Stock Groups

Amazon’s sprawling grocery business has become an ‘expensive hobby’


Dilip Kumar is vice president for physical and technological retail at Amazon. He poses in this February 21st 2020 photo.

Ted S. Warren | AP

AmazonIt has been almost 30 years since the creation of the ability to deliver everything you need at the most affordable price. This is by any standard, one of history’s greatest corporate accomplishments.

However, despite Amazon’s dominance in ecommerce, there is one market that has been particularly frustrating: grocery shopping. 

Amazon has introduced a dizzying array of services — Prime Now, Fresh, Go and others — in its effort to become a giant in the $750 billion U.S. grocery market. 2017 was its biggest year. spent $13.7 billionWhole Foods was purchased at a cost more than 10x that of Amazon’s previous deals.

However, the company is still considered a niche player., Whole Foods, and Whole Foods combined accounted for 2.4% of grocery sales over the last 12 months. WalmartNumerator research found that 18% controlled the company. People familiar with Amazon’s strategies say that Amazon’s delivery service has struggled in a competitive field. Meanwhile, Go automated convenience stores were deprioritized.

For founder Jeff Bezos’Watch as Amazon shareholders were not concerned about the Amazon Empire’s corner. His five-year tenure at the helm saw the stock rise by almost 400%, thanks to increased ecommerce and an expanding cloud business.

It’s a different story. since JulyBezos’s successor as CEO was Andy Jassy, a long-serving cloud chief. Since then, the stock fell by around 13%. the worst performer in the Big Tech groupThis was last year. Amazon just reportedIt has seen the lowest quarterly growth since 2001.

This may provide investors with an incentive to stop buying things they don’t like. Amazon’s physical shops unit could also be under scrutiny, including Whole Foods and Fresh. It reported lower sales for 2021 than 2018 despite the fact that its lease footprint grew by 17%. 

Amazon’s quarterly sales are different from the previous year

Source: Filings of companies. Based on Q4 2021.

Amazon quarterly sales, change

From the previous year

Source: Filings of companies. Based on Q4 2021.

Amazon’s quarterly sales are different from the previous year

Source: Filings of companies. Based on Q4 2021.

Jake Dollarhide CEO, Longbow Asset Management said that Amazon is all about cloud, ecommerce, and entertainment. Longbow Asset Management has considered Amazon a core holding since 2011. “It almost seems like the grocery industry is an expensive hobby.”

It is all around us. There are many entrenched players like Walmart, Target, Kroger AlbertsonsThe pandemic jolt has made it easier for people to be more savvy with digital products. Meanwhile, Instacart, Uber, DoorDashGopuff and Gopuff want to make money on Amazon’s speedy delivery.

CNBC spoke with former employees and insiders about the journey Jassy is now taking for Amazon, its fragmented portfolio of high cost grocery assets.

Interviews were generally granted to people on conditions. They weren’t allowed to share their stories or fear reprisal.   

The environment was one of fierce internal competition and culture clashes. Bezos encouraged a culture of conflicting ideas in his workplace. This has also led to chaos and lack of direction.

Amazon refused to comment on this story and did not make available any of its executives for interviews.

Fresh vs. Prime Now

Amazon Fresh’s grocery delivery truck was parked on San Ramon Street, California, July 5, 2018, by the Amazon Prime Service.

Smith Collection/Gado | Archive Photos | Getty Images

Amazon leaders summoned Stephenie Landry who was the head of Prime Now and Ben Hartman who is responsible for Amazon Fresh to its Seattle headquarters. The leaders instructed them to get ready for a bake-off that would decide the future direction of the company. Order online According to those familiar with the subject, grocery business.

Amazon was at a crucial moment. Amazon’s Fresh delivery service was established in 2007 by Doug Herrington (a long-serving executive at the grocery flameout). Webvan, launched an initiative to drive fresh fruits, vegetables, meat and milk in temperature-controlled tote bags to some residents in the Seattle suburb of Mercer Island.  

Andrea Leigh remembers the beginning days of working in low-margin businesses and the struggles she faced. Leigh worked as a baby and media specialist for Amazon. In 2010, she went on maternity leave and was called back to Fresh so they could expand beyond Seattle.

Leigh stated that Fresh had been in development for 3 years and hadn’t made the model financially viable. There was real interest in expanding. 

Another idea was to direct grocery shoppers towards higher-priced products in other categories. This could be headphones, or even a last-minute gift for someone special.

Leigh developed an algorithm to identify top-selling products in Seattle and thought it would improve Fresh’s overall merchandise selection. It didn’t always work the way it was supposed to.

