Amazon’s plan to dominate the grocery business, explained

Amazon Fresh and Whole Foods serve different types of customers, which means Amazon might take over the grocery business.

The grocery business operates on razor-thin margins.

Amazon’s plan to dominate the grocery business, explained

While this has scared off many entrepreneurs, it attracted a certain tech behemoth that just so happens to love razor-thin margins: Amazon.

After acquiring Whole Foods in 2017 and launching Amazon Fresh in 2020, the company’s path to grocery dominance is taking shape.

Whole Foods…

… was once nicknamed “Whole Paycheck” for its ~20% premium relative to other grocery stores.

Since Amazon’s acquisition, that premium has dropped to ~10% and in some cases, shoppers have found Whole Foods to be cheaper than competitors.

Besides lowering prices, Amazon has introduced delivery and pickup options to increase convenience at Whole Foods.

Amazon Fresh…

… is the firm’s new grocery subsidiary that aims to offer an even more convenient shopping experience. The store’s high-tech innovations include:

  • Just Walk Out: Amazon’s cashierless tech that allows shoppers to grab and go without visiting a register
  • Dash Carts: Amazon’s shopping carts equipped with built-in checkout functionality

Amazon Fresh has 23 stores in operation, including a number in close proximity to Whole Foods.

Why does that matter?

In areas where both stores operate, Amazon has found little crossover in the customer bases. Specifically, the company has found Amazon Fresh attracts value shoppers that wouldn’t usually shop at Whole Foods.

Being able to open both stores in close proximity without cannibalizing sales has big implications:

  • Amazon can fuel both stores with the Whole Foods’ supplier network, likely leading to better prices
  • Amazon can then pass its savings on to its 2 customer bases — making both stores more affordable relative to competitors

And more stores are coming

Amazon announced plans to open 40 new Whole Foods locations last May, and Amazon Fresh has at least 2 dozen locations in the pipeline. With more stores, Amazon’s ability to corner local markets will only increase.

What was that saying Jeff Bezos made famous? Oh yeah: “Your margin is my opportunity.”

Sounds like something a grocer might say.

Topics: Amazon Food

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