Surprising only in its timing, Amazon announced earlier this month that it is pausing the expansion of its beleaguered Amazon Fresh (AF) brick and mortar grocery store unit, adding that it will also close some of the existing 44 stores that have opened since the debut of the concept in September 2020 in Woodland Hills, CA. Also on hold is any further expansion of the Seattle-based firm’s 29 Amazon Go convenience stores.
The announcement was made by Amazon CEO Andy Jassy at the company’s analyst conference call after Q4 and 2022 fiscal year results were released on February 2. However, no timeline or specific locations of stores that will be shuttered was disclosed during or after the call.
“We’re doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers. It’s differentiated in some meaningful fashion and where we like the economics. We’ve decided over the last year or so that we’re not going to expand the physical Amazon 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. We’re working hard at it. We see some encouraging signs. And when we do find that equation, we will expand it more expansively. But I think that we have a very significant opportunity in the grocery segment. We’re building a pretty broad grocery network across online and physical, and you’re going to see us continue to work on it,” said the 55-year-old Amazon executive, who became the company’s CEO in July 2020.
Chief Financial Officer Brian Olsavsky, who also participated in the analyst call, noted, “We’re continuously refining our store formats to find the ones that will resonate with customers, will build our grocery brand and will allow us to scale meaningfully over time. As such, we periodically access our portfolio of stores and decided to exit certain stores with low growth potential.”
He added that after assessing the portfolio of Amazon Fresh and Amazon Go stores, the company decided to exit certain stores they identified as having low growth potential.
In Amazon’s fourth quarter, the world’s largest online company said it took a $720 million impairment charge related to capitalized costs and associated values of its leased properties at its physical stores.
“We think grocery is a really important and strategic area for us. It’s a very large market segment, and there’s a lot of frequency in how consumers shop for grocery. We also believe that, over time, grocery is going to be omnichannel,” said Jassy. “There are going to be a lot of people that order their grocery items online and have it delivered to them, and there are going to be a lot of people who continue to buy in physical stores. But you’re going to also see a hybrid of those, where people pick out what they want online and pick it up in stores. Or people are in stores, and there’s something that’s not in inventory in the stores, so they go to their app or to a kiosk and order it to be delivered from online. So I think having omnichannel is going to really matter.”
The 26-year Amazon veteran added, “We have a pretty significant-sized grocery business. I think people sometimes don’t realize that, and that we’ve been building for a long time. It’s continuing to accelerate, and I kind of see it broken into a few pieces. If you think about the online grocery offering, we have a very large business there. It looks different from the typical mega physical grocery store. But if you think about the aisles in a grocery store – from packaged food to paper products, to canned goods, to pet supplies, to health and personal care items, to consumables – we have a very large business that continues to grow at a rapid clip and then we think will continue to grow.”
In an interview with the Financial Times less than a week after Amazon released its Q4 financials, Jassy reinforced Amazon’s long-term interest in growing a physical presence in retail food. He said he believes that some of the company’s problems are related to having opened stores during the pandemic and then facing the challenges associated with those levels of disruption.
“We haven’t had a lot of normalcy. We’re experimenting with selection, checkout formats, assortment, price points. I’m encouraged we have several that I think are promising,” Jassy stated, adding that the company has a format that “we want to go big on the physical side in 2023.
“We have a history of doing a lot of experimentation and doing it quickly. And then, when we find something that we like, doubling down on it, which is what we intend to do,” Jassy told the London-based business newspaper.
Of the 44 Amazon Fresh stores that are open, 12 are located in the Mid-Atlantic region – two in Maryland, one in New Jersey, one in New York, two in Pennsylvania, five in Virginia and one in Washington, DC.
Moreover, according to our data, approximately 30 more stores in the Mid-Atlantic were in the real estate pipeline for Amazon Fresh to open. We estimate that about a dozen of those stores are nearly completed and almost ready to open.
What becomes of those future stores and those that have opened in the past 29 months remains to be seen.
