Amazon Is Closing Some Amazon Fresh And Amazon Go Stores – Are Groceries Profitable?

A

AmazonAMZN
plans to close a number of Amazon Fresh grocery and Amazon Go convenience stores and pause new openings. According to some critics, the focus on tech rather than retail experience has put off shoppers. At this time, there are about 38 Amazon Fresh and 28 Amazon Go stores in the U.S. There are 15 Amazon Go stores in the United Kingdom as well.

The company recently announced that it would cut 18,000 jobs in various areas of the business. Now it is clear that management will delay further openings in these two initiatives. Instead, the team will concentrate on the Whole Food chain of 513 stores (as of January 31, 2023). Whole Food stores are located in 44 states and 351 cities. California alone has 96 Whole Food stores (about 19% of total). Only a handful of new Whole Food stores have been opened in the last two years.

Amazon has tried to grow with food and groceries for many years. Initially, it was through on-line services. It then added Amazon Fresh and Amazon Go cashier-less stores. Big signs screamed, “Just Walk Out Shopping” as customers were encouraged to trust the sensors that record members’ purchases. In theory, such a shopping experience sounds great- fewer employees, quicker get-away for shoppers, and an expectation of fewer human errors would make this a desirable venture. Except, there was one big problem: customers did not trust the venture. So, now it is appears that the future of both of these store concepts is in doubt.

Management has confirmed that the job cuts mentioned above will impact jobs across its grocery arm and include employees that work on the tech and design of these stores. Andy Jassy, Amazon’s new CEO, said, “The company was experimenting with these stores to find a format that is differentiated from competitors and resonates with shoppers. We are not going to expand the physical Fresh doors until we have that equation with differentiation and economic value that we like but we are optimistic that we are going to find that in 2023. When we do find that equation, we will expand it more expansively. But I think we have a very significant opportunity in the grocery segment.”

Insider Media published an article by retail consultant Richard Hyman on this and noted that Amazon entered a highly competitive industry and was going up against food retailers that have had decades to master a complicated trade. Similarly, Neil Saunders (Managing director of GlobalData Retail) told Insider that Amazon really did not consider the competitive landscape in this category.

There is no question that Amazon paved the way for e-commerce to be popular and to make shopping on the internet a time-saving pleasurable experience. However, success across every product category doesn’t always follow the same path, and Amazon is experiencing that firsthand here.

POSTSCRIPT: Retailing is a very competitive business; it is a treacherous seasonal business, and leaders in each segment of the industry understand the pitfalls. The customer – the ultimate judge – shops according to what her budget allows. Shelf space is allocated to brands by productivity, and innovators have a difficult time to find space. Look anywhere across the industry and see the same thing – it is a tough area to break in, a tougher area to make money.