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What Does Amazon's Stealth Grocery Expansion Mean for Real Estate Investors?

Apr 06, 2021 by Maurie Backman
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Amazon (NASDAQ: AMZN) is the kind of company that likes to have a hand in, well, just about everything. Last year, its new online prescription service sent shock waves across the pharmacy industry, putting brick-and-mortar stores at an increased risk of closures due to an unwanted dose of competition. And now, Amazon is doing the same thing with its grocery business.

Marking its territory

Amazon has long taken business away from grocery stores with its Prime Pantry service -- an offering it recently discontinued. Amazon Pantry allowed customers to order nonperishables and household staples to their doors -- items they'd otherwise buy in stores.

Amazon also acquired Whole Foods back in 2017, and while that didn't do much to change the footprint of shopping centers, it introduced a new layer of competition as more shoppers opted to take advantage of free Whole Foods delivery.

But in addition to Whole Foods, Amazon has been working on expanding its grocery store footprint. And interestingly, there hasn't been a ton of fanfare involved.

In September, Amazon launched its first Amazon Fresh supermarket in Los Angeles, and the online retail giant has plans to open at least 28 more locations across the country. The goal is for its grocery stores to appeal to a range of customers, from budget shoppers to those willing to spring for higher-end, higher-quality items. In fact, Amazon's grocery prices are extremely competitive with those of larger chains.

Amazon's grocery stores also feature technology like digital price tags and smart shopping carts that allow customers to add up their purchases as they roam the aisles. In this regard, Amazon has a clear leg up over the competition, since in many other supermarkets, the best customers can hope for is a handful of token price scanners scattered throughout.

Amazon Fresh also includes a dedicated staging area for order pickup -- an option customers have increasingly been drawn to throughout the pandemic not just for groceries but also for all purchases. The company is also testing a new "Just Walk Out" cashier-less shopping technology that, if proven successful, could be rolled out to different stores. The result? A more efficient shopping experience for customers and savings on labor costs for Amazon.

Good news for real estate investors?

At first glance, Amazon's expansion into the grocery market may read like bad news for real estate investors. If the company's innovative stores take customers away from long-standing chains, closures could ensue, thereby hurting shopping centers, which frequently rely on supermarkets to serve as anchor tenants.

But if there's one thing Amazon is known for, it's persistence, and so if it says it intends to expand its grocery line, that's likely to happen. The result? More shopping center leases, and an uptick in revenue for the companies that operate them.

One of Amazon's core strengths is its ability to easily deliver goods to customers. And given the way it's been playing around with different technologies in its supermarkets, it's clear it could easily retain that advantage within the grocery space. If Amazon joins the ranks of well-known grocers, it could end up constituting another solid revenue stream -- one that the company continues to invest in for many years to come.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.