Amazon's Grocery Concessions

I've been arguing that Amazon's heroic phase is over. To which you might be asking, "what 'heroic phase'? Amazon's always been a destroyer of industries, values, and communities, an exploiter of underpaid labor and infrastructure it didn't earn." Wow, harsh, imaginary reader! Let's just stipulate that along with all that, there was also an implicit promise that if you had a problem, Amazon had the technical and logistical wherewithal to solve it. It also had the money and the ambition to spend whatever resources and energy were necessary to take on virtually any challenge, and iterate quickly if needed. They might have put your local bookstore (or bookstore chain) out of business, but it wasn't like they didn't replace it with something new, different, and cheaper for the customer. It wasn't just that interest rates were low and growth was easy to invest in: Amazon was a company with revolutionary potential, maybe uniquely so.

You can see the dimming of this potential everywhere in the last few weeks — another massive round of layoffs, the company taking a wait-and-see approach on consumer-facing AI (which might after all be prudent), scaling back customer-friendly benefits like free returns (and even free shipping!), and halting construction on its much-hyped HQ2 project, among others. There are probably over a thousand different cost-cutting measures that suggest Amazon is focused more on near-term profitability and keeping its powder dry rather than investing in cornering new markets or building up capacity.

To pick one example, let's look at the grocery business.

When Amazon purchased Whole Foods in 2017, it seemed prime to disrupt the grocery business like it began to do with books two decades before. Online ordering and same-day delivery were nascent at best: Amazon seemed like the best candidate to change all that.

But arguably, grocery stores, especially a few notable ones, have innovated with online ordering, delivery, and in-store pickup more quickly than Amazon has been able to make ordering and delivering groceries as easy as buying an e-book. (Tough challenge, I know.) The COVID-19 pandemic accelerated everybody's digital and delivery strategies. Meanwhile, Amazon's grocery offerings are still fragmented, partial, and inconsistent.

And with the company now more focused on a return to profitability than investment in growth, it seems likely that Amazon's grocery ambitions will have to be set on hold.

It didn't have to be this way.

This article from George Anderson at Retail Wire discusses Amazon's big investments in same-day delivery — a small logistics miracle that is useful for plenty of goods (particularly small ones), but especially powerful for the grocery market. Free, same-day delivery is a major hurdle for remaining shoppers who remain loyal to their brick-and-mortar stores.

Yet one of Amazon's immediate cost-cutting moves was to change its free delivery minimum for Amazon Fresh orders from $35 to $150, undercutting its ability to bring in new customers and allow them to steadily shop for goods as needed, rather than bundling all of their orders together. $150 is not unheard of for a typical family's weekly grocery trip, but a $35 minimum lets customers buy throughout the week, by the day or by the meal.

Walmart, for example, has kept its free delivery minimum at $35. As Jeremy Bowman argues at The Motley Fool, it's hard not to conclude that Amazon is ceding this massive market to Walmart — or at least not disrupting the grocery giant the same way it once did.

Another article from Karen Webster at focuses on the relative advantages Amazon has over Walmart: for example, Amazon already sells more apparel than Walmart and will soon pass it in health and beauty, a high-margin section that also helps ensure customer loyalty. But Walmart is still trouncing Amazon in groceries, actually increasing its percentage of grocery sales even as Amazon tries to cut in.

Now, Amazon CEO Andy Jassy has argued that the company does not intend to give ground on groceries, or on building brick-and-mortar stores, but is rather looking for a new winning strategy to reposition itself in that market. He's even vowed to "double down" on the grocery business. However:

The company has paused expansion of its Fresh supermarkets and cashier-less convenience stores until it finds the right recipe for success, Jassy said, in a rare appearance on the company's quarterly results call earlier this month.

While Jassy obviously wants to reassure Amazon's shareholders and employees that he hasn't given up on the enormous investment it's made to compete in groceries, it's clear that the company is in a holding pattern.

Again, this may be prudent: the company's cashierless stores were maybe too much too soon, and building and supporting Fresh stores along with Whole Foods bifurcated its efforts. But it also means that the big innovation that Amazon has brought to the grocery business may be what it helped push Walmart and other retailers to do rather than anything it can claim for itself.