Amazon’s Goals for the Grocery Industry
Amazon, the second-largest firm in the world by revenue, has had trouble breaking into the $800 billion U.S. food market. The e-commerce giant has made multiple attempts over the years, but its market share in this business is still much smaller than that of the leaders.
Service for Delivering Fresh Food
Amazon introduced its Fresh delivery service in 2007, but the business has had trouble turning a profit from it. The amount of orders that are eligible for free Fresh delivery will significantly decline as a result of Amazon’s recent increase in the free delivery order minimum for Fresh orders from $35 to $150. This action demonstrates that Amazon is lowering its expectations for the supermarket business.
Walmart and other physical stores are competitors.
Amazon is at a competitive disadvantage when competing against retailers like Walmart, Costco, and Target who have in-store infrastructure and provide in-store pickup. Due of the urgency and necessity for chilled vans, grocery delivery is more expensive than regular e-commerce. Additionally, when customers shop in-store, Amazon compensates for the labor they do themselves.
Comments from Amazon’s CEO Regarding the Grocery Business
In a recent earnings call, CEO Andy Jassy stated that Amazon’s food business does not hold a sizable market share in perishable goods and that physical shops are normally required to hold a sizable market share in perishable goods.
Amazon Fresh supermarkets and Amazon Go quick-service restaurants closing
Along with increasing the Fresh delivery order requirement, Amazon is also shutting several of its Go quick-service restaurants and Fresh grocers. The business did not specify how many locations would be closing, but the $720 million impairment charge for the closures suggests that there would be a sizable number.
Conclusion
The closure of Fresh supermarkets and Go convenience shops, together with recent adjustments to Amazon’s Fresh delivery service, indicate that the company is having trouble entering the food industry. It is less probable that Amazon will be successful with a minimum of $150 because of the emphasis on the bottom line and the failure with a free purchase minimum of $35. This is good news for Walmart and other traditional grocery stores, and it serves as a warning that Amazon may have limited room for expansion. Investors should reevaluate their expectations for Amazon since it will be more difficult than previously anticipated to increase the bottom line.