Jeff Bezos’ Bodegas

The Wall Street Journal reported today that Amazon is planning to get into the convenience store game. More specifically, The Journal cites sources whom say that Amazon “aims to build small brick-and-mortar stores that would sell produce, milk, meats and other perishable items that customers can take home.” The Seattle behemoth wants to sell food, but it can’t sling apples from a warehouse. Is this a good idea? Here’s some reasons why Amazon may be doing this, and then I’ll give you some reasons to be skeptical.

-As authors Greg Bensinger and Laura Stevens note, groceries are something that Americans replenish every week. Amazon makes it easy to buy sunglasses if you break a pair, but you probably don’t break sunglasses every week. You do need groceries every week, and if you go to Amazon to get your groceries, that’s a chance for Amazon to “sell more profitable items alongside orange juice.”

-These convenience stores could also help Amazon move closer to achieving omnipresent status in people’s consuming habits. Per the Journal, the stores will only be open to subscribers of Amazon’s Fresh subscription service. Fresh is only $15 dollars a month — if you are a Prime ($99/year) member. So, while you’re ordering that orange juice on your way home from work on the Prime app, why don’t you just buy those shoes you were  looking at the other day? It’s just one click, after all. Boom, Amazon owns your brain now. Or at least some of it, and definitely a lot of your paycheck.

-This move may also be a response to Wal-Mart’s $3.3 billion acquisition of e-commerce company Jet.com. The Journal article quotes Marc Lore, its head of Wal-Mart’s e-commerce, in saying that “(Wal-Mart) is going to be really focused on winning in fresh and consumables over the next couple years.” Un-coincidentally, Lore was the founder of Jet.com. It’s evident that Wal-Mart is very serious about marking its territory in this realm, and Amazon doesn’t want to get left out.

 

 

Of course, you gotta hear both sides. Here’s some potential pitfalls:

-The grocery game is pretty saturated already, and not all  that profitable, as Amazon has found out. Its Fresh service has been around since 2013, and its market share is just over 1%. Bensinger and Stevens write that the company has had to deal with growing problems such as realizing that “the handling of perishable items, such as ice cream in the summer heat, is tricky, and the business is costly, requiring expensive refrigerated storage that thins profit margins.”

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-History is against Amazon, too. One of the biggest dot-com bursts was Webvan Group, Inc, which tried to do a similar thing to what Amazon is planning on. It lost over $800 million in three years, and some of Webvan’s former executives work at Amazon. That may help Amazon avoid the mines that Webvan stepped on, but maybe not. As Ivan Hofmann, former FedEx executive quoted in The Journal, said, “There’s just so much variability in the grocery delivery model, that it’s always going to be a more costly delivery, and it doesn’t lend itself as easily to economies of scale as packages do.”

-Amazon’s brand is not that of a brick-and-mortar food store, either. The company recently opened its first bookstore last year, too, and while the success of that is to be determined, I already get books from Amazon, so that kind of brick-and-mortar model is not too much of a stretch. Groceries? That’s kind of a stretch, but Amazon has already made my life convenient in other ways, so maybe this is just another one.

9 comments

  1. I do think what Amazon does do well, however, is a digital supply chain of getting products and services to locations quickly. This skill is one that will translate into the grocery industry, despite its lack of experience in other areas.

  2. Great post! I think it will interesting to see how Amazon Fresh will do. In areas that are food desserts, I can see this being beneficial to those people living in the areas, for millennials who don’t have cars, and in the winter months when it is too cold togo out. I’m just wondering how delivery would work, as I would want the groceries delivered to me when I’m home and not just dropped off.

  3. vicmoriartybc · ·

    Really interesting post! As someone who worked as an intern for Barnes & Noble this summer, I know how much of a threat brick-and-mortar Amazon stores can be for the retail industry. However, I don’t see Amazon grocery stores being as much of an immediate concern. While acquiring land for stores would probably be easy for a giant like Amazon, as you mentioned, the grocery market is very saturated already. Would simply the existence of an Amazon grocery store be enough to lure customers away from pre-existing grocery giants like Wal-Mart and Whole Foods, both of which are already differentiated on price and food quality, respectively? I wonder what Amazon’s major differentiation strategy would be.

  4. ikechukwu_28 · ·

    Cool post. If I were Amazon, I think that I would just completely avoid the grocery store game. Amazon finally was able to post impressive profits in its last earnings report, so why would they jeopardize that by entering a market that has historically been tough to make money in?

  5. sandytanny · ·

    Nice post! I actually forgot that Amazon Fresh existed for a while until I saw some Amazon food deliveries outside of Voute a couple of days ago. I think opening some physical store fronts may be difficult for Amazon just due to how saturated the market is. What can an Amazon Food brick-and-motar provide for me that I would not be able to get somewhere else? It’ll definitely be interesting to follow this story and see how Amazon goes from here in differentiating their grocery stores.

  6. emilypetroni14 · ·

    Lately I have seen more and more neighbors start using Amazon to get grocery delivery in my neighborhood. I can always see the bright green boxes sitting in the lobbies. It might be better for them to focus on stellar food delivery services than to open brick and mortar locations. I’ve used peapod and instacart, but the selection can be limited, or the produce received is about to spoil. Amazon has a good chance t compete in this market.

  7. Tyler O'Neill · ·

    I actually read the same article and my blog this week addressed what lies ahead for Amazon including their move to brick-and-mortar stores. I think that Amazon has done an incredible job of managing their risks. They have been slow to expand Amazon Fresh because they want to ensure its profitability. I think in the long term this could prove to be a successful industry for Amazon, but they need to take the time to develop their business model and better understand their target audiences preferences. They need to have a well thought out plan to take out incumbents as big as Walmart.

  8. Very good post! However I am not sure if the decision of stepping in this line of business is going to be the greatest. I believe that there are several factors that are big barriers. The easiest one would be logistics and the business model, which is entirely new and quite complicated. Secondly in terms of reputation the company has no brand recognition and therefore the trust in terms of buying this kind of products is important. Third, you are entering a very saturated market with very succesful models, such as Walmart’s one.
    In A way I believe Amazon should consider a brand alliance for an expansion such as this one.

  9. jagpalsingh03 · ·

    Great post! It’s interesting to see Amazon get into the tangible space area because their whole infrastructure, up until now, is based on getting a few little items to a lot of people quickly rather than a lot of one thing to one location. Also, as you said the grocery market is saturated and the margins are not that high. I fail to see how groceries build Amazon’s brand (maybe more Echo integration? Dash?). I’d love to see how this pans out in the next few years. Do you think it will be a success?

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