After the algorithm identified them as the top city toy, Amazon ordered a number of horsehead masks in life size. The algorithm failed to detect Halloween coming.

Fresh had launched out of Seattle by the time that Prime Now opened in Los Angeles, CA. This would pose a problem from the outside.

While Fresh has been in existence for six years now, Prime Now is a significant advantage. Landry was the man who ran it, having previously served as Bezos’ shadow advisor. Dave Clark was the highest retail boss and selected Landry for Prime Now. she createdLeadership impressed with a membership program that was geared towards expectant moms.

Prime Now wasn’t profitable either, however, the team demonstrated it was capable of making deliveries at an increasing efficiency. Amazon executives believed it would scale up, according to two ex-Prime Now employees. 

Prime Now was now available in numerous cities throughout the United States. Fresh had entered Fresh’s domain, adding fresh food and other delivery options to their service. going beyondA former Prime Now employee stated that Target products are similar to Target, such as paper towels and shampoo. 

The two ex-employees described the situation as an internal rivalry and they began to discuss whether or not it should be continued.

Landry and Hartman were in a bake off, with Fresh and Prime Now both needing continuing capital. Whole Foods was also suddenly added. 

Landry won. Prime Now was only three years old when it took control of Fresh. Hartman started his career at Amazon in 2002 as a product manager. He then moved to Europe and took up a position in the European consumer market.

Stephenie Landry is the VP of Amazon’s grocery. She poses in a stacking igloo filled with holiday orders. This photo was taken Wednesday December 21st 2016, at a New York distribution hub.

Bebeto Matthews | AP

Landry kept his title as vice president of grocery. However, the Fresh brand was retained by Landry because it resonated better with consumers than Prime Now. According to sources with knowledge about the subject. Prime Now, on the other hand, could easily be confused with Fresh. 

Amazon discontinuedPrime Now, an app and website launched in the last year. It allows customers to order groceries online under Whole Foods or Fresh Foods.

The rivalry was evident as both teams failed to cooperate. Prime Now employees who were once under Landry’s management said that the Fresh team felt demoralized by Landry’s arrival.

It is becoming more difficult to manage Amazon’s in-person and online strategies.

Luxurious grocery gambling

Amazon had been in brick-and-mortar retail before 2017, with books and kiosks at pop-up shopping malls. Whole Foods however was Amazon’s first venture into dedicated grocery stores.

Whole Foods provided Amazon with an excellent opportunity to show off its products and technology. It created the ideal blend of online and in-person sales. In theory, it sounded amazing. It didn’t work in practice. facedIntegration and cultural challenges that are major.

Whole Foods, founded in Austin, Texas in 1980, grew up far away from Silicon Valley and Seattle. Local experience was a great asset for the company. According to an ex-Walgreens senior manager, regional managers enjoyed a certain level of autonomy in their shops, even down to hiring artists to create chalkboard signs.  

Amazon came up with its own plans. Amazon had its own ideas and focused immediately after closing the deal on Prime Now’s fast deliveries to Whole Foods to reach new customers.

Prime Now was eventually accepted into Whole Foods locations across the country. A former Prime Now employee explained that Amazon had discovered problems with the design of stores making it easier to order and pick up orders. Inc.’s Amazon Prime Now Fulfillment Center in Singapore prepares orders for shipment on Thursday July 27, 2017.

Ore Huiying | Bloomberg | Getty Images

Amazon decided to create a grocery store that combined Whole Foods’s experience with Amazon’s real estate footprint, logistics knowledge and Prime Now warehouses. The new chain would have limited inventory, making it less dependent on Whole Foods. 

Steve Kessel was an Amazon veteran who built the first Kindle and then took over physical shops. He envisioned a supermarket that allowed grocery pickup and delivery to be done in a way that didn’t interrupt with shopping at the store. Customers could still visit the shop and be happy, with sections of the building dedicated to curbside pickup and deliveries.

Jeff Helbling is a former Kindle vice-president and will lead Amazon Fresh stores.  

Amazon Fresh 2020 will be the debut year for this new service. openedWoodland Hills is an exclusive Los Angeles neighbourhood. You could find a variety of prepared food and staples from supermarkets, along with meats and seafood. Consumers could place orders with Amazon or purchase Fire tablets from a different area.

Amazon Fresh now has over 20 stores in six states as well Washington, D.C. Many of them are now located in spaces that used to be occupied by supermarkets like Giant Food or Fairway Market.

Two years ago, the store has already proved that they are more efficient and profitable than other businesses.

On average, a supermarket measuring 35,000 square feet is capable of fulfilling 120 to 150 orders online per day. Tomorrow Retail Consulting’s CEO Jordan Berke stated that Amazon Fresh stores were capable of processing orders volumes three to fivefold higher when they launched. According to Berke, these figures were based upon discussions with employees of the company.

