Why Amazon Fresh Stores May Rock Some Boats

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This article originally appeared in Presence Marketing’s April 2021 Industry Newsletter

By Steven Hoffman

Now that he’s had a chance to study the Amazon Fresh grocery store concept, first opened last summer, supermarket industry analyst Bill Bishop offered some ideas on how grocers can view this new competitor, “one that appears to offer a dual threat to both online and in-store business,” reported Supermarket News. With store locations in high population densities with above average median income and high daytime populations, the prominent physical presence is meant to provide high visibility and consumer confidence, Bishop noted. Also, because Amazon Fresh stores have smaller footprints than most newer supermarkets and often make “second use” of existing buildings, Amazon Fresh stores can be opened with a lower capital investment and a lower occupancy cost, meaning Amazon Fresh stores can stay profitable at increasingly competitive margins. As such, Bishop advised grocers to continually find ways to take costs out of their business without sacrificing their value propositions so they can operate profitably as competition heats up. Also, at a time when many grocery retailers are promoting curbside pickup (delivery costs can be high for retailers dealing with local online orders), Amazon Fresh is aggressively promoting delivery as a benefit of Amazon Prime membership, Bishop said. “Amazon is focused on a fulfillment option that many customers would prefer if it didn’t include an added cost,” he wrote. In addition, due to the store’s smaller size, “but with all the brands most shoppers would want,” Amazon is making its Fresh stores “time-effective to shop,” Bishop noted. Price-wise, while Amazon says it’s Fresh stores will be affordable, the extra 10% discount Prime members receive reinforces a perception of value, while Amazon captures valuable purchase data. Technology, too, while in the background, will be an important feature of Amazon Fresh stores, Bishop observed. “From a shopper’s point of view, this store has a lot to like. It will probably appeal most to Millennial shoppers who sense how the layout of the store and products tilt toward their lifestyle preferences — think of it as bigger than a Trader Joe’s but smaller than a typical supermarket with enough product and brand choice to satisfy most customers, along with more technology-delivered customer service,” Bishop described. Bishop predicted that Amazon Fresh stores pose a dual threat to more traditional grocery retailers operating around them. To counter its online offering, grocers must find ways to lower the cost of delivery or risk letting Amazon dominate that market segment. To counter its in-store offering, it will be necessary to invest in technology that gives their customers who want the opportunity to skip the checkout lane or at minimum, speed up the regular checkout process so that it is a pleasant service experience, Bishop advised.