Workers stock shelves at an Amazon Fresh grocery store in Seattle, Washington, U.S., on Thursday, May 2, 2024.
David Ryder | Bloomberg | Getty Images
On a humid August afternoon, a few hundred shoppers lined up outside one Amazon Fresh supermarket in suburban Philadelphia, eagerly awaiting store opening. A person in a banana suit wowed the crowd, while Amazon staff handed out free samples of cold brew coffee.
The event was long overdue. As of 2022, the Fresh store in Bensalem, Pennsylvania looked set to open. But month after month, it sat empty, with Amazon’s familiar smiling logo plastered on a sign facing an empty parking lot.
“I thought it would open, but it didn’t,” Bensalem Township Board President Joe Knowles told CNBC. “All of a sudden, bang, it was about to go.”
The Bensalem store is one of a handful of new Fresh locations that Amazon has opened in recent months, the first new store openings since the company halted franchise expansion more than a year ago. Since June, Amazon has opened seven more stores in California, Illinois, Maryland, New Jersey and Virginia, with more locations expected this year and next. The company said it is also opening five redesigned stores in Illinois and California this week.
It’s the latest development in Amazon’s push to regain a foothold in a market the company has pursued for 17 years, culminating in its $13.7 billion acquisition of Whole Foods in 2017, the company’s biggest deal ever. Amazon’s scattershot approach has at times been about expanding its mission to “store everything,” and at others it has focused on making high-end products more affordable. In some cases, markets have provided a testing ground for in-store technologies.
Through it all, Amazon in 2023 claimed just 1.4% of the US grocery market, compared to Walmart at 23.6% and Kroger’s 10% share, according to Numerator data. Amazon’s share is stable from 2021.
An Amazon spokeswoman said the Numerator data, which only measures food and beverage sales at grocery stores, underrepresents the company’s market share because it doesn’t include non-food items, such as paper towels and cleaning supplies, that are commonly ordered online.
Fresh supermarkets are one part of the portfolio, which also includes Go convenience stores and same-day delivery for Prime members. The company also started unlimited grocery delivery subscription in the US earlier this year. On Tuesday, Amazon was introduced a new private grocery label called Amazon Saver, which includes items such as pancake syrup, deli meats and canned goods priced under $5;
The Fresh chain debuted during the first months of the Covid pandemic. Amazon opened the first such store in September 2020, in the Woodland Hills neighborhood of Los Angeles, with an eye toward offering cheaper prices than Whole Foods. The company added package delivery counters, along with cashier-less checkout lanes and voice-activated screens, allowing shoppers to ask Alexa for recipe ideas or help finding items.
Amazon would reach 46 Fresh locations worldwide by early 2022. But expansion plans ran headlong into CEO Andy Jassy’s efforts to rein in costs as rapidly changing macroeconomic conditions forced dramatic staff cuts. Amazon instituted mass layoffs starting in 2022 and closed some of its newer, more unproven bets.
In February 2023, Jassy announced in a quarterly earnings call that Amazon planned to close some Fresh supermarkets and Go convenience stores. It also halted further development of the Fresh footprint until the company can identify a store format that resonates with shoppers and “where we like the economics,” Jassy said.
Krispy Kreme Donuts
With job cuts largely in the rearview mirror, Amazon is back in investment mode and pouring resources into Fresh, opening new stores after improving the experience and testing a redesigned format late last year in select locations in California and Illinois. Leaders at Jassy and Amazon Fresh have acknowledged that to grow their already “very large” grocery business, the company needs a larger brick-and-mortar footprint.
In 2022, just 11% of sales in the $1.6 trillion US grocery market took place online. That’s well below the level of e-commerce penetration in other categories, such as consumer electronics, where 41 percent of purchases were made online, according to Jefferies data. Companies “must have a physical presence to be big in grocery,” analysts at the bank wrote in an October note.
As part of the Fresh store redesign, Amazon created a more colorful layout and added Krispy Kreme donut and coffee counters. In April, the company said it would remove its cashier-less checkout technology, called Just Walk Out, from its U.S. fresh produce stores and Whole Foods Markets in favor of electronic Dash Carts, which track and record products as customers shop. .
Amazon told CNBC that it has seen increased purchases and higher customer satisfaction scores at the redesigned locations. The company said it expects to selectively open new Fresh locations over time based on customer feedback.
“We really like the early results,” Jassy said on the company’s first-quarter earnings call in April, referring to the revamped Fresh stores. “It’s really much better in almost every dimension. It’s still early, and there are some things we need to work out, but we like what we see there.”
A woman uses a shopping cart while shopping at a Whole Foods store as Amazon launches smart shopping carts at Whole Foods stores in San Mateo, California, United States on February 25, 2024. The smart shopping cart makes grocery shopping more convenient fast, allowing customers to scan products directly into their cart as they shop and then skip the checkout line.
Tayfun Coskun | Anadolu | Getty Images
But at least 22 Fresh supermarkets across the country remain empty or open even though construction is complete, according to interviews with city officials and local news reports.
Late openings or cancellations have prompted at least five lawsuits. Landlords in Pennsylvania, New Jersey, New York, Florida and Washington claimed the company breached its contract by terminating the lease, with some parties seeking tens of millions of dollars in damages. Amazon last year reached a settlement with property owners in Florida and Washington, according to court documents. Attorneys representing the property owners did not respond to requests for comment.
Amazon declined to comment on the status of Fresh stores that remain open.
One store in limbo is in Rancho Mirage, California, a desert town about 30 minutes southeast of Palm Springs. Formerly home to a Stein Mart department store, the market is located in a shopping center that also includes a Hobby Lobby, an Italian restaurant and a blood bank. Area shoppers can find Whole Foods, Walmart, Trader Joe’s and Aldi within a short drive.
Amazon began remodeling the store in 2021, and the signage went up the following year. But the “opening soon” signs are still plastered on the doors. The company has told Rancho Mirage officials and AlbaneseCormier, the mall’s owner, that it expects the store to open in 2025, said Ted Weill, a city council member.
AlbaneseCormier did not respond to a request for comment.
Weill said there aren’t many companies that can afford to let a building sit idle for years.
“Amazon has so much money that they’ve either invested $10 million, $20 million, $30 million in the project and they decide not to go ahead, so be it,” Weill said. “That will not be the criterion that prevents them from leaving.”
More than 500 miles north of Rancho Mirage, in the Sacramento suburb of Roseville, Amazon recently opened the doors to a Fresh supermarket. The store was fully built by last summer.
Brent Thill, an analyst at Jefferies, made the two-hour drive to Roseville from the Bay Area with his 16-year-old son a week after the Fresh store opened last month. Till said the supermarket had an “amazing” selection, although he described the overall atmosphere as “sterile”.
“You walk into the Amazon Fresh store in Roseville and it feels like you’re in a stainless steel wine cellar,” Thill said. “And the shop has no decorations, it’s just a giant building.”
Thill has a buy rating on Amazon stock, but says that in grocery the company is spending a lot of money to compete in “one of the lowest-margin businesses on the planet.” But he called it “one of the highest-budget items in the wallet,” where it clearly fits into Amazon’s broader retail strategy.
“And if there are synergies around Amazon returns, if they can make it more unique, then who knows which way it goes,” Thill said.
