This is Amazon's newest grocery store concept

Amazon owns around 500 Whole Foods stores. But the company's plan to win more of America's grocery spending stretches...

Posted: Feb 25, 2020 9:01 AM

Amazon owns around 500 Whole Foods stores. But the company's plan to win more of America's grocery spending stretches far beyond operating an organic chain.

Amazon on Tuesday announced the opening of a new, larger Amazon Go cashier-less grocery store in downtown Seattle, the company's hometown.

It's the latest step in Amazon's grocery push and signals Amazon has "doubled down" on becoming a larger player in the industry, said Bill Bishop, co-founder of retail and grocery consulting firm Brick Meets Click.

The new grocery store, at 10,400 square-feet — around five times the size of a typical Amazon Go convenience store — takes the Amazon cashier-less concept to a much bigger scale. The bigger store has different merchandise on the shelves than a regular Amazon Go store. Amazon will stock 5,000 items, including produce, meat, seafood, bakery items and household essentials at the store. It will also include ready-to-cook meals, beer and wine.

Amazon is positioning its new store as a "neighborhood market."

While the 25 Amazon Go stores the company currently runs try to draw workers in business districts with a quick breakfast, lunch or snack during the day, Amazon has set up its new store closer to customers' homes. Amazon hopes to get customers to come in after work or on the weekends to fill up on groceries.

"Customers on their way home, customers by their home, what they want is groceries," said Cameron Janes, Amazon's vice president of physical stores. "They want what's for dinner tonight."

If successful, Amazon's technology could appear in Whole Foods' stores one day soon, according to experts. Amazon said it had no plans to do so, however.

'Grocery is central'

Amazon is eager to crack the more than $800 billion US grocery market.

The average American goes to the grocery store up to two times a week, according to Morgan Stanley, and Amazon wants to grab a bigger chunk and lock in more shoppers to Prime memberships.

As Walmart US CEO John Furner said last week: "Grocery is central to the customer relationship."

Although Amazon has succeeded online, stores are crucial in the grocery industry because only a fraction of Americans buy fresh food online. Also, shipping and delivery are expensive. And if Amazon can run its Go stores with thin staff, that can help the company save money, too.

"The US grocery sector has remained sheltered from the forces of e-commerce," McKinsey & Co. analysts said in a report Tuesday.

So Amazon needs a brick-and-mortar footprint. Amazon bought Whole Foods for $13.7 billion in 2017 and has slowly added stores and cut prices at the chain.

But Amazon's success with Whole Foods has been mixed.

Amazon does not break out Whole Foods' sales, but revenue at Amazon's physical stores — which also include Amazon Go stores, Amazon Bookstores and Amazon Four-Star — fell slightly during the company's latest fiscal year.

"They've decided that they can't grow fast enough with Whole Foods," said Bishop, co-founder of the consulting firm Brick Meets Click. Amazon is turning to a "non-Whole Foods grocery strategy," he said.

In addition to the new Amazon Go grocery stores, Amazon also plans to open dozens of its own supermarkets in major US cities separate from Whole Foods, the Wall Street Journal has reported. The Amazon stores will offer different, cheaper products than Whole Foods, including beauty and health items, according to the Journal.

The first one will be in Los Angeles. Janes from Amazon said "that's going to be a store with a more traditional checkout experience."

The separate banner could help Amazon court shoppers who are less interested in Whole Foods' organic fare. Moving outside of Whole Foods could also help Amazon reach different shoppers. New, cheaper Amazon stores could crack into Kroger, Walmart and other supermarkets' lower and middle-income customer bases.

It will also give the company more pickup and delivery points to meet customer demand, help it gain data about shoppers, and introduce its expanded lineup of food and personal care brands, according to analysts.

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