Amazon’s Future as a Grocer Is Cloudy

The retail giant faces stiff competition from Walmart and others in the crowded grocery channel.

February 24, 2022

Inside of an Amazon Fresh Grocery Store

ALEXANDRIA, Va.—Amazon has invested in its grocery business with multiple services, including Prime Now, Fresh, Go and others, plus it purchased Whole Foods for $13.7 billion, which was more than 10 times higher than Amazon had paid in any prior deal. As of mid-December, and Whole Foods made up a combined 2.4% of the grocery market over the past 12 months, reports CNBC.

For comparison, Walmart controlled 18% of the grocery market, according to research firm Numerator. CNBC reports that Amazon’s delivery services have struggled to stand out in a crowded field, while the Go automated convenience stores have been deprioritized.

Sales at Whole Foods and Amazon Fresh stores were lower in 2021 than they were in 2018, despite Amazon increasing its leases by 17% during the period. Amazon’s grocery business has become “an expensive hobby,” Jake Dollarhide, CEO of Longbow Asset Management, told CNBC.

The grocery market is increasingly competitive, with leaders in the industry, such as Albertsons, Kroger and Target, stepping up their digital offerings game, while DoorDash, Gopuff, Instacart and Uber are capitalizing on quick delivery, which is Amazon’s territory.

After a drawn-out demise of the Amazon Prime Now app, filled with competition within the company and a new leader taking the helm, Amazon brought all online grocery orders under Fresh or Whole Foods.

Amazon purchased Whole Foods in 2017, and it represented a way for Amazon to blend the best of e-commerce and in-person shopping, but Amazon faced major cultural and integration challenges, according to CNBC.

Prime Now was brought to Whole Foods stores, but Amazon realized that the existing store layouts made it difficult to efficiently pick and process orders, so instead of utilizing Whole Foods, Amazon explored creating a new grocery chain that combined lessons from Whole Foods with Amazon’s logistics expertise, real estate footprint and Prime Now warehouses, which placed limited inventory close to customers. Enter Amazon Fresh.

Amazon Fresh opened its first store in 2020 in the upscale Los Angeles neighborhood of Woodland Hills, and now there are more than 20 across six states and Washington, D.C. The stores are more efficient at online orders than rival supermarkets and can fulfill an average of 120 to 150 online orders a day. Jordan Berke, CEO of Tomorrow Retail Consulting, told CNBC that Amazon Fresh stores are capable of handling order volume that’s three to five times higher at the time of launch.

The stores appear to be doing well with consumers—traffic at eight Fresh stores remained consistent between March, around the time they opened, and September, according to a report published in October by retail analytics firm

“The relative steadiness in visits shows that a core group of customers have added a trip to Amazon Fresh to their regular grocery routine, indicating that Amazon Fresh has successfully integrated into the grocery mix for the neighborhoods it entered,” the firm wrote.

Amazon Go stores, however, are not seeing the growth that was originally planned by Amazon. Four years later after opening the first Amazon Go, there are only 24 stores, far short of the 3,000 the company was looking to open by 2021, according to a Bloomberg report after the initial launch. Because many of Go locations are in dense, urban areas, aimed at busy office workers during their lunch breaks, the pandemic ceased much of the foot traffic in the stores.

Although Amazon plans to open Go stores in the suburbs, former Amazon employees told CNBC the overall grocery strategy has moved further in the direction of bigger stores and away from Go marts.

Last month, Business Insider reported that Amazon has considered selling gas at Go convenience stores, along with lottery tickets and pharmaceuticals. The company has reportedly acknowledged that selling fuel could bring risks, including a potential conflict with its various climate initiatives.