Amazon Apparently Ready To Put On Big-Boy Pants For Bricks & Mortar Grocery Retailing
You knew Amazon wasn’t going to end its quest into bricks and mortar food retailing with only Whole Foods natural and organic stores and Amazon Go c-stores in its tote sack.
According to the Wall Street Journal, Godzilla is poised to expand its physical store presence by planning to build and open “dozens” of grocery stores, beginning perhaps as soon as the end of this year. The story notes that the Seattle-based monolith has already signed two leases in Los Angeles and is negotiating for sites in DC, Philadelphia, Seattle, Chicago and San Francisco. Amazon is also considering acquiring several regional grocery chains with 12 stores or less, as a vehicle to expand its physical presence as well.
The new stores are not intended to compete with Whole Foods; the Journal notes that these stores would offer a different mix of products at more aggressive retail prices.
Tactically, this is a needed move for Godzilla, which still dominates the e-commerce world (even in food and related items), although walmart.com is catching up slowly. Walmart’s three-year resurgence is clearly evident in the digital world, but what might be less visible to some people (not food industry executives) is that the Behemoth has significantly upped its game on the bricks and mortar side, improving its stores on many levels – cleanliness, staffing, customer service, perishables, etc. – while using its click and collect ability to help both store sales and e-commerce revenue.
Frankly, I’m a bit surprised Amazon hasn’t done more with Whole Foods in the 21 months since it acquired the Austin, TX-based merchant for $13.4 billion.
Sure, they’ve created a powerful link to Prime members and mobilized the nearly 500 WFM stores as delivery hubs. That’s important but not game changing. As for the stores themselves, everyday retails haven’t come down appreciably and there seems to be slightly less labor in the stores than before the acquisition.
And maybe that’s the entire point in a nutshell. Food retailing is hard – there’s no magic bullet that will create instant improvement. Could it be that, as mighty and powerful as Amazon and its dynamic CEO Jeff Bezos are, improving a business that’s so uniquely capital and labor intensive with too many stores operating in diverse styles is more difficult than the company thought?
I’m assuming that Amazon’s new supermarket model will operate under an independent infrastructure, just like many of the company’s other units. That’s still the case with WFM (although Amazon’s influence is obvious) and it’s also the case with Amazon Go, which now has 10 stores, but reportedly plans hundreds more.
I visited my first “Go” store earlier this month in San Francisco (one of two it operates in the city). Located in the busy downtown area of California and Battery Streets, the store was clean, moderately busy and priced fairly. However, I wasn’t impressed by the store’s prepared foods quality (not terrible, but certainly no standout) and item mix. Out-of-stocks were also too high.
I also understand that I’m not the customer profile that the store is seeking. The GenYers in the store were clearly comfortable with the store’s layout and cashless checkout system. Still, the store should have been busier at lunchtime on a Friday in the heart of one of America’s largest and most affluent cities.
The not so dirty secret for those who’ve spent their careers in the industry is that food retailing is a beast. Bezos knows it, too. Certainly, it’s a tremendous advantage that a company can “test pilot” an idea and lose billions over several years and still continue to work to improve it (which Amazon is very good at) or cut and run if the rewards aren’t forthcoming (Amazon’s had a few of those examples, too).
From a strategic perspective, this a good time to enter the overstored fray. There are dozens of existing retailers who are struggling, tired, frustrated and who may not have a firm succession plan in place. Some are destined for attrition, while a select few would certainly listen very hard if Amazon offers them a grande satchel of dinero.
I’m certainly not betting against Amazon – he who has the gold rules – but this will be a challenging endeavor. Successful bricks and mortar food retailing isn’t about being smarter or savvier than the next guy. It’s about location, merchandising ability and operational execution. It’s also about tenacity and grit.
Let’s see how Godzilla fares against a different breed of merchant that operates in a silo where Amazon isn’t yet all that dominant – physical spaces.