Amazon.com (AMZN 1.82%) confirmed on Monday that the company will be opening a grocery store in 2020 that is separate and distinct from its Whole Foods Market brand, according to a report by CNET. The move came to light after the company posted a number of employment opportunities for grocery employees in the Woodland Hills, California, area. The job postings said, "Join us as we launch Amazon's first grocery store." The wording suggests that the store might be Amazon branded and that the company could be planning more than one location.
There have long been rumors that the tech giant had plans to expand its grocery operations. Numerous reports from earlier this year suggested Amazon had signed leases in more than two dozen locations and had plans to open a grocery store in Los Angeles as early as the end of the year. Amazon had additional plans to open locations in San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia. This marks the first time Amazon has confirmed its plans.
A grocery option "distinct from Whole Foods"
"Amazon is opening a grocery store in Woodland Hills in 2020," a company spokesperson confirmed. The neighborhood is a suburb outside of Los Angeles, which seems to corroborate earlier reports. The retail store wouldn't employ the self-checkout technology in use at Amazon Go stores but would use cashiers and standard checkout lines, the company said.
The newer stores also won't be competing against the upscale Whole Foods brand. "When it comes to grocery shopping, we know customers love choice, and this new store offers another grocery option that's distinct from Whole Foods Market, which continues to grow and remain the leader in quality natural and organic food," Amazon said in a statement, pointing out that Whole Foods opened 17 new locations this year, and additional openings were in the planning stages. The company will also continue its push into grocery delivery from Whole Foods stores.
This will also help accelerate Amazon's plans in the online grocery delivery arena, increasing its base of operations and providing additional locations that can serve as staging areas for shipping its digital grocery orders. With this move, Amazon can give consumers additional grocery store options while further expanding the company's well-known brand.
A growing interest in a lucrative market
Amazon acquired Whole Foods for $13.7 billion in mid-2017, illustrating its ambition in the $700 billion U.S. grocery market, but any additional plans have been the subject of rumor and speculation. While the company is the world's largest e-commerce operation, it's still just a small player in the brick-and-mortar grocery space. In 2018, Amazon's physical stores, which included Whole Foods, Amazon Books, and Amazon Go, accounted for $17.2 billion or 7.4% of the company's total net sales.
"Grocery is one of the strongest retail sectors in the U.S., with nearly twice as many new stores opening than closing last year," said James Cook, director of retail research at JLL Retail. This provides Amazon with an additional incentive to enter the growing market.
A strategy that's not without risk
Amazon has been climbing the ranks of retail behemoths, becoming the world's fourth-largest, according to Deloitte's 2019 Global Powers of Retailing report. This puts the e-commerce giant behind Walmart (WMT 0.37%), Costco (COST 0.20%), and Kroger (KR -1.48%), which occupy the first, second, and third places, respectively, based on sales. Amazon's retail sales -- excluding cloud computing revenue and Amazon Prime subscriptions -- exceeded $118 billion in 2017. The company has been gaining ground on its three biggest rivals, which in 2017 reported sales of $500 billion, $129 billion, and $119 billion, respectively.
While the move makes sense from an overall strategy perspective, it isn't without risk. Most U.S. consumers visit grocery stores weekly, delivering important recurring revenue, but with razor-thin profit margins -- typically between 1% and 2% -- far below the 5% margins Amazon enjoys now.