Did Amazon Fail Fast Or Fail Fresh With Grocery Delivery?
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Amazon.com’s acquisition of Whole Foods in August led many to speculate that the move would serve as a jumping off point for the company to expand its AmazonFresh delivery service. Instead, reports surfaced last week that Amazon sent notices to customers that it is ending home delivery of groceries in some areas.
The e-tailer e-mailed customers within certain zip codes in nine states — California, Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania and Virginia — that the service was being discontinued.
An Amazon spokesperson confirmed to Recode that the company will end the service in some places, but said it would continue serving other neighborhoods in cities including Boston, Chicago, Los Angeles, New York and Philadelphia. Amazon did not offer insight as to whether it intended to return in the future to areas where it is ending AmazonFresh deliveries.
This about-face on grocery delivery was a move that RetailWireBrainTrust panelists like Ken Cassar, vice president and principal analyst at Slice Intelligence, identified as a matter of scale.
“There are some markets that simply do not offer the population density required to profitably deliver groceries,” Mr. Cassar said. “Amazon realized that by continuing in those markets it would have been throwing good money after bad.”
“This is not surprising to me, as perishable deliveries are quite expensive,” said Tony Orlando, owner of Tony O’s Supermarket and Catering.
Online grocers going back to Webvan have had trouble achieving profitability and Amazon’s pullback suggests that it too is facing hurdles. But many members of the BrainTrust weren’t chalking it up as a failure; rather they saw it as a savvy move, setting the stage to meet the challenge.
“This seems like the embodiment of fail fast to me, which is the best philosophy to have today, especially for retailers,” said Lee Peterson, EVP of brand, strategy and design at WD Partners. “Just because they were not successful in certain markets doesn’t mean they won’t try again in a different manner (AmazonFresh BOPIS, for example) in the exact same markets.”
One potential approach would be for the company to open AmazonFresh Pickup locations like the two it operates in Seattle’s Ballard and SoDo neighborhoods.
And since Whole Foods offers home delivery in 37 states and Washington D.C. in partnership with Instacart, many on the RetailWire BrainTrust believed that the looming difficulties of delivery may have played a role in the e-tailer’s biggest brick-and-mortar move.
“The economic challenges of offering fresh grocery delivery in some markets explains why Amazon felt compelled to buy Whole Foods,” said Mr. Cassar.
“Amazon seems to get that Whole Foods provides an instant network of branded pickup locations,” wrote retail analyst and consultant James Tenser on RetailWire. “Considerable operational refinements will be needed to make this work, but Big A can afford to experiment.”
“The brilliance behind the Whole Foods acquisition is the potential of leveraging the store as a fulfillment center, partnering with Lyft/Uber to deliver to local areas same-day and expanding beyond that,” said Brandon Rael, vice president of retail strategy and operations at Strategy Consulting.
Amazon’s third quarter net sales increased 34 percent year-over-year to $43.7 billion, which includes $1.3 billion from Whole Foods. The company’s net income was $256 million for the period compared to $252 million last year.
And while further experiments in food delivery – and Whole Foods based pickup – may pose bigger challenges to already-strapped independent grocers, for now perishables may be the right place for mom-and-pops to compete.
“That is where an independent can continue to grow their business, as dry grocery is sliding backwards every year,” said Mr. Orlando. “Push the perishables, and if you do it right, the customers will stay loyal to your brand, and thank goodness for that.”
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