Amazon plans new grocery-store business - Strategy

Amazon plans new grocery-store business - Strategy

Amazon plans to open dozens of grocery stories with a lower price point than Whole Foods in several USA cities starting in Los Angeles, sources tell The Wall Street Journal.

The Journal reported that the first store would likely open in Los Angeles and that the retail giant has at least two more leases signed marked for grocery locations.

The new stores were not meant to compete directly with Whole Foods, according to the report. Stock prices of companies like Kroger, Costco, Sprouts, and Walmart, immediately reacted following the spread of the news. To better distinguish the new store from its siblings, it would reportedly carry grocery items customers can't get from Whole Foods. Additionally, the company is reportedly going to be opening most of its stores inside shopping centers based in countries such as Philadelphia, Chicago, Seattle, and Washington DC.

While this new move seems to be a bit of a head-scratcher, Forbes Contributing Author Neil Stern believes there are a few "prime" reasons for Amazon to pursue such a strategy - starting with the idea that the company could further expand its private brands. "This also gives Amazon the opportunity to use some subset of the technology employed in Amazon Go in a larger footprint box".

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Grocery stores are low-margin businesses, and any added pricing pressure from a new Amazon chain could eat into profits.

It is expected that Amazon is targeting new developments and occupied stores with leases ending soon. Part of the plan may be purchasing small, local grocery chains as well.

"Since Amazon's acquisition of Whole Foods, grocery retailers have waited to see if Amazon would launch its own branded stores and that day is finally arriving", Sylvain Perrier, CEO and president of the grocery e-commerce platform Mercatus, said in an emailed statement.

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