Amazon chief executive Andy Jassy has vowed to double down on the company’s struggling grocery store business, despite recently announcing that its growth plans were on hold.
Jassy told the Financial Times that the ecommerce giant was ready to “go big” on bricks-and-mortar stores, blaming a lack of “normalcy” during the pandemic for a series of stumbles.
Five years since acquiring Whole Foods for $13.7bn, Amazon’s largest ever acquisition, the company has yet to disrupt a grocery sector worth $1.6tn in the US, in the way competitors had initially feared.
Pulling back its expansion plans on grocery led to a $720mn impairment in the last quarter of 2022, Amazon said this month, as some of its Amazon Fresh grocery store locations were closed and new openings paused.
“Remember, a lot of these opened right in the heart of the pandemic,” Jassy said. “So we haven’t had a lot of normalcy. We’re experimenting with selection, checkout formats, assortment, price points. I’m encouraged we have several that I think are promising.”
Revenue for Amazon’s physical store unit, as broken out in its quarterly earnings reports, has grown only 10 per cent since the Whole Foods deal, and represents just 3.4 per cent of Amazon’s business.
“We’re just still in the early stages,” Jassy said. “We’re hopeful that in 2023, we have a format that we want to go big on, on the physical side.
“We have a history of doing a lot of experimentation and doing it quickly. And then, when we find something that we like, doubling down on it, which is what we intend to do.”
Building a formidable grocery arm has long been touted by Amazon as one of its most important priorities. When founder Jeff Bezos announced he would stand down as chief executive in February 2021, he made clear he would still be involved as executive chair in “important Amazon initiatives” of which grocery was one.
However, the Whole Foods acquisition had failed to provide the bedrock for a broader Amazon grocery strategy, analysts said, with inconsistent store formats making it difficult to use the locations as local delivery hubs.
Instead, Amazon moved to create its own purpose-built stores in a variety of styles, from corner shop-sized Amazon Go stores — which include cashier-less technology powered by an elaborate array of cameras that follow customers — to Amazon Fresh, a more traditional offering with a few tech-enhanced aspects such as “smart” shopping carts.
But plans to open more than 200 Fresh stores have in fact just led to several dozen, with some US locations due to open now lying empty.
Meanwhile, the Amazon Fresh delivery-only business has gained only limited traction, with Amazon instituting a $9.95 delivery fee in the US for orders under $50. Jassy said he was “optimistic” about its online grocery business, but acknowledged that “people want to actually touch and feel” food before buying.
Beyond grocery, Amazon has eliminated other physical store experiments — such as “4-Star”, a store selling an assortment of items rated four stars or above according reviews on Amazon.com.
“They don’t really understand physical retail very well,” said Neil Saunders, a retail analyst, suggesting Amazon’s technology had not been enough to break US consumers’ habits of shopping at established players.
“They’ve got ‘just walk out’ technology, they’ve got smart carts. Great, really interesting. But how many customers say, ‘Hey, I’m going to shop somewhere because they’ve got a smart cart’? No one.”