Retail-tech giant Amazon.com Inc. is focusing on decentralizing its retail operations and plans to build more local stores and same-day fulfillment centers as it strives to move closer to the consumer.
The latest iteration of the Amazon Fresh retail concept includes Krispie Crème doughnuts and freshly brewed coffee to make the stores more of destination and broaden the customer experience, but Amazon CEO Andy Jassy said Seattle-based Amazon won’t roll out the concept until the company is certain the format will be successful. It’s in the process of testing a prototype.
Amazon’s growth plans could mean more competition for conventional convenience-store chains, particularly those expanding their merchandise offerings and trying local delivery, as Amazon plans to grow in both e-commerce and local grocery. While Amazon operates convenience stores under the Amazon Go banner, it closed nine locations this year and hasn't said whether it plans to open more.
Quarterly Profit
“If you want to be able to serve more customers, which we do…, you have to have a strong physical presence,” Jassy said during a second-quarter earnings call Thursday. The company reported second-quarter net income of $6.7 billion, up from a loss of $2.0 billion in the prior-year period, on an 11% increase in net sales to $134.4 billion from $121.2 billion a year ago.
Amazon plans to open more same-day fulfillment centers, the company said. “One of the reasons is to get perishable products to the consumer quicker. That’s where Amazon has struggled,” said Arun Sundaram, vice president of equity research at CFRA Research, Washington, D.C., who covers Amazon and grocery retail.
Convenience-store operators might take a page from Amazon’s lesson book to reflect on what hasn’t worked for Amazon Fresh and Amazon Go. Amazon’s technology is perhaps less important than the company thought it would be, he said.
Just Walk Out
Its Just Walk Out technology asks shoppers to use Amazon One, an in-store code or a credit card linked to the Amazon account to start shopping the aisle. Amazon One's biometric palm-scanning technology is in use at some Amazon Go and Amazon Fresh stores and is being rolled out to Whole Foods Market locations, the company said this summer. It's also in pilot tests at other locations. At Amazon Fresh stores, consumers can bag items as they shop, without the need to wait in a checkout line, but apparently this isn’t a draw for everyone.
“That technology isn’t going to be the reason people shop there,” Sundaram said. But Amazon Fresh stores are dark, techy and lacking in decorations and distinct merchandise, he said. The stores are “very blah. There’s nothing really different about it.”
While Amazon.com has dominated in online sales of canned goods, pet products and other packaged foods, in the area of temperature-controlled foods, such as meat, it has lagged other food retailers, Sundaram said. As it grows, it increasingly has relied on delivering products to Amazon pickup lockers, including at some convenience-store locations. But Sundaram said, “Walmart has a clear advantage. They have the footprint. They’re closer to the consumer."
While most c-stores don’t aspire to be the next Walmart, they might find themselves competing more with large grocers as electric-vehicle charging becomes a larger consideration for consumers. Since COVID-19 furthered e-commerce at the expense of local retail shopping, convenience stores have been affected, as fewer trips to the store means less fuel trips to c-stores as well.
DoorDash's Target Expansion
Amazon’s national sales approach may have spurred San Francisco-based DoorDash to keep its focus local. DoorDash plans to continue broadening the number and type of merchants it provides delivery for, potentially giving Amazon new competition. It wants to expand its business with convenience stores and has partnered with 7-Eleven on DashPass promotions this summer. Irving, Texas-based 7-Eleven, No. 1 on CSP's Top 202 list of U.S. convenience stores by store count, has more than 12,800 U.S. locations.
Amazon is determined to continue improving its speed of delivery for e-commerce, while making its brick-and-mortar stores more convenient, Jassy said. “For stores, our priorities continue to be providing customers with great selection, low prices and convenience,” he told industry analysts.
Amazon.com delivered more thaan 1.8 million units the same day or next day its Prime members placed their online orders, a 400% increase since 2019. “In particular, we’re growing our selection in everyday essentials, enabling customers to avoid going out to get those items and both increasing our basket sizes and the frequency with which customers choose to shop with us,” Jassy said. Amazon also is emphasizing promotions and offered 144% more deals and coupons in second-quarter 2023 than it did a year ago, he said.
Now Amazon is interested in penetrating the brick-and-mortar mass-grocery space with a brighter Amazon Fresh concept, Sundaram said.
Jassy told industry analysts he likes stores large enough for 100,000 stock-keeping-units but small enough for shoppers to efficiently navigate them, and he wants fulfillment centers located near them.
But Amazon Fresh hasn’t met the company’s expectations – or analysts’. “Amazon Fresh hasn’t been successful over the last few years. They’re trying to redo it. They’re going back to the drawing board on what’s the right format, what’s the right assortment. It’s not differentiated enough,” Sundaram said. He noted the company didn’t say much about Amazon Go stores during the earnings call.
Watch for Amazon Fresh to launch more prepared foods, including restaurant-style meals, Sundaram said. “These days, people want to go to the grocery store and not just buy groceries but make it an experience where they can grab sushi or coffee with friends,” he said.
More convenience stores are expected to follow the example of Wawa and Sheetz and emphasize expanded menu options in the future, as they provide more reasons for customers to visit more often and stay longer. Amazon's 20 U.S. Amazon Go stores added 10 sandwich items to expand its prepared food offerings this year. Whether a broader grab-and-go menu will help Amazon Go grow remains to be seen. Jassy didn't have much to say about the convenience segment in his remarks about Amazon's strong quarter.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.