Amazon Pumps The Brakes On Brick-And-Mortar Grocery Concept
Amazon is temporarily halting the growth of its brick-and-mortar Amazon Fresh grocery stores and closing some locations as it attempts to recalibrate just three years after rolling out the concept.
Amazon Fresh, which launched in 2020 and operates 44 locations across the country, announced the pause during Amazon’s fourth-quarter earnings call. It wasn't revealed how many stores might shutter.
Existing leases and other costs associated with closing locations of both Fresh and Go, Amazon’s cashierless convenience store concept, led to a $720M impairment charge during Q4.
“We've decided over the last year or so that we're not going to expand the physical Fresh stores until we have that equation with differentiation and economic value that we like, but we're optimistic that we're going to find that in 2023,” CEO Andy Jassy said during the Thursday call.
Grocery researcher Food World estimated there are 20 pending Amazon Fresh leases in Connecticut, New York, New Jersey and Pennsylvania.
In Philadelphia alone, there are six yet-unopened Amazon Fresh locations planned, though it is unclear when and if they will open, the Philadelphia Business Journal reports.
"They have built or nearly built more than a dozen stores with probably another 20 under lease [in the mid-Atlantic] that haven't started yet," Food World publisher Jeff Metzger said, according to PBJ. "And everybody's wondering, what's the delay?"
Visits to Amazon Fresh stores dropped off in September after relatively steady growth, according to Placer.ai, but the number of visits in December was still at least 2.5 times greater than in January 2021. The expanded reach of the stores is partly attributable to new locations opening.
Placer.ai data shows Whole Foods Market, which Amazon purchased in 2017, performed better in weekly visits than the overall grocery sector during the first weeks of this year, though it performed worse than the overall grocery sector for months before that.
Five years after the acquisition, analysts said that Amazon wasn't dominating grocery sales as some predicted it would.
As of last year, Amazon was planning to open more grocery stores, as Placer.ai reported increased foot traffic at Amazon Fresh stores.
But recent data shows Amazon Fresh doesn’t sell as many groceries as competitors. PBJ reported that an Amazon Fresh location has about $200K in weekly sales, but nearby grocery stores take in $600K to $1M. Those stores are typically larger than Amazon Fresh, which is usually in the 25K SF to 50K SF range, yet Trader Joe’s sells more in less space.
Metzger told PBJ that people go into grocery stores for different reasons. Trader Joe’s offers a treasure hunt experience, and Walmart has the cheapest prices.
"I'm not sure why they go into Amazon," Metzger said. "Amazon doesn't offer anything when you walk in the stores. … If you're talking about physical experience, they are sorely lacking."
Amazon hopes to figure out what people want before resuming expansion of the stores, but it is determined to stay in the grocery space.
“We're doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers,” Jassy said during the call. “And when we do find that equation, we will expand it. … I think we're building a pretty broad grocery network across online and physical, and you're going to see us continue to work on it.”
