Workers stock shelves at an Amazon Fresh grocery store in Seattle, Washington, U.S., Thursday, May 2, 2024.
David Ryder | Bloomberg | Getty Images
On a humid August afternoon, a few hundred shoppers lined up outside. Amazon A department store in a Philadelphia suburb eagerly awaits its grand opening. A person dressed as a banana excited the crowd, while Amazon employees handed out free samples of cold brew coffee.
The event had been long anticipated. Since 2022, the Fresh store in Bensalem, Pennsylvania, had looked ready to open. But month after month, the store sat empty, with the familiar smiling Amazon logo on a sign overlooking an empty parking lot.
“I thought it was going to open, but it didn't. And all of a sudden, it's ready to open,” Bensalem Town Council President Joe Knowles told CNBC.
The Bensalem store is one of a handful of new Fresh locations Amazon has launched in recent months, and the first new stores to open since the company halted franchise expansion more than a year ago. Since June, Amazon has opened seven more stores in California, Illinois, Maryland, New Jersey and Virginia, with more locations expected this year and next. The company said it will also launch five redesigned stores in Illinois and California this week.
It’s the latest development in Amazon’s fitful efforts to become a force in a market the company has been trying to conquer for 17 years, culminating in its $13.7 billion acquisition of Whole Foods in 2017, the company’s largest deal ever. Amazon’s rambling approach has sometimes been about expanding its “everything store” mission and at other times focused on making high-end products more affordable. In some cases, the marketplaces have provided a testing ground for store technology.
Despite all that, in 2023 Amazon captured just 1.4% of the US grocery market, compared to Walmart By 23.6% and Kruger 10% share, according to Numerator data.
Fresh Supermarkets is part of the portfolio, which also includes Go stores for household supplies and same-day delivery for Prime members. The company also launched an unlimited grocery delivery subscription in the U.S. earlier this year. And on Tuesday, Amazon introduced a new private label grocery store called Amazon Saver, which includes items like pancake syrup, poultry and canned goods, mostly priced under $5.
Fresh debuted during the early months of the Covid pandemic. Amazon opened its first such store in September 2020, in the Woodland Hills neighborhood of Los Angeles, with the goal of offering cheaper prices than Whole Foods. The company added package delivery counters, along with cashier-less checkout lanes and voice-activated displays, allowing shoppers to ask for recipe ideas or help Alexa find items.
Amazon had planned to reach 46 new locations worldwide by early 2022. But the expansion plans have been hampered by CEO Andy Jassy’s efforts to rein in costs as rapidly changing macroeconomic conditions have forced a dramatic downsizing. Amazon has imposed mass layoffs starting in 2022 and has shuttered some of its newer bets that didn’t pay off.
In February 2023, Jassy announced on a quarterly earnings call that Amazon plans to close some Fresh and Go stores. He also paused any further growth of the Fresh brand so the company could determine a store format that resonates with shoppers and “where we like the economy,” Jassy said.
Krispy Kreme Donuts
With staffing largely cut, Amazon has returned to investment mode and poured resources into Fresh, opening new stores after refining the experience and testing a new format late last year in select locations in California and Illinois. Jassy and Amazon Fresh leaders have acknowledged that to grow its already “very large” grocery business, the company needs a larger brick-and-mortar footprint.
In 2022, just 11% of the $1.6 trillion U.S. grocery market was sold online. That’s far below the penetration of e-commerce in other categories, such as consumer electronics, where 41% of purchases were made online, according to Jefferies data. “Companies need a physical presence to be big in grocery,” analysts at the bank wrote in an October note.
As part of the Fresh store redesign, Amazon created a more diverse layout and added kiosks selling doughnuts and coffee from Krispy Kreme. In April, the company said it would remove its cashierless checkout technology, called Just Walk Out, from Fresh stores in the U.S. and Whole Foods markets in favor of computerized Dash Carts, which track and count items as customers shop.
Amazon told CNBC it has seen increased purchases and higher customer satisfaction scores at the redesigned locations. The company said it expects to selectively open new Fresh locations over time based on shopper feedback.
“We like the early results a lot. They’re significantly better in almost every aspect,” Jassy said on the company’s first-quarter earnings call in April, referring to the renovated Fresh stores. “It’s still early, and there are some things to address, but we like what we’re seeing there.”
A woman uses a smart shopping cart while shopping at a Whole Foods store as Amazon launches smart shopping carts at Whole Foods stores in San Mateo, California, U.S., on February 25, 2024. The smart shopping cart makes shopping faster by allowing customers to scan products directly into their shopping cart while shopping and then skip the checkout line.
Tayfun Coskun | Anadolu Agency | Getty Images
However, at least 22 Fresh supermarkets across the country remain vacant or closed despite construction being completed, according to interviews with city officials and local news reports.
The delayed openings or cancellations have led to at least five lawsuits. Landlords in Pennsylvania, New Jersey, New York, Florida and Washington have alleged that the company breached its lease by terminating the lease, with some parties seeking tens of millions of dollars in damages. Amazon reached a settlement with landlords in Florida and Washington last year, according to court documents. Attorneys representing the landlords did not respond to requests for comment.
Amazon declined to comment on the status of Fresh stores, which remain closed.
One of the stores is located in Rancho Mirage, California, a desert town about 30 minutes southeast of Palm Springs. Formerly the site of a Stein Mart, the market is located in a shopping center that also includes Hobby Lobby, an Italian restaurant, and a blood bank. Shoppers in the area can find Whole Foods, Walmart, Trader Joe’s, and Aldi, all within driving distance.
Amazon began remodeling the store in 2021 and the signs went up the following year. But the “Opening Soon” signs are still plastered on the doors. City Councilman Ted Weil said the company has told Rancho Mirage officials and Albanese Cormier, the mall’s owner, that it expects to open the store in 2025.
Albanese Cormier did not respond to a request for comment.
Not many companies can afford to let a building sit idle for years, Will said.
“Amazon has a lot of money, and whether they invest $10 million, $20 million, $30 million in a project and then decide not to go ahead, so be it. That’s not going to be the criterion that prevents them from pulling out,” Weil said.
More than 500 miles north of Rancho Mirage, in the Sacramento suburb of Roseville, Amazon recently opened the doors to a Fresh supermarket. The store was fully built last summer.
Brent Thiel, an analyst at Jefferies, made the two-hour drive to Roseville from the Bay Area with his 16-year-old son a week after Fresh opened last month. Thiel said the store had an “amazing” selection, though he described the overall atmosphere as “sterile.”
“When you walk into the Amazon Fresh store in Roseville, it feels like you’re in a stainless steel wine cellar,” Thiel said. “And the store has no frills, it’s just a giant building.”
Thiel recommends buying Amazon stock, but says the company is spending a lot of money on grocery to compete in “one of the lowest margin businesses on the planet.” But he calls it “one of the highest budget items,” which clearly fits into Amazon’s broader retail strategy.
“And if there are synergies around Amazon’s revenue, and if they can make it more unique, who knows where things will go,” Thiel said.
