For Amazon’s grocery business, it appears to be go big or go home.
Bloomberg reports that Amazon “is launching the biggest overhaul of its grocery business since it acquired Whole Foods Market six years ago – revamping stores, testing new highly automated warehouses and, for the first time, offering fresh-food delivery to customers who aren’t Prime subscribers.
“In a move likely to play well with shoppers, the company also plans to merge its various e-commerce supermarket offerings from Whole Foods, Amazon Fresh, Amazon.com – into one online cart.
“The changes, which will roll out in the coming weeks and months, mark the Seattle-based company’s latest effort to grab a bigger share of a US grocery market that UBS Group AG analysts estimate is worth $1.5 trillion. The tech behemoth has elevated a slate of more traditional retail executives to help. Tony Hoggett, the former Tesco Plc executive leading the charge, has deep brick-and-mortar experience but confronts a landscape dominated by the likes of Walmart Inc. and Kroger Co.”
According to the story, Hoggett “describes the company’s ambitions to transform Amazon from something of a niche grocer specializing in organics and home delivery of cereal and paper towels into a destination for shoppers trying to stretch their dollars and consolidate trips to the store. ‘We’re serious about grocery,’ he says. ‘Our plan is on building this really strong grocery relationship with customers over time’.”
Bloomberg notes that “Amazon customers have long expressed frustration that they need to check out from three separate web pages to get everything on their shopping lists. Consumers who want king salmon fillets (sold by Whole Foods), a pack of shredded lettuce (sold by Amazon Fresh) and a box of Cheerios (sold, with other shelf-stable products, by Amazon.com) sometimes found themselves making three different orders—ferried to their homes in three separate deliveries. The company is looking to simplify the process this year or next by stocking more Whole Foods products in Amazon warehouses and creating one cart.”
Amazon also “is revamping its Fresh stores, placing Krispy Kreme coffee and doughnut stands near the front door, adding roughly 1,500 items to what had been limited inventory for a full-size supermarket and trying to make the space more inviting with bright colors.”
Bloomberg also reports that Amazon is “being more selective about where it puts stores. Rather than trying to scale up in multiple regions, Amazon is concentrating for now on a few key areas, including Illinois, Southern California, Northern Virginia and Washington state. It’s planning marketing events to reintroduce shoppers to the first renovated stores, in Schaumburg and Oak Lawn, near Chicago. Three more in Southern California are being renovated now, and the remaining 39 could be refitted if shoppers like the new concept.
“Inside the stores, the emphasis is on traditional retail touches, not the technological flourishes Amazon introduced with fanfare when it opened the chain. ‘All the look and feel and design is very different to our existing Fresh stores,’ Hoggett says. ‘Customers respond to a bit more of a bright and airy and light experience.’
“Shoppers can still skip the line by using Amazon’s Dash carts, which identify items placed inside and display a running tally. The latest iteration of the carts rolled out last year and replaced computer vision algorithms with more basic bar code scanners embedded inside, backed up by a scale. In another sign that Amazon is looking to simpler solutions, the redesigned Fresh stores feature self-checkout lanes, though shoppers at many Fresh stores can still use the Just Walk Out cashierless technology pioneered in the company’s Go convenience stores.”
Amazon Fresh yesterday announced that it now will offer grocery delivery to non-Prime members in 12 metro areas, with plans to roll it out beyond those areas in the future.
Claire Peters, worldwide vice president of Amazon Fresh, said that the goal is to build a best-in-class grocery shopping experience, and that the company remains committed to its investment in the grocery space.
“We’re always looking for more ways to make grocery shopping easy, fast, and affordable for all of our customers, and are excited to offer Amazon Fresh grocery delivery to customers without a Prime membership in a dozen U.S. cities,” she said.
According to the company, the markets include Austin, TX, Boston, MA, Charlotte, N.C., Dallas-Fort Worth, TX, Denver, CO, Nashville, TN, Phoenix, AZ, Portland, OR, Richmond, VA, Sacramento, CA, San Diego, CA, and San Francisco, CA.
Delivery service fees for customers who are not Prime members are $7.95 for orders over $100, $10.95 for deliveries $50-$100, $13.95 for deliveries under $50, and pick-up orders are free from select metro areas. Prime members will continue to save more on delivery services fees from Amazon Fresh. For Prime members, the delivery service fee is $3.95 for Amazon Fresh grocery delivery orders $100-$150, $6.95 for deliveries $50-$100, and $9.95 for deliveries under $50. This is a savings of $4 over the grocery delivery service fees for customers who are not Prime members. Prime members will continue to receive free grocery delivery on orders more than $150.
