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Amazon makes biggest grocery pivot since Whole Foods

Strategy has been a struggle overall since the ecommerce giant first acquired the grocery brand in 2017

Amazon’s $13.7 billion acquisition of Whole Foods Market in 2017, is still the highest dollar amount the ecommerce giant has ever paid for an acquisition. And while many were unsure of its success up front, Amazon too has struggled with its strategy in the grocery space — marked by multiple pauses and store closings to rethink. 

During the company’s fourth-quarter conference call with analysts, Amazon CEO Andrew Jassy said that the company was doing a “fair bit of experimentation … to try to find a format that we think resonates with customers.”

Now, Amazon is starting to roll out that new formula, offering fresh food delivery to non-Prime members, remodeling and reimagining stores, and testing highly-computerized warehouses, among other advancements, reports Forbes

Amazon first tried to integrate Whole Foods into “the mothership” by installing lockers in-stores where shoppers and Prime members could pick up their goods, and the company also offered ancillary items like vegetable peelers and coffee mugs. But, Whole Foods seemed still more upscale than Amazon’s home-grown grocery concept Forbes said. 

Now, as part of the new shifts in the company’s grocery strategy, Amazon has extended its Amazon Fresh grocery delivery services to non-Prime members in select U.S. cities, initially rolling out in 12 metro areas. The company has also lowered prices for Prime members — an offer displayed on signage and embedded into the technology of its over 500-store supermarket chains. 

With the pivot, Amazon has opened 60 new grocery locations, including one entirely devoted to filling online orders known as a “dark store.” But even still, Whole Foods only accounts for slightly more than 1% of the national grocery market — Walmart owns 19% and Kroger’s share is 9% by comparison.

Reportedly, Amazon is also planning to combine its ecommerce supermarket brands (Amazon Fresh, Whole Foods, into one single online cart. Initially, when Amazon acquired Whole Foods, many were concerned that Amazon “might sell out by relaxing Whole Foods’ strict standards for its assortments,” according to Forbes, but so far it hasn’t happened.

While Amazon is still focused on grocery, the company didn’t buy Whole Foods to learn about the grocery business. Aside from the food business, Amazon recently shuttered 68 stores and centralized some operations to Whole Foods’ headquarters in Austin, Texas. 

Rather than swapping out regional suppliers for bigger names, Whole Foods has instead added thousands of local brands since 2017, a 30% increase since before the Amazon deal was completed. And, since the merger, Whole Foods has actually doubled down on its list of banned ingredients, like high fructose corn syrup or meat containing antibiotics and added hormones, among other enhanced standards. 

Amazon’s grocery strategy has had its share of challenges. Recently, a reassessment of its Amazon Fresh stores led to hundreds of employees being let go (Amazon has 44 Fresh stores in eight states and Washington, D.C.).

These Fresh job cuts came after the company announced the most expansive layoffs in its history with about 27,000 employees since late last year, with some staff working on grocery technologies, as well as some in the Fresh and Go units.

That said, Amazon has been saying all along it has a plan for grocery, and perhaps there’s now a glimpse of that strategy at two newly redesigned Amazon Fresh stores in the Chicagoland area. The redesign offers new brands, prepared meals, and Dash Carts — Amazon’s smart shopping cart that informs shoppers about real-time deals and allows them to check out directly from the cart.

David Bishop, partner with consulting firm Brick Meets Click, visited the newly updated stores and shared in a LinkedIn post that, “Ironically, the improvements have less to do with innovative tech, which is important, but rather good, old-fashioned store design and merchandising, which traditional grocers know extremely well.” 

So, what to make of Amazon’s changes to its grocery business? According to Forbes: “Stores must be evaluated on a case-by-case basis. Consumers have adopted a different mindset since the pandemic. Even the wealthiest customers are checking prices.”

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