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Grocery stores don’t have to be afraid of Amazon — for now

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The destructive streak has not yet reached the grocery aisle. Supermarkets should still be on their toes.

It’s been 14 years since Amazon launched Amazon Fresh, a grocery delivery service, and about four years after the company acquired Whole Foods. Still, Amazon’s grocery market share remains overwhelming. According to Numerator data, Amazon.com and Whole Foods for the year ended March 31 were 1.4% and 1.2% of US food spending, respectively. Industry supporters Wal-Mart and Kroger had a total market share of 22% and 12%.

Amazon’s sales through Whole Foods are stagnant. The physical store segment, which primarily reflects face-to-face sales at Whole Foods, has seen a decline in annual sales since 2018, the first full year of post-acquisition integration of grocery chains. The March quarter segment’s 16% year-over-year revenue decline was the worst on the company’s record, as Chief Financial Officer Brian Olsavsky said foot traffic to Whole Foods continued to decline. .. Side dish sales, a key component of the luxury grocery store business, fell sharply during the pandemic and haven’t fully recovered yet, to discuss Amazon’s first-quarter results last month. Added by phone.

However, Whole Foods is only part of Amazon’s grocery ambitions. The company has been running Amazon Fresh for some time. And I started to build a physical store with that brand. There are currently 12 such stores, with a new store scheduled to open in Virginia on May 27. Amazon has also announced plans to rebrand its 22 small Go convenience stores under the Fresh label.

Amazon will have a natural advantage in grocery delivery. However, logistics consulting firm MWPVL International estimates that less than 3% of domestic fulfillment centers are dedicated to delivering fresh food. So far, the reviews of the actual fresh stores have been mixed. In Google reviews, shoppers were generally highly rated, but often mentioned the high percentage of employees receiving “pickers” and merchandise for delivery, and the so-called dash cart restrictions that shoppers couldn’t bring in. Did. To the parking lot. Shoppers can skip the checkout outline by putting the item in their smart cart and paying from the Amazon app on their smartphone.

The real threat is probably a trigger that Amazon hasn’t pulled yet. It has a higher margin than supermarkets, so there is room for price cuts if necessary. Amazon’s overall operating margin for 2020 was 6%, ahead of Wal-Mart’s 4% and 2% of pure grocery stores such as Kroger and Albertsons...

This could be a powerful and timely tool for consumers to notice rising prices as food inflation continues to rise this year.

Amazon’s Prime Membership Program is another big advantage. Michael Lasser, a UBS equity analyst, said Prime’s data not only helps Amazon determine the best location for stores, but it also knows shoppers’ consumption habits, so they choose products according to location. He said it would be useful for customization.

Amazon has a larger budget to deploy in new stores, or even faster delivery times if needed. Last year, the company’s capital investment was more than double that of the four largest grocery chains with combined US market share. We also have much more expertise and funding to bring technical enhancements to shopping. Amazon operates the world’s largest cloud computing business with artificial intelligence capabilities. Over the last five years, we have spent $ 146 billion on the Technology and Content segment of our income statement, which includes R & D.

Still, tech companies will have to let go of more to make a big impact on food. Britain Rudd, a former Amazon executive and current supply chain consultant, said in a recent customer call with financial services firm Baird that more than 2,000 more stores would allow Amazon to establish a strong grocery position. He said he would need. And it will have to be under the watchful eye of lawmakers and regulators who are confident that Amazon already has market power. In fact, that may turn out to be one reason that is preventing Amazon from completely bagging its grocery business.

Share your thoughts

Do you think Amazon’s multi-year commitment to groceries will ultimately pay off? Why or why not? Join the conversation below.

Write to Jinjoo Lee (jinjoo.lee@wsj.com) and Dan Gallagher (dan.gallagher@wsj.com)

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Grocery stores don’t have to be afraid of Amazon — for now

Source link Grocery stores don’t have to be afraid of Amazon — for now

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