People walk past an Amazon Fresh store in Washington, DC, on August 26, 2021.
Nicholas Kamm | AFP | Getty Images
Amazon (AMZN) is set to shutter all 19 of its Fresh supermarkets in the United Kingdom, signaling a strategic pivot towards bolstering its online grocery delivery services. This decision comes after a thorough review of its U.K. business operations, focusing on the “very substantial growth opportunities in online delivery,” the company stated in a recent blog post.
While the Fresh brand faces a physical retreat in the U.K., Amazon plans to convert five of the existing locations into Whole Foods Market stores. This move suggests a refinement of its brick-and-mortar strategy, potentially concentrating on the higher-end market segment that Whole Foods caters to. Amazon initially introduced its Fresh concept outside the U.S. with the first U.K. store opening in London in 2021, following its U.S. debut in Los Angeles in 2020. Fresh stores were positioned to offer more affordable prices and a broader range of mass-market products compared to Whole Foods, which Amazon acquired in 2017 for $13.7 billion. Notably, many Fresh stores incorporated Amazon’s “Just Walk Out” cashierless technology.
This retrenchment of the Fresh store footprint aligns with Amazon’s broader efforts to streamline its grocery business and optimize capital allocation. The company has been re-evaluating its physical retail expansion, including a slowdown in the growth of both its Fresh grocery chain and Go cashierless stores in the U.S. Despite these adjustments, Amazon maintains a significant presence with 500 Whole Foods locations and has recently introduced smaller-format “daily shop” Whole Foods stores in New York City, indicating a willingness to experiment with different retail models.
Amazon CEO Andy Jassy has emphasized the strong performance of “everyday essentials” within the company’s online grocery segment. These items, including staples like canned goods and cleaning supplies, are driving significant volume and demonstrating the potential of online grocery platforms.
During the annual shareholder meeting in May, Jassy expressed optimism about Amazon’s future in the grocery sector, characterizing it as a “significant business.” This strategic focus is further evidenced by Amazon’s announcement of plans to offer same-day delivery of groceries, including perishable items, in the U.K. starting next year. This expansion of delivery capabilities aims to capitalize on the growing demand for convenience and rapid fulfillment in the grocery market.
Analysts suggest that Amazon’s decision reflects the intense competition and challenging economics of the U.K. grocery market, which is dominated by established players with extensive store networks and sophisticated supply chains. The shift towards online delivery allows Amazon to leverage its existing logistics infrastructure and reach a wider customer base without the overhead costs associated with operating physical stores. Furthermore, the conversion of some Fresh locations to Whole Foods may indicate a strategic decision to prioritize the higher-margin, premium segment of the grocery market. The long-term success of Amazon’s grocery strategy will depend on its ability to innovate in online fulfillment, optimize its supply chain, and differentiate its offerings in a crowded and competitive landscape.
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