Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Amazon Is Opening New Grocery Stores Next Year NOT Named Whole Foods

By Danny Vena - Nov 12, 2019 at 8:50AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The news confirms earlier speculation that the e-commerce giant is pushing further into physical retail.

Amazon.com ( AMZN 1.11% ) 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.

Whole Foods Market in Addison, Texas, at night.

Image source: Whole Foods.

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.

Two people walking near the entrance to an Amazon Go store.

Image source: Amazon.

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 1.08% ), Costco ( COST 0.81% ), and Kroger ( KR 3.87% ), 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,427.37 (1.11%) $37.58
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$139.00 (1.08%) $1.49
The Kroger Co. Stock Quote
The Kroger Co.
KR
$45.11 (3.87%) $1.68
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$533.20 (0.81%) $4.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.