Why Amazon Fresh Stores Appear Next to Whole Foods Markets

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  • Amazon is opening Amazon Fresh stores minutes from Whole Foods stores.
  • But analysts say Amazon Fresh is targeting a different type of customer.
  • Fresh wants to capitalize on the fall of chains like Albertsons and SuperValu, analysts say.

In the United States, an unlikely store has popped up across the street from Amazon-owned Whole Foods supermarkets: Amazon Fresh stores.

It’s Amazon’s bet to expand its grocery business beyond affluent Whole Foods shoppers, analysts said.

Amazon has opened 30 Fresh stores since mid-2020, according to the company’s website. Several of these openings placed Fresh locations near existing Whole Foods stores.

In downtown Washington, DC, for example, Amazon opened a Fresh store near Logan Circle last year. Just a seven minute walk south is Whole Foods.

It’s a similar situation in Seattle, where a downtown Fresh store is a six-minute walk from the nearest Whole Foods.

Even the very first Fresh grocery store, located outside of Los Angeles in Woodland Hills, is just under 2 miles (about a five-minute drive) from Whole Foods.

Whole Foods and Fresh are at the center of Amazon’s change strategy on physical stores. The Seattle company closed dozens of other stores, including Amazon Books, 4-Star and Pop Up. He also announced in early May that he would close six Whole Foods in four states.

Amazon did not respond to a request from Insider for comment on its strategy for Fresh stores.

A “market saturation movement”

Most retailers avoid placing similar stores too close together. They fear that one store is eating away at the other’s customers — a phenomenon called “cannibalization” in the


retail business

.

But as it opens new Fresh stores, Amazon is likely going after a new kind of customer, said RJ Hottovy, head of analytics research at Placer.ai.

To get a better idea of ​​who is shopping at Amazon Fresh, Placer.ai looked at the other grocery chains these shoppers frequent. The results suggest they shop more often at other “value-oriented” chains than at Whole Foods.

“It seems to be more of a market saturation move than anything else,” Hottovy said.

Fresh produce stores are different from Whole Foods stores. In addition to offering lower prices, Fresh stores carry more national brands and have fewer health-focused options than Whole Foods stores.

Fresh produce stores are also better integrated with certain Amazon technologies. Before leaving home, for example, customers can use Alexa to build a shopping list, then check items on their list as they shop in-store using an Amazon Dash smart shopping cart.

Several stores are also using Amazon’s Just Walk Out technology, which allows customers to pay for orders without checking out.

Whole Foods has also added Amazon technology to its stores since Amazon acquired the chain and its 500 stores in 2017. Amazon Prime shoppers scoured the aisles of Whole Foods to fill orders during the first months of the pandemic, and the first Whole Foods store to use Just Walk Out opened in Washington, DC, earlier this year.

But Whole Foods management also pushed back on some of Amazon’s proposed changes, such as selling ads on the grocer’s mobile app, leading to a strained relationship between Whole Foods and Amazon.

Amazon itself has officially said little about its long-term plans for Fresh stores. But Brian Olsavsky, Amazon’s senior vice president and chief financial officer, said during the company’s first-quarter earnings call in April that Fresh stores were a key location for Amazon’s checkout-less technology.

“We are confident that the Just Walk Out technology will be a boon, a benefit to customers,” Olsavsky said.

“We’re very excited about what’s in the works,” he added of the Fresh store plans, saying Amazon was still “day one” of the project.

Rival chains are ‘stuck in the 1990s’

Whole Foods has maintained its reputation as a store for high-income shoppers, said David Livingston, consultant and expert in supermarket site selection.

“They love being ‘Whole Paycheck,'” Livingston said, referring to a nickname that stings Whole Foods for its high prices. “That’s how they’ve had so much success.”

Amazon Fresh, on the other hand, targets a middle-income consumer at a time when many established grocers are struggling to stay relevant to younger, middle-income consumers, he said.

Over the past decade, chains including SuperValu and Albertsons have closed stores and restricted e-commerce spending, creating an opportunity for players such as Amazon Fresh.

“A lot of these stores signed 20-year leases 20 years ago,” Livingston said. “You’re going to see a lot of conventional stores disappear.”

He added: “As more supermarket chains stuck in the 1990s go bankrupt and their customer base dies, Amazon Fresh will appeal to a new generation of consumers.”

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