• Amazon Push Into Grocery Stores

    Amazon Makes Three-Pronged Push Into Grocery Stores

    Retailer Is Poised to Create National Chains

    Online retailer Amazon is expanding its cashierless Go stores. (iStock)
    Online retailer Amazon is expanding its cashierless Go stores. (iStock)

    Amazon is accelerating efforts to break into a retail sector considered an oasis of stability in an industry upended by the sort of e-commerce pioneered by the Seattle giant: grocery stores. And the retailer is now relying on bricks as well as clicks.

    The company said it is close to opening its second cashierless Amazon Go store, in Redmond, Washington, a suburb of its hometown where the first Go store started this year, but that appears to be just the beginning. Amazon has also posted jobs for retail positions at outposts of its new traditional grocery store concept in or near four major cities around the country: Los Angeles, San Francisco, the Chicago suburbs and Washington, D.C.

    The move would give Amazon, a company that made its fortune through online sales of merchandise, three separate brick-and-mortar chains that specialize in food. That could mean a company known for its massive use of warehouses across the country for fulfillment centers to serve online orders could be looking for the retail property needed to create three national chains.

    The company already serves the upscale market with its Whole Foods chain and online delivery customers with its non-store, food-delivery service Amazon Fresh, but it hasn't gained a significant foothold in the larger grocery market. While another chain of stores may help reach that goal, breaking into one of the largest sectors of the American economy could take considerable time and resources, say executives familiar with the grocery industry.

    Amazon's new initiative comes during extreme uncertainty for retailing, which took a body blow as the coronavirus pandemic unfolded. The crisis pushed many already stressed retailers into insolvency, but it has proved to be a boon for both Amazon, which saw a huge spike in shopping by homebound consumers, and traditional grocers, which benefited from an early surge in anxiety-fueled stockpiling as they stayed open because of their status as essential services.

    Nevertheless, an investment in retail of this magnitude, at this time, would be risky for most, said Jared Kadry, CoStar's senior market analyst for Seattle.

    "For anyone else, this would be crazy," Kadry said on Tuesday. "They can afford to do it."

    The move is in keeping with Amazon's long-term strategy and its history, he said. The company has dabbled in real world retail many times already, using many different models, but the end game is the same: To gain as much market share as possible. And historically, Amazon is not afraid to take a temporary hit on profits in its bid for long-term dominance, he said.

    In this case, the new stores will put Amazon up against traditional grocers in a direct, real-world contest, an eventuality that has been speculated on since its acquisition of the Whole Foods grocery chain in 2017, and open a totally new front in the competition. Up to now, Amazon has been seen as an online-only rival in a business that is still weighted toward the offline world, for now.

    As New York management consulting firm McKinsey & Co. said in a report issued in February, "The fight is on."

    The company is entering an industry with a few very big fish but that is still quite fragmented, though it has gone through steady and successive waves of consolidation since the 1990s, according to a 2019 report by the U.S. Department of Agriculture. As of 2016, sales by the 20 largest food retailers totaled $515.3 billion, and accounted for 66.6% of all grocery store sales in the United States. Two of the top four grocery retailers in 2016, Walmart Stores, Inc. and Kroger, took in almost half of all the sales.

    Some of the new grocery stores are expected to be Amazon Go grocery locations, a concept that the company debuted this past February in Seattle's Capitol Hill neighborhood that allows customers with Amazon accounts to pick out their items and leave, unencumbered by a check out line encounter.

    Exactly how many Go stores are in the offing is still unclear. The company confirmed in an email to CoStar that in addition to Redmond, it plans at least one new Amazon Go store in the Washington D.C. region, which is also where Amazon's second headquarters campus is under construction.

    An Amazon spokeswoman also confirmed that the company plans to open grocery stores in the Chicago suburbs of Oak Lawn, Schaumburg and Naperville and in Woodland Hills, Irvine, and North Hollywood in greater Los Angeles. These are expected to operate with conventional check-out systems and be run under a new brand, neither Whole Foods nor Amazon Go, that focuses on organic and natural foods.

    According to CoStar records, an LLC controlled by the company that handles physical, customer-facing retailing has also leased two spaces outside Philadelphia, one in the northern suburb of Warrington and another to the northeast in Bensalem. Amazon's public relations team did not immediately address CoStar's inquiries about San Francisco or the leases in the Philadelphia region.

    A former Toys R Us store at 6245 Topanga Canyon Blvd. in the Woodland Hills area of L.A.'s San Fernando Valley is reportedly among the locations for the new Amazon grocery concept. The 33,500-square-foot building, owned by Paragon Commercial Group, is being converted into a space appropriate for a supermarket, according to city planning documents.

    Speculation that Amazon may be considering creating a new physical grocery chain sent concern through the retail world earlier this year.