My compliments to Caroline O’Donovan of The Washington Post for this article.
Amazon’s simple plan for groceries has gone awry. After acquiring Whole Foods Market in 2017, Amazon lost all momentum by FOOLISHLY competing against themselves by scaling Amazon Fresh stores. Amazon Fresh is a distraction. I’ve seen the latest Amazon Fresh stores with new signage, a better assortment, Dash Carts, and improved quality. I’ve seen the exact same things at other retailers.
Doug Herrington and Tony Hoggett should have to answer why they continue to throw money at Amazon Fresh.
Amazon is failing at groceries because of this fact – Amazon entered an established industry with entrenched competitors. When Amazon was launched, online retail was their advantage. Amazon’s strategy for groceries is to go head-to-head with grocery retailers with hundreds of years of combined experience and thousands of stores.
What amazes me most about Amazon’s struggles with groceries is that they continue to believe that opening more Amazon Fresh stores is their best course of action. That’s false.
Instead, Amazon should invest in a strategy that allows them to offer groceries without having to rely on stores to compete against entrenched competitors. The good news is that Amazon already has a foundation in place upon which to launch the strategy – Amazon’s new regional logistics network and ability to deliver products the same day.
Amazon is in an ideal position to go back to the future and introduce a modern-day version of the milkman model for groceries. This model leverages all of Amazon’s strengths and advantages in their favor and eliminates the need for thousands of stores. Using Amazon Lockers and cold chain totes from Phononic Inc will ensure freshness of perishables.
Amazon can supplement the strategy with a select few destination stores, and automated micro fulfillment centers to fulfill online and grocery pickup orders.
The article I’ve attached quotes an Amazon resource as stating that, “2023 may be the last year for Amazon Fresh.” I hope that’s true. If Amazon is going to build stores, they should do so under the banner of Whole Foods but expand the assortment of products to include CPG brands.
Unless Amazon comes up with a better strategy, Amazon will fail at groceries. The time has come for Amazon to pivot. Fast. Amazon became the company they are because they disintermediated entrenched retailers and logistics companies – they didn’t compete head on. To succeed at groceries, Amazon must disintermediate large grocery competitors. Amazon knows how to do this. They just have to do it.
One final comment – the changes made recently by Amazon address issues with simplifying online grocery ordering. However, Amazon has yet to come up with a physical retail format they can successfully scale. Amazon has been trying to find a solution since 2017. They’ve yet to do so.