Berke stated that Prime subscribers also make it easier for Fresh shops to sell online.

These stores seem to be popular with customers. A retail analytics firm published a report in October that showed traffic to eight Fresh stores has remained steady between March and September.

According to the company, “The relative steadyness of visits suggests that a core number of customers have added Amazon Fresh to their grocery list,” they wrote.

Leadership has always been in flux. Kessel announced his departure in late 2019According to people who were familiar with it, the move was considered a significant shakeup. Cameron Janes was previously vice president for physical retail. left in November.

Kessel wasn’t replaced officially by Amazon. until this monthTony Hoggett was a long-standing veteran of British supermarket chains. TescoHoggett was appointed to manage physical stores. Some workers saw Hoggett’s appointment as an admission that there was a need for more brick-and–mortar knowledge.

Landry reports to Hoggett. It is an indication of Amazon’s emphasis on physical store expansion.

Not a hit in the stores

Amazon launched their first cashless grocery store after more than a decade in beta

Getty Images| Getty Images

Four years later, 24 stores exist, which is a small fraction of the total 3,000 that company was planning to open by 2021. BloombergReport after initial launch 

These animals are concentrated in urban centers, making them ideal for office workers working during lunch rush hour. When offices shut down during the coronavirus outbreak and other cities were put under lockdown, traffic vanished and Amazon was able to curb its expansion. 

The company revealed plans last month to open its first Go Store in the suburbs. It will be located in Mill Creek in Washington. This is about thirty minutes from Seattle.

Ex-Amazon employees claimed that the general grocery strategy is moving in favor of larger stores rather than Go Marts.

It has evolved into a more tech-incubating division. Its Just Walk OutSome technology is currently being evaluated Fresh locations, Whole Foods stores full-size Go Grocery storesThey have since been rebranded with the Fresh label.

The last month Business InsiderAmazon, as well as lottery tickets and pharmaceuticals, has been reported to have considered selling fuel at Go convenience stores. According to reports, the company acknowledged the risks of selling fuel, which could include a conflict with its climate initiatives. 

Go is in uncertain times. Go was removed from the grocery section and is now under the physical store unit. Kumar, an ex-Go employee, said that Go has been relegated. Kumar reports directly to Hoggett. Puerini, however, has retired.

Other types of Amazon retail, such as 4-star shops and bookstores are included in the Go unit. The Just Walk Out technology is also developed by the Just Walk Out team.

Scott Jacobson (a Madrona Venture Group managing Director in Seattle) said that “it’s just a bunch shots on goal trying it out.” He is a former Amazon employee, who also helped launch the Kindle. It’s still not known what the future holds.

Is it a novelty?

The former Go employee stated that Go was initially kept apart from the grocery section because it focused more on its technology. 

However, Go’s business expands and they begin to take over Amazon’s other grocery resources, possibly creating internal competition like the 2017 baking contest was meant to resolve.

People in the grocery industry know that Fresh is the focus of investment and talent. But the strategy is not clear. Whole Foods owns more than 500 retail stores across the United States. In less than 2 years, Amazon Fresh opened 38 new stores in the U.S.A and U.K. There are also two dozen Go convenience shops.

Jacobson explained that Amazon’s grocery store is not like its ecommerce or cloud. It’s a new concept that doesn’t have any distinct features that could differentiate it from many other grocery stores.

“The problem with a novelty is if it’s not fundamentally more valuable, then that’s all it is — a novelty,” Jacobson said. 

Although investors haven’t yet raised concerns about the process, the macro environment is shifting. The tech has been a focus of money managers, who have begun to exit the sector. interest rateConcerns led to Amazon stock’s worst month-to-month drop in 2018 since 2018, which caused concern. According to a Wall Street Journal report this week, billionaire activist investor Dan Loeb, who’s been adding to his Amazon holdings, told investors on a private call that he sees about $1 trillion in untapped value at the company.

Jassy is not a regular participant in quarterly earnings calls. Instead, he left it up to Brian Olsavsky, finance chief, to inform investors about fourth-quarter results.

Groceries aren’t an important topic. However, an analyst did question Olsavsky regarding same-day delivery as well as how his company’s investments have paid off.

Olsavsky stated that “we feel happy about where we’re at.” Olsavsky stated that the goal is to have groceries delivered in 1 to 2 hours, and Prime packages delivered in 1 to 2 days. “We are continuing to build capacities that enable us to meet those cutoffs.”

— CNBC’s Nate RattnerContributed to this article.

WATCH: Cloud computing and advertising offset slowdown in e-commerce