While in the past “Whole Foods has been largely siloed from Amazon’s other grocery businesses,” Bloomberg writes, “Hoggett, who moved with his family to Austin and works out of the grocer’s downtown headquarters, is starting to change that. Whole Foods executives now oversee all of Amazon’s grocery real estate and branding, while a longtime Amazon executive leads Whole Foods’ technology teams. Hoggett has brought in colleagues from his Tesco days with deep industry experience, including Claire Peters, who leads worldwide strategy for Amazon Fresh online and in-store, and Peter Bowrey, who leads store operations.”
As for the future, here’s how Bloomberg characterizes it: “If Amazon wants to become a leading player in groceries, it will require hundreds more stores, according to analysts. Whole Foods is working on an additional 50 locations, Amazon says, and hopes to build its roster of stores in development to 100 in the next few years. Fresh, which currently operates 44 stores, will likely resume its expansion if shoppers and executives are satisfied with in-store tweaks. Amazon could also bulk up by bidding on stores that Kroger and Albertsons are expected to offload as part of their pending merger.”
KC’s View:
It’s about time.
A few things here, if I may.
There are intimations in some of the stories reporting on Amazon’s new grocery moves that this is a last ditch effort by the company to get fresh right. There’s no question that it knows how to do packaged grocery; it was selling CPG items long before it bought Whole Foods or started opening bricks-and-mortar stores, and there’s no reason it can’t continue to do so effectively and profitably long into the future. But doing fresh and getting physical stores right is an entirely different skill set, and it may be that CEO Andy Jassy has said that this is Amazon’s last, best shot at getting this category right.
Which is not to say they can’t. Or won’t. I’ve been arguing here for some time that Amazon was one great executive away from getting all of this right, and the problem was that at least to the outside world, Hoggett was virtually invisible. The Bloomberg story makes it seem as if he’s been working on the down-low for some time, putting the pieces in place for a move, and now has been empowered to take his best shot.
(One cautionary note: I just hope the former Tesco execs formulating Amazon’s physical store strategy are not the same ones who developed Tesco’s Fresh & Easy format in the US. Because that was a nightmare. Though I suppose it is possible that could take lessons learned from that debacle and not make the same mistakes twice.)
I have one small concern about Amazon’s decision to offer grocery delivery to non-Prime members. I understand that Prime members still have a cost advantage and that non-Prime members will pay more. But I worry that Amazon’s long-time strategy of focusing on building Prime membership through exclusive and growing benefits – making it so, as Jeff Bezos said, “it is irresponsible not to be a Prime member” – is being watered down just a bit.
Maybe it doesn’t matter in the long run. Maybe this will just be ancillary revenue from folks who never would join Prime, and it will allow Amazon to build market share and compete more effectively with Walmart and Kroger and the myriad retailers using services like Instacart. But I continue to believe that two of Amazon’s marketing engines – Prime and Subscribe & Save – are among the most powerful and differentiating retailing forces ever conceived, and that if anything, Amazon has not pushed them enough over the past few years. I would hate to see the company abandon those advantages to any degree.
One last thing. I am heartened to see that they are rethinking the Amazon Fresh concept, making them brighter, more accessible, with more in-store options like Krispy Kreme. I also have to say, at the risk of hurting my shoulder while patting myself on the back, that this is exactly what I have been arguing for here on MNB for months. As recently as a few weeks ago, I was in a California Amazon Fresh store that I judged to be dark and unimpressive, and in a New York combo Amazon Go-Starbucks store that I thought had unrealized potential. In many ways, Amazon has many of the building blocks in place – it is just that the company couldn’t quite figure out what the final structure should look like, and they lost control of the narrative.
Now, they seem to have a better idea of the goal and are telling their story more effectively.
But if you go back to look at many of the stories I have done about Amazon’s physical stores over the past few years, there is an observation that almost all of them have in common – that they suffered from nobody-gives-a-damn disease. My message to Amazon would be that conquering that specific malady has to be a top priority.
If Amazon cares, customers will care.
And, in the immortal words of Jimmy Malone, don’t bring a knife to a gunfight.
Here endeth the lesson.
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