Retailers

Amazon Fresh ‘Much More Than a Traditional Grocery Store’

Four ways brick-and-mortars can compete as the tech-savvy retailer expands physical footprint
Photograph courtesy of Amazon

Amazon’s newly opened Amazon Fresh in Woodland Hills, Calif., combines Whole Foods Market’s popular private label 365 products and local favorites with mainstream grocery items such as Coca-Cola and Kraft Mac and Cheese. The online retailer’s first brick-and-mortar grocery store is also outfitted with technology throughout, including Amazon’s Alexa information services and Dash Cart checkout-free technology.

“Amazon is starting to realize that in the world of food, it’s not all about buy online/deliver to home,” says Sylvain Perrier, president and CEO of Mercatus Technologies Inc. “There are elements where it’s strategically advantageous to have a grocery store fulfill for groceries, do curbside pickup, and leverage portions of your store’s inventory to microfulfillment centers to reduce your cost of last mile.”

Through Amazon Fresh, the online retailer is also creating a physical brand awareness experience that is front and center with the consumer, adds Perrier. “[Amazon Fresh] is where you’ll pick up your Amazon packages, and it’s where you’ll go if you need help with an Amazon device. This is about taking their brand and creating a physical presence—and that will be much more than just a traditional grocery store.”

While Amazon has confirmed with WGB that it will open additional stores in Oak Lawn, Ill., Schaumburg, Ill., Naperville, Ill., Irvine, Calif., North Hollywood, Calif., and Northridge, Calif. (currently a dark store), Planned Grocery currently lists Amazon Fresh as potential possibilities for 24 U.S. sites, based on various reports and deals, including the acquisition of dark Fairway Market stores in New Jersey.

But with some 500 Whole Foods Market locations and more than two dozen Amazon Go stores, Seattle-based parent company Amazon will likely roll out additional Amazon Fresh grocery stores on a more aggressive scale in the very near future.

Which competitors are most at risk if Amazon Fresh sets up shop down the block? 

“If you look at where the [Woodland Hills] store is located, it’s five minutes from Sprouts Farmers Market,” says Perrier, who points to forthcoming research from the Toronto-based company, which shows consumers select a grocer based on proximity. “I would be very fearful if I were Sprouts Farmers Market.”

What’s more, adds Perrier, “there’s going to be a cachet to this store that will be nothing like a Whole Foods. Compared to any other traditional grocery retailer, it will be extremely tech-centric—the integration of the Dash Cart, the integration of Alexa to help consumers find the location of products—when traditional grocers try to do that on their own, it’s extremely challenging. And at the surface, it looks like Amazon has solved for that.”

“Amazon Fresh combines Amazon’s decades-long history of operational excellence with unmatched value, high-quality products, and convenience,” an Amazon spokesperson told WGB.

While the Austin, Texas-based Whole Foods Market has a loyal customer base, it also has its “Whole Paycheck” reputation with which to contend. Amazon Fresh’s focus on affordability will allow it to go head to head with traditional grocers—another competitive advantage.

“I think what will come to bear is Amazon’s strength in pricing,” says Perrier. “We’ll see, but it should be quality at a reasonable price. If you look at Sprouts Farmers Market’s model, which is historically considered a reverse business model, produce is less expensive and the periphery of the store is a little more expensive, but I think Amazon can cut right through that. And if you’re a CPG or vendor, you’re going to want to work with Amazon.”

“At Amazon Fresh, customers can find everything they love about Amazon: consistent low prices, convenience and great selection,” the Amazon spokesperson continued. “We think those aspects, combined with Amazon Fresh’s delicious prepared food offerings made in-store every day, as well as a convenient in-store grocery shopping experience with features like Alexa shopping list integration and the Amazon Dash Cart will be reasons why customers will love shopping at Amazon Fresh.”

In contrast to Whole Foods' self-described “rigorous product standards,” Amazon Fresh will carry a wide variety of organic, natural and conventional brands. Given the new product assortment WGB asked Amazon Fresh if Whole Foods Market or Amazon would supply the new grocery stores.

“We work with a wide range of national, regional and local brands—customers can shop everything from Coca-Cola, Tostitos and Kraft Mac and Cheese to Rockenwagner Bakery in the Los Angeles area. We partner directly with these brands or through suppliers as needed,” explained the spokesperson.

Which Grocers are Most Vulnerable to Amazon Fresh, and How Can They Compete?

“I would think every traditional high-low retailer in the California market should be concerned,” asserts Perrier. “Trader Joe’s potentially,” however, like Wegmans in the East, Trader Joe’s and its shoppers have a level of romance that may be untouchable by Amazon and anyone else, he adds.

While Albertsons’ Safeway stores are a direct competitor of Amazon Fresh, “the ones who should not necessarily be concerned would be the Gelson’s of the world—higher margins with earnings much higher than a regular retailer,” says Perrier.

Perrier shares his four tips for remaining competitive in the age of Amazon Fresh:

1. Transparency and Availability

Manage product availability and be extremely transparent on that. One of the sore points during the pandemic—and a key reason consumers are shifting their shopping dollars among retailers—is a lack of transparency and product availability. Amazon is well-positioned to manage the supply chain compared with other retailers.

2. SNAP-EBT (Supplemental Nutrition Assistance Program-Electronic Benefit Transfer)

In the U.S., some 60 million to 70 million people are taking advantage of the SNAP-EBT program. In some California discount stores, such as Walmart, SNAP-EBT represents 30% of sales. That’s table stakes right now. Taking SNAP-EBT in-store is one thing. The next step is to take it online.

3. Ready for Takeoff

If you’re a retailer who offers online commerce, make sure you’re able to present early in the online experience with available time slots for delivery and pickup. There’s a big push for that now.

4. Private Label

Perrier said stores need to augment service with a really good private label. Albertsons/Safeway and Loblaws in Canada have doubled down on the quality of their private label offerings, and others would do well to follow suit.

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