Amazon unveils biggest grocery overhaul since buying Whole Foods

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■ August 2, 2023, 6:00 AM EDT, Bloomberg BusinessWeek

Amazon Unveils Biggest Grocery Overhaul Since Buying Whole Foods

● It’s revamping stores, unifying online shopping carts and offering fresh-food delivery to customers who aren’t Prime subscribers.

By Matt Day

Amazon.com Inc. is launching the biggest overhaul of its grocery business since it acquired Whole Foods Market six years ago—revamping stores, testing new highly automated warehouses and, for the first time, offering fresh-food delivery to customers who aren’t Prime subscribers.

In a move likely to play well with shoppers, the company also plans to merge its various e-commerce supermarket offerings—from Whole Foods, Amazon Fresh, Amazon.com—into one online cart.

The changes, which will roll out in the coming weeks and months, mark the Seattle-based company’s latest effort to grab a bigger share of a US grocery market that UBS Group AG analysts estimate is worth $1.5 trillion. The tech behemoth has elevated a slate of more traditional retail executives to help. Tony Hoggett, the former Tesco Plc executive leading the charge, has deep brick-and-mortar experience but confronts a landscape dominated by the likes of Walmart Inc. and Kroger Co.

In an interview with Bloomberg Businessweek, Hoggett, 49, describes the company’s ambitions to transform Amazon from something of a niche grocer specializing in organics and home delivery of cereal and paper towels into a destination for shoppers trying to stretch their dollars and consolidate trips to the store. “We’re serious about grocery,” he says. “Our plan is on building this really strong grocery relationship with customers over time.”

On Aug. 2, Amazon will begin inviting people without Prime subscriptions in a dozen US metropolitan areas—including Boston, Dallas and San Francisco—to order groceries online from Amazon Fresh stores and warehouses. Previously, only shoppers paying the annual $139 Prime subscription could get food delivered from Fresh. The company aims to make the offer standard nationwide by the end of the year and eventually include products from Whole Foods and other grocers. Delivery fees range from $7.95 to $13.95, or $4 more than Prime members pay.

Amazon customers have long expressed frustration that they need to check out from three separate web pages to get everything on their shopping lists. Consumers who want king salmon fillets (sold by Whole Foods), a pack of shredded lettuce (sold by Amazon Fresh) and a box of Cheerios (sold, with other shelf-stable products, by Amazon.com) sometimes found themselves making three different orders—ferried to their homes in three separate deliveries. The company is looking to simplify the process this year or next by stocking more Whole Foods products in Amazon warehouses and creating one cart. “We recognize that still needs to be improved,” says Hoggett, the senior vice president for worldwide grocery stores.

In the physical world the company is revamping its Fresh stores, placing Krispy Kreme coffee and doughnut stands near the front door, adding roughly 1,500 items to what had been limited inventory for a full-size supermarket and trying to make the space more inviting with bright colors. Grocery analysts and some shoppers were turned off by the chain’s sterile, utilitarian design. “It just feels soulless,” says Peter Abraham, a marketer in Los Angeles who dropped in on a Fresh store a few times and has stopped going back.

Amazon’s rationale for being in the famously low-margin grocery business is much the same as Walmart’s: to use regular pantry refills to drive traffic and coax shoppers to buy other products. Over the past few years, Amazon has built a large online business selling such staples as paper products, canned goods, pet food and health and beauty items. Those sales were supercharged when the pandemic forced many people to shop online for groceries and consumables for the first time.

But the company has been trying for years to figure out how to profitably sell fresh food, starting and killing a range of initiatives. Delivering meat and produce is logistically challenging and expensive. Two people familiar with the situation, who requested anonymity to discuss an internal matter, say Amazon required a grocery order of about $115 to break even in 2010, on average. A decade later that break-even point was still $90 to $100. Hoggett says the company doesn’t track delivery economics using a single figure because of differences in order speed and types of trips, but he says the company had made “big steps” in building a more efficient home delivery business.

One solution is physical stores, which can double as pickup locations and mini-fulfillment centers. The $13.7 billion Whole Foods purchase wasn’t enough, because the chain operates only about 530 stores, compared with Walmart’s thousands. So in 2020 the company launched the Amazon Fresh grocery chain, which offers curbside pickup and serves as a staging point for home delivery. The first Fresh store opened in Los Angeles in September of that year, and the company seemed poised to add hundreds more in short order as an aggressive real estate team scooped up space in strip malls and shopping centers across the US.

Then, Andy Jassy succeeded Jeff Bezos as chief executive officer and slammed the brakes on spending as his team reviewed the company’s biggest bets, including the grocery business. Amazon shuttered more than 60 brick-and-mortar locations last year, including bookstores, a potpourri mart called Amazon 4-star and pop-up electronics stores in shopping malls. Hoggett paused the grocery expansion last fall, and the company at the end of the year took a $720 million writedown primarily related to its grocery business, reflecting store closures and broken leases, among other things.

Jassy and Hoggett’s boss, worldwide retail chief Doug Herrington, approved the reboot during Amazon’s annual planning process in November. The company is cutting hundreds of junior store manager jobs that executives deemed redundant and being more selective about where it puts stores. Rather than trying to scale up in multiple regions, Amazon is concentrating for now on a few key areas, including Illinois, Southern California, Northern Virginia and Washington state. It’s planning marketing events to reintroduce shoppers to the first renovated stores, in Schaumburg and Oak Lawn, near Chicago. Three more in Southern California are being renovated now, and the remaining 39 could be refitted if shoppers like the new concept.

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