Grocery Stocks Take A hit After Amazon Announces Grocery Chain Plans

Amazon CEO Jeff Bezos has a lot of big ideas about where to take his company.  While they have not always panned out as expected, he is obviously not shy about taking risks; and taking them as far as he can.  This week, then, Amazon has announced a plan to expand its grocery offering by opening its own grocery stores across the United States. More importantly, these stores will compete at a more competitive price point than Whole Foods. 

And with this announcement, shares of several supermarket/grocers—like BJs, Costco, Kroger, Sprouts, and Walmart—saw significant drops. 

That in mind, it appears that Amazon has scheduled these new store openings for 2020.  These new grocery stores will open in shopping centers in Chicago, Philadelphia, San Francisco, Seattle, Washington DC. Each store will actually be smaller than—even closer to half the size of—the average 60,000 sq ft grocery store.

In addition, Amazon also appears to be interested in potential acquisitions that will strengthen its presence in the supermarket strategy.  Regional grocery store chains with only a handful of operating stores would likely be the best candidates for Amazon’s acquisition goals. 

KeyBank Capital Markets analyst Edward Yruma wrote, in a note to clients, on Friday, “Amazon clearly has significant opportunity in the middle of the market, which a new concept could serve well. This also gives Amazon the opportunity to use some subset of the technology employed in Amazon Go in a larger footprint box.”

Of course, Amazon would still have quite a bit of ground to make up in order to steal a significant enough market share from major chains like Walmart. For example, Walmart has more than 4,000 stores in the US with at least half offering curbside pickup.  Kroger has nearly 2,800 stores and Aldi (sister of Trader Joes) has about 1,800 stores. 

Sylvain Perrier is the CEO and president of the e-commerce grocery platform Marcatus.  She comments, “Since Amazon’s acquisition of Whole Foods, grocery retailers have waited to see if Amazon would launch its own branded stores — and that day is finally arriving. Amazon grocery stores will certainly use their expansive shopper data to merge the in-store and online grocery experience and given that Amazon has a way of making certain strategies the industry standard, grocers will be in trouble if they do not heavily invest in their digital practices and find effective ways to complement the in-store and digital experiences.”