Taking Stock

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Amazon Continues Building Distribution Centers; New ‘Fresh’ Depots Being Added To Network 

There’ll be no press releases, no advance warning and no public acknowledgement by the company. Despite being publicly-traded, Amazon’s modus operandi has long been to reveal only information about itself that the SEC deems material to its shareholders. So, as part of the iconic online merchant’s “web of mystery” and its known accelerated pursuit to cement and expand infrastructure (particularly with the addition of dozens of new distribution centers), don’t be surprised to see the construction of new warehouses to appear seemingly out of thin air.

That was apparently the case last fall when one of Amazon’s newer stealth ventures was outed – the construction of a one million square foot Amazon general use warehouse that is now being built in southeast Baltimore (which will also house dry groceries along with many other products). And even stealthier is word that, adjacent to that large warehouse, Amazon plans to build a new 346,000 square foot “fresh” depot.

That Amazon has chosen Baltimore to conceivably expand its perishables business isn’t that surprising, for several reasons. The Seattle based online juggernaut is making a huge push to open distribution centers in more than a dozen markets nationally to achieve its objective of one day service on the hundreds of thousands of items it now ships. And while the “fresh” business is a more complex distribution and logistics challenge, Amazon seems determined to accelerate the pace of linking its general business with the ability to supply fresh food items in key metropolitan markets.

Amazon Fresh currently operates in Seattle, Los Angeles and San Francisco and is currently revamping a 564,000 square foot former Pathmark warehouse in Avenel, NJ which is scheduled to open later this year. That perishables facility would be able to serve Metro New York and Philadelphia consumers with perishable items and would complement another new dry grocery depot – a one million square foot facility that should open in the next three months in Robbinsville, NJ, about 40 miles south of Avenel.

And, as reported by us earlier, the Mid-Atlantic expansion comprises only a fraction of Amazon’s distribution center network expansion plans.

In September 2013, the explosive online merchant announced that it would hire 7,000 workers, with 5,000 of those positions at new distribution centers (marking a 25 percent increase in current staffing levels) slated to be built over the next 24 months. Most jobs offer pay and benefits far above typical retail wages, the company said. Additionally, Amazon will add about 2,000 service positions at new and existing customer service locations.

The 5,000 fulfillment center jobs would represent a 25 percent increase in current staffing in that department. Amazon has been increasing its network of fulfillment centers and warehouses in order to offer quicker shipping to more of its customers. Many Amazon customers now have the option of next-day delivery and the company is looking to offer same-day delivery on many more items, especially when this infrastructure expansion is completed in the next three years.

Analysts see Amazon’s expansion as an effort to more effectively compete (and gain market share) against other bricks and mortar and online merchants such as Wal-Mart (the world’s largest retailer) and eBay.

In the Mid-Atlantic alone, Amazon listed that fulfillment center jobs are available at current distribution centers in Breinigsville, PA (Lehigh Valley), Huntington, WV, Middletown, DE and Chester, VA, the latter two being depots that opened in the past 18 months.

Nationally, jobs are being added at new distribution centers in: Chattanooga and Murfreesboro, TN; Charleston and Spartanburg, SC; Patterson, San Bernadino and Tracy, CA; Coppell, Haslet and San Antonio, TX; Hebron, KY; Indianapolis and Jeffersonville, IN; and Phoenix, AZ. The customer service jobs are in Grand Forks, ND, Kennewick, WA, Huntington, WV and Winchester, KY.

In the Mid-Atlantic region, in addition to new depots opened in the past 18 months in Middletown, DE and Chester, VA, Amazon has also opened a new warehouse in Petersburg, VA.

The e-commerce giant is also nearing sainthood with Wall Street. Despite continued lower than expected earnings, the brainchild of CEO Jeff Bezos seemingly gets a pass from the financial community, which believes that Bezos’ long-term focus on revenue growth and innovation will ultimately yield higher profits. Their faith may be rewarded.

For example, in its recently completed fourth quarter ended December 31, Amazon posted earnings that had increased to $239 million, resulting in earnings of 51 cents per share. While that number was an improvement over 2012’s profit, it fell short of analysts’ projections, which called for earnings of 66 cents per share.

After the earnings release, Amazon’s shares took a quick plunge from approximately $403 per share to $346 per share. But don’t feel bad for the company’s shareholders. At presstime on March 14, Amazon’s shares had rebounded to $374.25 per share and the upward spike is continuing. And on a one year basis, Amazon’s stock is up about $115 per share.

Unlike virtually any other publicly-traded firm, a combination of Bezos’ god-like presence and leadership and continued impressive revenue gains (Amazon’s sales grew 20 percent in its fourth quarter to $25.6 billion and the company enjoyed its best holiday shopping season ever) have led to a phenomenon not often seen in American history. Of Bezos’ peers, Microsoft’s Bill Gates and the late, great Steve Jobs would be the only worthy comparisons.

And talk of secret research teams, innovation labs and even delivery drones only seem to heighten Amazon’s mojo. In fact, since Bezos’ interview on “60 Minutes” on December 1 in which he unveiled his “drone initiative,” Amazon’s magical, mystical status has seemingly soared beyond the stratosphere.

From a grocery industry perspective, the buzz factor has also increased. In the past six months, virtually every trade event that I’ve attended has included a speaker or industry panel that mentions Amazon as the new 800 pound gorilla (apparently Wal-Mart’s weight is down to 750 pounds).

There’s nary a mention of FreshDirect’s expansion effort into the DelawareValley or Peapod’s new 300,000 square foot automated distribution center due to open this summer in Jersey City, NJ.

At the recent NGA convention in Las Vegas, Wakefern president Joe Sheridan summed it up best, in my opinion. He termed Amazon’s growing presence as a potential “disturber.” Not a “disrupter” of current bricks and mortar businesses, but certainly enough of a factor for all competitors to be aware and concerned.

As a rapidly growing entity with tentacles that stretch globally, Amazon is already a disrupter and a threat to many other businesses as it grows, innovates and connects with all ages and economic strata.

But unless you’re Peapod, FreshDirect or several other smaller online merchants that compete on a head-to-head basis, Amazon’s aggressive growth effort into the grocery business will likely create more disruption than displacement.

Of course, supermarket retailers by nature are a hardy and resilient bunch, which will work in their favor. In the past decade, they’ve been “carpet-bombed” by the likes of Wegmans, Wal-Mart and Costco and endured many “paper cuts” from dollar stores, drug chains and c-stores.

As impressive as the total Amazon story is, I don’t think its impact on the traditional grocery business will ever yield more than a three percent market share in even its best trading areas.