Editor's note: This article was originally posted in early March of this year, but we're resurrecting it today because of its relevance given the recent New York Times report that Amazon is laying the foundation for a new grocery format.
Two retail consultants, including former Amazon executive Brittain Ladd, expect the latest grocery push by e-commerce giant Amazon will be a major disruption to the grocery landscape.
Two other analysts note that Amazon’s plans are still in the early stages and the grocery business is more difficult to master than people realize, even for a behemoth like Amazon.
The Wall Street Journal spurred conversations about Amazon’s grocery ambitions when it reported the company plans to open dozens of grocery stores in major cities. The stores will be roughly 35,000 square feet and emphasize customer service and pickup capabilities. The variety of products will be different from Whole Foods, with a lower price point, per the report.
Ladd, founder and CEO of Six-Page Consulting, worked with Amazon on its grocery strategy during his time with the company. He expects Amazon to aim to scale quickly by acquiring one or more regional grocers, with Sprouts an ideal target. Ladd also believes major traditional retailers like Walmart or Kroger may look to make acquisitions to foil Amazon’s plans.
“Grocery retailers were concerned, certainly, when Amazon acquired Whole Foods,” Ladd said. “However, Amazon didn’t start making major changes. Amazon’s last earnings report, after owning Whole Foods for nearly two years, really wasn’t impressive. It was just basic. There wasn’t anything outstanding. So grocery retailers are like, well if this is the best Amazon can do, why should we be concerned?”
“Now I have been warning them, no, Amazon has much bigger ambitions above and beyond Whole Foods,” Ladd said. “So now that it’s public that Amazon absolutely has bigger grocery ambitions ... the only thing these executives can do is say, ‘This is real, and we have to believe that Amazon is trying to come after our market share.’”
Bill Bishop, chief architect of retail consulting firm Brick Meets Click, said the news about Amazon certainly does not come as a surprise.
“This is a predictable part of where they’re going,” Bishop said. “It’s one more sign of how committed Amazon is about growing into a major factor in the grocery business.”
By creating a grocery format that appeals to a mainstream shopper, not only will Amazon sell more groceries, but it will have many more people to invite into its overall ecosystem.
“It kind of opens the door for digital engagement — or digital entanglement, however you want to think about it,” Bishop said.
Bishop does not expect Amazon to acquire a regional grocer to expand, instead expecting the company to gain scale in some other ways.
Craig Carlson, CEO of Carlson Produce Consulting and a veteran of the grocery retail space, expects that Amazon could certainly be a bigger factor in grocery eventually, but he believes the plans that have been reported so far do not warrant predictions that the e-commerce giant’s ambitions will transform the industry in a couple years.
“It’s symbolic, yes, but a number of locations overall in the grocery business is really nothing,” Carlson said. “It’s a drop of water in the ocean. It’s more symbolic than anything. To be material, they’ve got two options. They can build stores, which will take them decades to scale and make efficient, or they can buy regional chains ... and then they’re going to have to be able to build the supply chains to support the efficiencies that they need within all these markets.
“Realistically, what’s happening here, much more has to be seen to be able to determine what they want to do,” Carlson said.
Elley Symmes, senior analyst at Kantar Consulting, also noted that it remains to be seen how Amazon will actually proceed on this new store format.
“Traditional grocery is such a difficult business,” Symmes said. “I would be really curious to see how Amazon thought that they could innovate it in a way that would make them be successful. That being said, they don’t have to rely on the grocery store necessarily for profit ... Amazon has more flexibility.”
She also noted that food is an area in which Amazon wants more of a presence.
“Food is kind of the last pillar to Amazon’s larger ecosystem that they’ve created,” Symmes said.
“They’ve done a really good job at bringing in shoppers. Our latest data shows one out of two U.S. households is a Prime member," Symmes said. They’re trying to be credible in that (grocery) space so they can fill that last gap in the Amazon ecosystem.”
While Amazon’s culture as a test-and-learn company gives them one advantage, Symmes noted that the decades of experience of conventional retailers should not be underestimated.
“I think everyone kind of overhypes what Amazon does in grocery and forgets A) how difficult the grocery business is and B) how the Krogers, the Albertsons, the Aholds, the Hy-Vees, H-E-Bs, while they can sometimes be less innovative, they are incredibly knowledgeable of how to operate a traditional grocery space, something that Amazon doesn’t necessarily have as much of ... ” Symmes said.