Amazon opening Fresh supermarkets after stall, but many still vacant

On a damp afternoon in August, a number of hundred shoppers lined up outside an Amazon Fresh supermarket in a Philadelphia suburb, eagerly awaiting the shop’s grand opening. An individual in a banana costume overrated the gang, while Amazon staffers handed out free samples of cold brew coffee.

The event was an extended time coming. Since 2022, the Fresh store in Bensalem, Pennsylvania, looked able to open. But month after month, it sat vacant, with Amazon’s familiar smile logo plastered on an indication overlooking an empty parking zone.

“I kept considering it will open, however it didn’t,” Joe Knowles, Bensalem Township’s council president, told CNBC. “Abruptly, bang, it was able to go.”

The Bensalem store is certainly one of a handful of recent Fresh locations that Amazon has launched in recent months, the primary latest store openings for the reason that company halted expansion of the franchise greater than a 12 months ago. Since June, Amazon has opened seven other stores in California, Illinois, Maryland, Recent Jersey and Virginia, with more locations expected this 12 months and into next. The corporate said it is also launching five redesigned stores in Illinois and California this week.

It’s the most recent development in Amazon’s on-again, off-again effort to turn out to be a powerhouse in a market the corporate has been pursuing for 17 years, culminating with its $13.7 billion acquisition of Whole Foods in 2017, the corporate’s biggest deal ever. Amazon’s scattershot approach has at times been about expanding its “every thing store” mission and at others has been focused on making high-end produce more cost-effective. In some cases, the markets have provided a testing ground for in-store technologies.

Through all of it, Amazon in 2023 claimed just 1.4% of the U.S. grocery market, compared compared with Walmart at 23.6% and Kroger’s 10% share, in accordance with Numerator data.

Fresh supermarkets are a bit of the portfolio, which also includes Go convenience stores and same-day delivery for Prime members. The corporate also launched a vast grocery delivery subscription within the U.S. earlier this 12 months. On Tuesday, Amazon introduced a latest grocery private label called Amazon Saver, which incorporates items like pancake syrup, deli meat and canned goods mostly priced under $5.

The Fresh chain made its debut in the course of the early months of the Covid pandemic. Amazon opened the primary such store in September 2020, within the Woodland Hills neighborhood of Los Angeles, with a watch toward offering cheaper prices than Whole Foods. The corporate added package drop-off counters, together with cashierless checkout lanes and voice-activated displays, allowing shoppers to ask Alexa for recipe ideas or help finding items. 

Amazon would reach 46 Fresh locations worldwide by early 2022. However the expansion plans ran head first into CEO Andy Jassy’s efforts to rein in costs as rapidly changing macro conditions forced dramatic downsizing. Amazon instituted mass layoffs starting in 2022, and shuttered a few of its newer, more unproven bets. 

In February 2023, Jassy announced on a quarterly earnings call that Amazon planned to shut some Fresh supermarkets and Go convenience stores. He also hit pause on further growth of its Fresh footprint until the corporate could discover a store format that resonated with shoppers and “where we just like the economics,” Jassy said.

Krispy Kreme donuts

With headcount cuts largely within the rearview mirror, Amazon is back into investing mode and pouring resources into Fresh, opening latest stores after refining the experience and testing out a redesigned format late last 12 months in select California and Illinois locations. Jassy and Amazon Fresh leaders have acknowledged that as a way to grow its already “very large” grocery business, the corporate needs a much bigger brick-and-mortar footprint.

In 2022, just 11% of sales within the $1.6 trillion U.S. grocery market took place online. That is far below the extent of e-commerce penetration in other categories, equivalent to consumer electronics, where 41% of purchases were made online, in accordance with Jefferies data. Firms “must have a physical presence to be big in grocery,” analysts from the bank wrote in a note in October.

As a part of the Fresh store redesign, Amazon created a more colourful layout and added Krispy Kreme donut and occasional stalls. In April, the corporate said it will remove the cashierless checkout technology, called Just Walk Out, from its U.S. Fresh stores and Whole Foods markets in favor of computerized Dash Carts, which track and tally up items as customers shop.

Amazon told CNBC it’s seen increased purchasing and better customer satisfaction scores on the redesigned locations. The corporate said it expects to selectively open latest Fresh locations over time based on feedback from shoppers.

“We just like the early results quite a bit,” Jassy said on the corporate’s first-quarter earnings call in April, referring to the revamped Fresh stores. “They’re really meaningfully higher in almost every dimension. It’s still early, and there is some things to work through, but we like what we’re seeing there.”

Still, not less than 22 Fresh supermarkets across the country remain vacant or unopened although construction is complete, in accordance with interviews with city officials and native news reports.

Delayed openings or cancellations have triggered not less than five lawsuits. Landlords in Pennsylvania, Recent Jersey, Recent York, Florida and Washington alleged the corporate breached its contract by terminating its lease, with some parties searching for tens of thousands and thousands of dollars price of damages. Amazon last 12 months reached a settlement with property owners in Florida and Washington, in accordance with court documents. Attorneys representing the property owners didn’t reply to requests for comment.

Amazon declined to comment on the status of the Fresh stores that remain unopened.

One store in limbo is in Rancho Mirage, California, a desert town about half-hour southeast of Palm Springs. Previously the situation of a Stein Mart department store, the market is in a shopping mall that also features a Hobby Lobby, an Italian restaurant and a blood bank. Shoppers in the world can discover a Whole Foods, Walmart, Trader Joe’s and Aldi all inside a brief drive.

Amazon began remodeling the shop in 2021 and signage went up the next 12 months. But “opening soon” signs are still plastered on the doors. The corporate has told Rancho Mirage officials and AlbaneseCormier, the owner of the shopping complex, that it expects the shop to open in 2025, said Ted Weill, a city council member.

AlbaneseCormier didn’t reply to a request for comment.

Weill said there aren’t many firms that may afford to only let a constructing sit idle for years.

“Amazon has a lot money that whether or not they’ve invested $10 million, $20 million, $30 million within the project and judge to not go forward, so be it,” Weill said. “That will not be the factors that holds them back from pulling out.”

Greater than 500 miles north of Rancho Mirage, within the Sacramento suburb of Roseville, Amazon recently opened the doors of a Fresh supermarket. The shop was fully constructed by last summer.

Brent Thill, an analyst at Jefferies, took the two-hour drive to Roseville from the Bay Area together with his 16-year-old son every week after the Fresh store opened last month. Thill said the supermarket had an “amazing” selection, though he described the general vibe as “sterile.”

“You walk into the Amazon Fresh store in Roseville and it seems like you are in a stainless-steel wine cellar,” Thill said. “And the shop doesn’t have any decorations, it’s just a large constructing.”

Thill has a buy rating on Amazon stock, but he says in grocery the corporate is spending lots of money to compete in “certainly one of the lowest-margin businesses on the planet.” But he called it “certainly one of the very best budget items within the pocketbook,” which is where it clearly suits into Amazon’s broader retail strategy.

“And if there’s synergies around Amazon returns, in the event that they could make it more unique, then who knows which way it goes,” Thill said.