Taking Stock

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AmazonFresh Exiting Certain Suburban Areas; Expect Whole Foods, Prime To Now Fill The Void

Home delivery remains the most complex and costliest option for food retailers. To wit: Peapod and Fresh Direct, which have been in the business since the last millennium, have yet to become profitable.

So, it wasn’t too surprising to learn that AmazonFresh is scaling back its coverage in several key markets, some of which it entered less than a year ago. But parent firm amazon.com emphasized that it is not giving up on its fresh delivery portal, it is merely reducing the number of zip codes it will serve in several states (in the Mid-Atlantic and Northeast, those include Connecticut, Delaware, Pennsylvania, Maryland, Massachusetts, New York, New Jersey and Virginia) while continuing to deliver perishables in parts of all those states.

Of note also is that amazon.com continues to build fulfillment centers to support fresh deliveries nationwide.

To this reporter, it seems that AmazonFresh isn’t going away – it’s likely to be repurposed into other Amazon formats.

One of those up-and-coming portals is the company’s Amazon Prime Now, which promises grocery and restaurant deliveries within a two-hour window and also offers perishables in its catalogue. Currently available in about a dozen markets including Baltimore, Washington, DC and New York City, Prime Now is also being tested in other markets, as well, including Richmond.

It’s clear amazon.com believes that its $99 per-year Prime subscription service is one of the foundations of its go-to-market approach. And Prime Now is available to all Prime members, who now total more than 80 million nationally. Moreover, when compared to AmazonFresh, which charges an additional $14.99 per month on top of the Prime annual fee, Prime Now seems like it will be the perishables-driven silo that will be prioritized.

And then there’s the future role of Whole Foods Markets, where amazon.com has barely scratched the surface. I had an opportunity to visit the busy and impressive WFM flagship store in Austin, TX last month and, other than point-of-sale signage marketing lower prices (fewer than 100 items), there wasn’t much evidence that a new sheriff was in town.

That will change soon.

Other than the utilization of selling a proprietary brand (365) through its vast distribution network, a bigger opportunity lies in utilizing Whole Foods’ more than 450 stores as both mobile delivery hubs and click & collect centers. While Instacart has WFM’s delivery business currently, its contract expires in 2021. Look for that business to be integrated into a re-engineered AmazonFresh/Prime Now.

The entire integration of Whole Foods into amazon.com won’t be without its bumps given the ferocity of competition in a traditionally low-margin business.

However, amazon.com has the benefit of time, talent, seemingly unlimited funds with which to experiment, and a 44 percent share of all e-commerce business in the U.S. (according to eMarketer) as well as the adoration of Wall Street which thinks the Seattle juggernaut can’t do much wrong. In fact, that reputation has been earned, because amazon.com’s “hits” over the past decade have significantly outweighed its “misses.”
And if this current scaling back of its AmazonFresh grocery business can be counted as a “miss,” I’m betting that a new “hit” will surface very soon.