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.
Brittain Ladd, founder and CEO of Six-Page Consulting and a former Amazon executive, sees the Wall Street Journal report about a new grocery store format for Amazon as a sign the company is ramping up to become a true competitor in the grocery space.
He spoke with Produce Retailer and gave his perspective on what the new stores will be like, which shopper segments Amazon will be pursuing with the new format and how the grocery industry could react.
Ladd said the new store format described in the Wall Street Journal is similar to one that he designed and recommended to the company in the course of his work there.
He expects the stores to devote most of their visible space to fresh food, with center-store products available for fulfillment from a second floor or back room. Ladd believes the stores will also be equipped to fulfill online orders for delivery and will support curbside pickup.
With the new format, Ladd said, Amazon is pursuing the mainstream shopper — the one who doesn’t go to Whole Foods.
“They’re people who are health-conscious, but they want branded CPG products,” Ladd said. “They may have a family, they may be single, they may want to eat fresh fruits and vegetables, but you know what, they want a bag of potato chips, they want a bag of Cheetos, they may want to buy Coke or Pepsi. You can’t buy those things at Whole Foods.”
With Whole Foods founder John Mackey still on board as CEO, the assortment at Whole Foods cannot change the amount it would need to in order to reach a broader audience, Ladd said.
“Amazon is absolutely going after Kroger’s customers, Albertsons’ customers, they’re going after Target’s customers, Walmart’s customers,” Ladd said.
“Amazon is creating a store concept that’s basically more of a traditional grocery retail store in terms of the assortment, but Amazon is going to leverage the Prime program to give people additional savings, but they’re also going to create a really interesting and exciting new design, like I described, the multi-format store," Ladd said. "And Amazon’s going to do everything they can to make the checkout much easier, possibly even removing cashiers.”
Ladd said analysis has shown that Amazon would need 2,150 stores to be a serious competitor in the grocery landscape, and he believes the company could acquire a midsize retailer like Sprouts or H-E-B to jumpstart the process.
Scaling the traditional way isn’t a viable strategy, Ladd said.
“They cannot simply go slow and open up only a handful of stores on an annual basis, then it’s too easy for their competitors to go after Amazon if they do that, and the way they can do that is go after Amazon by greatly reducing the price of their groceries,” Ladd said. “Even though Amazon may open up a new store, their competitors, they’ll create a price war, and they’ll make it too hard for customers to justify going to (Amazon) because groceries will be 20, 30, 40% cheaper at the competition.”
Ladd sees — and has previously written about — Sprouts Farmers Market as an ideal chain for Amazon to acquire, with the idea to then rebrand those stores to whatever Amazon's new store will be.
“Amazon would prefer to buy only non-union retailers," Ladd said. "The reason for that is Amazon is a nonunion company, and most nonunion companies don’t buy union, so what will happen is Amazon will look for those regional grocery retailers that are nonunion.
"Sprouts is nonunion, and that’s why I think they would go after Sprouts," Ladd said. "Now Sprouts is actually nationwide, but they only have around 300 stores, so it’s a perfect acquisition for Amazon."
The impetus is on Amazon to act quickly, Ladd noted, because the company’s biggest competitors — Walmart, Kroger and others — could proactively make acquisitions to prevent Amazon from carrying out plans to quickly gain scale.
Ladd expects action from the big players in the industry because Amazon took many by surprise when it bought Whole Foods.
“Grocery retailers hesitated,” Ladd said. “They didn’t take Amazon serious. And even though Whole Foods was the only logical retailer that Amazon could acquire, they left it on the market. They didn’t have the courage to make a big move. Now things have changed.”
Ladd expects that mergers and acquisitions will increase in 2019 and 2020 as a result of Amazon’s push to go further into grocery.
“What Amazon just did is create a ripple effect,” Ladd said. “What we don’t know is how big the ripples are going to be. Is it going to be transformative across the industry? Will there be only small amounts of mergers and acquisitions? I don’t think so. I think this is absolutely going to trigger some major, major moves in grocery retailing.”