Amazon is poised to disrupt grocers in an entirely new way - here's what that could look like
- Amazon will reemerge as a major force in grocery this year as it opens a new non-Whole Foods grocery chain, rapidly expands its online pickup and delivery services, and adds new Amazon Go stores.
- As the company looks to the future of the grocery business, one key executive is thinking about the changing needs of millennials and Generation Z as they become parents.
- "These generations have always had access to the internet and mobile phones, there is an immediacy that has always been at their fingertips, and it's created very high expectations," Stephenie Landry, Amazon's vice president of grocery delivery, told Business Insider.
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Amazon's purchase of Whole Foods in 2017 shook the grocery industry to its core, as analysts and investors speculated about ways that the historically disruptive tech giant could bring dominant rivals to their knees.
More than two years later, many of the more drastic predictions about Amazon's impending grocery dominance haven't panned out. Amazon's share of the US grocery market with Whole Foods has grown to just 2.2%, up from 1.7% in 2017, according to UBS.
But Amazon could reemerge this year as a major force in grocery, as the company prepares to open a new grocery chain after two years of learnings from Whole Foods, while it also expands its cashierless Amazon Go technology and continues to grow its popular delivery and pickup services.
Among the people leading those efforts is Stephenie Landry, Amazon's vice president of grocery delivery. As she looks to the future of the grocery business, she is "laser-focused on listening to customers and making their lives easier" and thinking about how consumers' needs are changing, she told Business Insider.
"For example, millennials and Gen Zers are becoming parents, and their food buying behavior is shifting to focusing on families," she said. "These generations have always had access to the internet and mobile phones, there is an immediacy that has always been at their fingertips, and it's created very high expectations. We work hard to meet and exceed the bar."
Amazon shoppers' most pressing need right now is time, she said.
"We are constantly being asked to juggle more tasks, all the while making it home in time to feed ourselves (or our families) a nutritious meal," she said. "My job is 100% focused on making sure customers can get a wide selection of high-quality, well-priced food delivered quickly and for free."
Amazon's mysterious new grocery chain will open this year
Last year, Amazon rapidly expanded its delivery and pickup services and dropped the $14.99 monthly Amazon Fresh membership fee for members of its Prime service, which costs $119 annually.
Amazon customers can now get free two-hour grocery delivery or pickup through Whole Foods or Amazon Fresh in 2,000 cities and towns, the company said.
But Amazon isn't only focused on online grocery, which is growing rapidly but still only accounts for about 3% of all grocery purchases, according to UBS.
With its purchase of Whole Foods, which has 510 stores and 95,000 employees, Amazon made a big bet on physical grocery stores. It's now leaning even harder into that bet with the launch of its new grocery chain this year.
"The majority of customers still enjoy shopping in store, and that is where most food is currently purchased," Landry said.
The company hasn't yet revealed much information about its new chain, besides confirming that it won't be a Whole Foods store or feature Amazon Go technology. Amazon Go uses cameras and artificial intelligence to allow shoppers to enter a store, shop for products, and leave without exchanging payment.
The first location of Amazon's new chain will open in the Woodland Hills neighborhood of Los Angeles this year. At about 35,000 square feet, the space is about the same size as a Whole Foods store.
The new chain will reportedly carry conventional products, such as Coca-Cola and Oreos, and target middle-income shoppers, according to the Wall Street Journal. It's expected to compete directly with US grocery leaders such as Walmart, Kroger, and Aldi.
The new chain could give Amazon access to a whole new set of customers - and potential Prime members - as well as provide another pickup point for Amazon's online grocery orders, which more than doubled in the most recent quarter year-over-year.
How Amazon's new chain could change grocery shopping
There are many benefits for Amazon in building a grocery chain from scratch. The company has a trove of data from customer orders through Amazon Fresh and Whole Foods that should help it determine the best mix of top-selling items to carry in stores.
An essentially blank canvas also allows the company to allocate ample space to online grocery services, such as order storage and pickup counters, which weren't factored in to most US grocery store layouts until recent years.
Amazon is already building these spaces into new Whole Foods stores.
"New Whole Foods Market stores are designed with delivery and pickup orders in mind, making extra space for delivery and pickup operations," Landry said.
Other traditional grocery chains, including Kroger and Walmart, have been reallocating space or building new attachments to existing stores to account for their growing online grocery businesses.
And while the Amazon Go technology won't be used in Amazon's first grocery store, it could be added to future locations.
Amazon Go is now in 25 locations, most of which are about 2,500 square feet. The company is currently testing the technology in a larger, 10,000-square-foot space in Seattle.
Other technology that could be used in the new store includes "mixed format shopping," which would allow in-store shoppers to order household goods like paper towels from an app while they shop for perishable food, as The New York Times previously reported that Amazon had considered.
Regardless of whether Go or other technologies are part of Amazon's new grocery store, the chain will likely make waves this year.
Amazon has a strong track record of shaking up industries where it makes big investments, and it's clearly placing big bets on grocery in 2020.
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