Amazon’s Solution to Its Grocery Mess Is More Groceries
(Bloomberg Opinion) -- If a conventional company wants to experiment in an unfamiliar industry, it might create a small working group, make a tiny number of products, test what works and slowly expand if its approach catches on.
Amazon.com Inc. is not a conventional company.
After spending a decade essentially doing the slow-and-steady experimental approach in groceries with its Amazon Fresh delivery service — and getting almost nowhere — the company in 2017 splurged nearly $14 billion to buy the Whole Foods supermarket chain. Last year, it also started opening a handful of novel convenience stores that in principle will allow people to pluck apples, drinks and tuna sandwiches off the shelves and walk out to be be billed automatically. Bloomberg News reported recently that Amazon was weighing whether to open as many as 3,000 similar cashier-less stores in the next few years.
And now, according to the Wall Street Journal, Amazon may also start from scratch a grocery store chain that would sell a larger variety of products than those at Whole Foods stores while stressing pick-up options and customer service. (Amazon may not go ahead with these new stores, the Journal reported.)
Only Amazon could get away with this kind of scattershot approach. Its potentially even more overlapping initiatives in groceries and food seem wasteful, incoherent, imprudent and confusing to shoppers. It also points to Amazon’s failures with Whole Foods to make itself a habit for everyday grocery shopping.
Amazon’s approach might also be brilliant, eventually, though in the near term it will simply be an even bigger mess than the company’s current groceries mess. You have to admire Amazon’s willingness to possibly fail spectacularly for a shot at the $800 billion market for Americans’ food shopping.
Amazon isn’t this rash in every corner of industry. Consider Amazon’s bookstores, which started to open in 2015 and have slowly expanded into about a dozen U.S. cities. That is the type of slow-and-steady experiment that most companies would take in a new area. Notably, the bookstore market isn’t large by Amazon standards, and its low-risk approach is twinned with a relatively small potential payoff.
When the potential market is enormous, however, Amazon, doesn’t hesitate to smash its foot on the gas pedal — no matter the impact on its profit-and-loss statement or the strain on rational thought. Witness what’s happening with its line of microwaves, wall clocks, speakers and other home gadgets powered by Amazon’s Alexa voice assistant. Amazon released dozens of Alexa-related products, and it’s a good bet most of them will flop. If a handful catch on, though, Amazon can become the operating system for the future of computing. A big prize justifies Amazon’s willingness to take a big and erratic swing.
In groceries, Amazon may have no choice but to risk everything. Whole Foods is not the spectacular, rule-breaking success that Amazon-watchers envisioned at the time of the acquisition. Even after selective and highly publicized price cuts, the chain didn’t morph into a mass-market food retailer. Nor has it been a testing ground — at least not yet — for Amazon’s wildest ideas in food, medicines and logistics. There are no robots roaming Whole Foods stores, no pharmacies and no grocery stores doubling as Amazon package-sorting centers.
Put simply, Amazon did not transform the experience of grocery shopping overnight. Sales at Amazon’s physical stores, which largely consist of Whole Foods, actually declined 3 percent in the fourth quarter from a year earlier, although Amazon said revenue increased after accounting for a shift in its fiscal calendar and other changes.
Meanwhile, hurried along by Amazon’s purchase of Whole Foods, the conventional grocery companies are pushing faster into emerging areas such as home delivery and curbside pick-up of online orders. Other companies are working to replicate elements of Amazon’s cashier-less store technology. In each case, the competition in groceries is capitalizing on places where the Everything Store is relatively ineffective. That threatens to slow Amazon’s encroachment.
All of that recent history makes Amazon’s potential creation of another supermarket chain smell a little desperate — although Amazon could still make it work. Stock prices of grocery sellers, including giants Walmart Inc. and Kroger Co., sagged on Friday after the Journal published its report. Investors always worry when Amazon stretches further into a new industry, no matter whether that reaction is rational or not.
An unruly zigzag may be the perfect symbol for Amazon’s tangle of projects in groceries and household goods. Many of the company’s approaches will fail, but Amazon isn’t afraid to break many eggs (and spend many billions of dollars) to crack a lucrative corner of consumer spending that has been stubbornly resistant to e-commerce. No one besides Amazon could get away with this — and even Amazon might not.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
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