Friday, October 11, 2024

Amazon opening Fresh supermarkets after stall, but many still vacant

Must read


Workers stock shelves at an Amazon Fresh grocery store in Seattle, Washington, US, on Thursday, May 2, 2024. 

David Ryder | Bloomberg | Getty Images

On a humid afternoon in August, a few hundred shoppers lined up outside an Amazon Fresh supermarket in a Philadelphia suburb, eagerly awaiting the store’s grand opening. A person in a banana costume hyped up the crowd, while Amazon staffers handed out free samples of cold brew coffee.

The event was a long time coming. Since 2022, the Fresh store in Bensalem, Pennsylvania, looked ready to open. But month after month, it sat vacant, with Amazon’s familiar smile logo plastered on a sign overlooking an empty parking lot.

“I kept thinking it would open, but it didn’t,” Joe Knowles, Bensalem Township’s council president, told CNBC. “All of a sudden, bang, it was ready to go.”

The Bensalem store is one of a handful of new Fresh locations that Amazon has launched in recent months, the first new store openings since the company halted expansion of the franchise more than a year ago. Since June, Amazon has opened seven other stores in California, Illinois, Maryland, New Jersey and Virginia, with more locations expected this year and into next. The company said it’s also launching five redesigned stores in Illinois and California this week.

It’s the latest development in Amazon’s on-again, off-again effort to become a powerhouse in a market the company has been pursuing for 17 years, culminating with its $13.7 billion acquisition of Whole Foods in 2017, the company’s biggest deal ever. Amazon’s scattershot approach has at times been about expanding its “everything store” mission and at others has been focused on making high-end produce more affordable. In some cases, the markets have provided a testing ground for in-store technologies.

Through it all, Amazon in 2023 claimed just 1.4% of the U.S. grocery market, compared compared with Walmart at 23.6% and Kroger’s 10% share, according to Numerator data.

Fresh supermarkets are a piece of the portfolio, which also includes Go convenience stores and same-day delivery for Prime members. The company also launched an unlimited grocery delivery subscription in the U.S. earlier this year. On Tuesday, Amazon introduced a new grocery private label called Amazon Saver, which includes items like pancake syrup, deli meat and canned goods mostly priced under $5.

The Fresh chain made its debut during the early months of the Covid pandemic. Amazon opened the first such store in September 2020, in the Woodland Hills neighborhood of Los Angeles, with an eye toward offering cheaper prices than Whole Foods. The company added package drop-off counters, along with cashierless checkout lanes and voice-activated displays, allowing shoppers to ask Alexa for recipe ideas or help finding items. 

Amazon would reach 46 Fresh locations worldwide by early 2022. But the expansion plans ran head first into CEO Andy Jassy’s efforts to rein in costs as rapidly changing macro conditions forced dramatic downsizing. Amazon instituted mass layoffs starting in 2022, and shuttered some of its newer, more unproven bets. 

In February 2023, Jassy announced on a quarterly earnings call that Amazon planned to close some Fresh supermarkets and Go convenience stores. He also hit pause on further growth of its Fresh footprint until the company could identify a store format that resonated with shoppers and “where we like the economics,” Jassy said.

Krispy Kreme donuts

With headcount cuts largely in the rearview mirror, Amazon is back into investing mode and pouring resources into Fresh, opening new stores after refining the experience and testing out a redesigned format late last year in select California and Illinois locations. Jassy and Amazon Fresh leaders have acknowledged that in order to grow its already “very large” grocery business, the company needs a bigger brick-and-mortar footprint.

In 2022, just 11% of sales in the $1.6 trillion U.S. grocery market took place online. That’s far below the level of e-commerce penetration in other categories, such as consumer electronics, where 41% of purchases were made online, according to Jefferies data. Companies “need to have a physical presence to be big in grocery,” analysts from the bank wrote in a note in October.

As part of the Fresh store redesign, Amazon created a more colorful layout and added Krispy Kreme donut and coffee stalls. In April, the company said it would remove the cashierless checkout technology, called Just Walk Out, from its U.S. Fresh stores and Whole Foods markets in favor of computerized Dash Carts, which track and tally up items as customers shop.

Amazon told CNBC it’s seen increased purchasing and higher customer satisfaction scores at the redesigned locations. The company said it expects to selectively open new Fresh locations over time based on feedback from shoppers.

“We like the early results a lot,” Jassy said on the company’s first-quarter earnings call in April, referring to the revamped Fresh stores. “They’re really meaningfully better in almost every dimension. It’s still early, and there’s some things to work through, but we like what we’re seeing there.”

A woman uses a dash cart during her grocery-shopping at a Whole Foods store as Amazon launches smart shopping carts at Whole Foods stores in San Mateo, California, United States on February 25, 2024. The smart shopping cart makes grocery shopping quicker by allowing customers to scan products right into their cart as they shop and then skip the checkout line.

Tayfun Coskun | Anadolu | Getty Images

Still, at least 22 Fresh supermarkets across the country remain vacant or unopened even though construction is complete, according to interviews with city officials and local news reports.

Delayed openings or cancellations have triggered at least five lawsuits. Landlords in Pennsylvania, New Jersey, New York, Florida and Washington alleged the company breached its contract by terminating its lease, with some parties seeking tens of millions of dollars worth of damages. Amazon last year reached a settlement with property owners in Florida and Washington, according to court documents. Attorneys representing the property owners didn’t respond to requests for comment.

Amazon declined to comment on the status of the Fresh stores that remain unopened.

One store in limbo is in Rancho Mirage, California, a desert town about 30 minutes southeast of Palm Springs. Previously the location of a Stein Mart department store, the market is in a shopping center that also includes a Hobby Lobby, an Italian restaurant and a blood bank. Shoppers in the area can find a Whole Foods, Walmart, Trader Joe’s and Aldi all within a short drive.

Amazon began remodeling the store in 2021 and signage went up the following year. But “opening soon” signs are still plastered on the doors. The company has told Rancho Mirage officials and AlbaneseCormier, the owner of the shopping complex, that it expects the store to open in 2025, said Ted Weill, a city council member.

AlbaneseCormier didn’t respond to a request for comment.

Weill said there aren’t many companies that can afford to just let a building sit idle for years.

“Amazon has so much money that whether they’ve invested $10 million, $20 million, $30 million in the project and decide not to go forward, so be it,” Weill said. “That won’t be the criteria that holds them back from pulling out.”

More than 500 miles north of Rancho Mirage, in the Sacramento suburb of Roseville, Amazon recently opened the doors of a Fresh supermarket. The store was fully constructed by last summer.

Brent Thill, an analyst at Jefferies, took the two-hour drive to Roseville from the Bay Area with his 16-year-old son a week after the Fresh store opened last month. Thill said the supermarket had an “amazing” selection, though he described the overall vibe as “sterile.”

“You walk into the Amazon Fresh store in Roseville and it feels like you’re in a stainless steel wine cellar,” Thill said. “And the store doesn’t have any decorations, it’s just a giant building.”

Thill has a buy rating on Amazon stock, but he says in grocery the company is spending a lot of money to compete in “one of the lowest-margin businesses on the planet.” But he called it “one of the highest budget items in the pocketbook,” which is where it clearly fits into Amazon’s broader retail strategy.

“And if there’s synergies around Amazon returns, if they can make it more unique, then who knows which way it goes,” Thill said.

Don’t miss these insights from CNBC PRO

How Amazon became 2023's top apparel and footwear seller



Source link

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article