business news in context, analysis with attitude

CNBC over the weekend posted the following story (which was forwarded to the Content Guy by numerous MNB readers):

"Amazon has spent almost three decades perfecting the art of bringing everything imaginable to your doorstep in the shortest amount of time, at the lowest possible price. By almost any measure, it’s been one of the greatest corporate successes in history.

But despite Amazon’s unquestioned dominance in e-commerce, one giant market has proven particularly vexing: groceries. 

"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. In 2017, it spent $13.7 billion to acquire Whole Foods, a price tag more than 10 times higher than Amazon had paid in any prior deal.

"Still, it’s just a niche player in the industry. As of mid-December, and Whole Foods accounted for a combined 2.4% of the grocery market over the past 12 months, while Walmart controlled 18%, according to research firm Numerator. Amazon’s delivery services have struggled to stand out in a crowded field, while the Go automated convenience stores have been deprioritized, according to people familiar with the company’s strategy."

The CNBC story suggests that poor stock performance over the past six months or so - down 13 percent during a period that, coincidentally or not, founder Jeff Bezos was succeeded as CEO by Andy Jassy - could "give investors a reason to start looking for things they don’t like. One area of scrutiny could be Amazon’s physical stores unit, which includes Whole Foods and Fresh stores. It saw lower sales in 2021 than in 2018, even as its footprint of leases expanded by 17% over that stretch."

The story details the internal competition - some call it chaos - at Amazon over the best strategic approach to grocery, the "bake-off" that took place between the "Fresh" and "Prime Now" brands, and the logic behind the de-emphasis on the Amazon Go stores and new success on the new Amazon Fresh grocery store brand.

It is worth reading here.

KC's View:

One of the MNB readers who sent the story to me commented:

I went to my first Amazon Fresh last week.  The size was perfect.  Other than that I was unimpressed.  I walked up and down every aisle and purchased nothing.  I was the only person in the store not picking an order for delivery.

You may remember that I had a similar reaction to the Amazon Fresh format when I first saw it last year.  Here's my story.

I do think that it is important for investors, analysts and retailer competitors to remember that Amazon's greatest superpower may be its market capitalization, which is so far beyond that of most companies that it can afford to try a lot of different approaches as it seeks the right balance.  The story makes the point that Amazon Go stores are being de-emphasized in favor of the Amazon Fresh brand, but learnings from the Go concept almost certainly are informing many of the decisions being made with the Fresh stores.  (Keep in mind that Amazon's smartphone venture was a failure, but it learned things from the experience that found their way into its Alexa business, which has been an enormous success by any measure.)

I'm not wildly impressed by the Fresh store format, but I also think that it is entirely possible that Amazon is viewing the concept as being a distribution center/dark store that happens to allow customers in … a perception that seems to be reinforced by the numb er of people I know who, going into a Fresh store, find that they are vastly outnumbered by employees who are assembling orders for pick-up or delivery.

And, as I talked about in a commentary above, I think that Amazon has some work to do to shore up its Whole Foods business.

I'm not sure I'd minimize Amazon's grocery business as an "expensive hobby."  Maybe it would be better characterized as an "expensive series of experiments."

Remember the Jeff Bezos line?  "It's not an experiment if you know it's going to work."

As for competitors, all of this reinforces  things we've been talking about here on MNB for a long time - that the best way to compete with Amazon is to do things it can't or won't do.  Make savvy and strategic investments.  Be focused on tomorrow, not yesterday.  Create a brand proposition that is relevant (appealing to the head) and resonant (appealing to the heart).  And, in all things, do whatever you can do draw yourself closer to your shoppers, not distance yourself.