Amazon Wants To Sell You Groceries, Even If It Has To Open Real Stores To Do It

Image courtesy of Amazon

Starting a new grocery store location is, in the grand scheme of things, not particularly hard to do. Starting a new nationwide grocery store mega-chain, though… that’s a whole lot more challenging. But e-commerce giant Amazon really, really, really wants to be your grocery store, and is apparently willing to do, spend, and create whatever it takes to make that happen.

That’s what Bloomberg reports today, in a deep dive looking at everything Amazon’s been doing to grab a foothold in the $800 billion supermarket business.

The saga begins, Bloomberg says, with bananas.

Growing and shipping logistics of bananas can be complicated, but as fruits themselves they are pretty simple. They come in their own handy natural peel, neatly bunched, fairly sturdy as fresh produce goes. But in 2014, a consultant found that workers at Amazon Fresh were throwing away nearly a solid third of the bananas the chain purchased.

Why? Because customers could only order bananas in fives. So every bunch of bananas with more than five in it was trimmed down, and the extras went in the trash.

If that seems to you like a foolish and wasteful way to run a grocery operation, you’re not alone. But online logistics — at this point now mastered for non-perishable goods like books and shoes — are far more complicated when your goods are on a timeline. Amazon’s earlier grocery efforts have been stymied by everything from customer complaints about moldy fruit to good old customer disinterest.

One analyst tells Bloomberg bluntly, “Online grocery is failing,” explaining that only about 4.5% of all shoppers made frequent online grocery purchases in 2016. We might be using Prime for everything else in our lives, but we keep going down the street to squeeze our own melons and select our own sauces.

And yet, Amazon remains gung-ho about the future. So if it can’t send the groceries to you… it will convince you to go to their groceries. And those plans continue to ramp up.

Just five short months ago, reports began to float that Amazon planned to launch a chain of up to 2,000 or more physical grocery stores nationwide.

That news followed a big expansion of its grocery delivery service, Prime Fresh, which then saw a big price drop later in the year.

Then early this year, Amazon also announced it would be accepting SNAP benefits (food stamps) for qualifying grocery services, greatly widening the pool of potential eligible customers — and money — Amazon has access to. In 2016, Americans spent about $66 billion of SNAP money on food… nearly matching the entire $70 billion online delivery grocery business.

Meanwhile, the company is just about to open the its first Amazon Go store location in Seattle, a “conveniently compact” store currently open in a “beta” version to Amazon employees. (The company says it expects the store to open to the general public in “early 2017,” still.)

And despite all this, Bloomberg points out, Amazon is still remaining cagey about its plans. Stories about its store locations and formats mostly drift by in the forms of leaks, headlines, and rumors; the company itself says very little. Continuing in that vein, Bloomberg says that Amazon’s goal is to become a “top 5 grocery retailer” in the next eight years, but even that comes from “a person familiar with the matter.”

To do it, though, Amazon’s going to have to pull off some big changes. Amazon currently offers a bewildering array of on-demand delivery services: not just the standard Amazon and Prime, but also Fresh, Pantry, Prime Now, Subscribe & Save, and the growing wave of Dash buttons. For many of us used to grabbing dish detergent, apples, aluminum foil, and a new bag of flour all at the same store at the same time, sorting out how and when to buy which products from which type of digital storefront all under one company can be confusing to say the least.

And the clock is, of course, always ticking. Food goes bad if you don’t use it fast enough, and with online retail there are fewer ways to divest yourself of the almost-rans. There’s no shelf full of yesterday’s bread for 50% off on a website, no basket of slightly bruised but still edible bananas to quiet toddlers who have to hit the store with their parents. So waste, and its costs, stay high.

Why then go to all this effort, when local and regional grocery chains exist by the dozen, Walmart and Target are already fighting the big-box end of things, and warehouses full of perishables are full of pitfalls?

As big as it is, Amazon’s full-year sales are currently somewhere in the $35-$36 billion range. Consumers can choose to do without entertainment and new headphones in lean times, but everyone’s got to eat — and grocery is an $800 billion world. That’s a whole lot of bananas to leave on the table.

Inside Amazon’s Battle to Break Into the $800 Billion Grocery Market [Bloomberg]

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