’t offer details. In an interview with the Texas Tribune, Mackey said the merger had played well for Whole Foods -- even comparing it to a “marriage.”

The Journal reported that the new Amazon grocery stores wouldn’t compete directly with Whole Foods stores, and that they would sell a wider selection of products.

In the past year, the company also has spread its fleet of Amazon Go stores, a kind of bodega meant for seamless shopping. The stores have no cashiers or checkout lines. Shoppers scan their phones on a turnstile when they walk in. Cameras and sensors throughout the store follow customers as they mill through the aisles, tracking what items they pick up or put back. Once they’ve found all they need, shoppers walk back out through the turnstiles at the front of the store, they are charged and their phone generates a receipt.

Meanwhile, analysts have had their eyes on Amazon’s grocery game. In a December report, analysts at Cowen said they expected Amazon’s grocery presence to boom over the next few years. Analysts wrote that as shoppers buy more food and beverages online, and as Amazon expands it brick-and-mortar footprint, the company could pass Kroger and secure the No. 2 spot in national grocery sales, behind Walmart.

Amazon laid a foundation for its grocery strategy through Prime, Amazon Go stores and other grocery pick-up options. Then it bought Whole Foods and rose from 17th place in the U.S. food and beverage grocery market to sixth, according to Cowen. Amazon’s next act: a dual push in online grocery plus a wider brick-and-mortar fleet, Cowen’s analysts wrote at the time.

Brian Yarbrough, an analyst with Edward Jones, said the sweet spot for Amazon would be locking in shoppers who make basic purchases time and time again. And if Amazon can persuade those shoppers to buy new Prime memberships, they’ll keep building a loyal customer base that sustains itself on groceries.

Plus, Whole Food’s share of the national grocery business is still relatively small, Yarbrough said. If Amazon is looking to dominate in the space, it will have to expand beyond expensive, natural and organic products into the mainstream.

“The main thing is driving that Prime membership," Yarbrough said, "and giving [customers] a ton of selection at a good value.”

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