Amazon: Lessons from a rare strategic misstep

There are few categories that Amazon hasn’t been able to fundamentally change, but in grocery it has struggled despite the staggering $14 billion acquisition of upmarket chain Whole Foods and multiple food-focused Prime verticals.

Why it matters

Delivering groceries is extremely convenient for the consumer but extremely difficult to do profitably. Even Amazon, with its vast scale and technical prowess, has struggled to crack it.

These lessons point to what was truly different about Amazon’s roaring successes: a gulf between it and the competition that made it a fundamentally better offer.

What’s going on

CNBC delves into the history of Amazon’s grocery odyssey, taking in the early “bake-off” between Prime Now and Amazon Fresh, the Whole Foods acquisition, the rollout of its cashierless “Go” stores, and where it lags.

The company remains niche in this critical category, compared to its leadership status in general e-commerce, entertainment, and cloud computing.

What went wrong?

In part, it’s the sheer cost of delivering fresh, perishable food in a place as huge as the United States; there’s a reason Amazon has focused a lot of its energy on hyper dense London.

Go Stores, meanwhile, dominated both headlines and imaginations throughout their testing period, but between 2018 – when the first store opened at Amazon HQ in Seattle – and 2021 – when the firm had aimed for 3,000 stores – few could have predicted a pandemic that would stop travel to inner city offices dead in its tracks, and adapt people’s working behaviour in its wake.

Then there’s Whole Foods, which had a rock-solid brand and reputation, but whose locally autonomous stores were difficult to integrate with e-commerce fulfilment processes.

Synthesis: Amazon Fresh

Amazon’s ultimate solution has turned away from adding e-commerce features to Whole Foods stores and settled on a hybrid Amazon Fresh format.

• With 20 sites across the US opening since 2020 and a further 15 in the UK, Amazon Fresh combines a grocery area with spaces to buy other Amazon hardware and return products ordered online.
• Compared to other similar sized supermarkets, these stores can handle three to five times the online order volumes.

The success of these stores has, in part, relied on the correct choice of location with strong rates of Amazon Prime members that have adapted their physical shopping routines to be closer to their online journeys. Yet, these are hardly competing with Walmart for scale; there is yet a long way to go.

Bottom line

Because Amazon is so big, and has so many successful interests, grocery wasn’t a core focus of its most recent results call. But some investors see trouble down the line as expansion will ultimately require building a footprint that makes one- to two-hour deliveries possible.

Sourced from CNBC, WSJ. [Image: Amazon]