Amazon.com Inc. is planning to open dozens of grocery stores in several major U.S. cities, according to people familiar with the matter, as the retail giant looks to broaden its reach in the food business and touch more aspects of consumers’ lives.
The company plans to open its first outlet, in Los Angeles, as early as the end of the year, one person said. Amazon has already signed leases for at least two other grocery locations with openings planned for early next year, this person said, without saying where those stores would be.
Additional talks are under way for Amazon grocery stores in San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia, the people familiar with the matter said.
The new stores would be distinct from the company’s upscale Whole Foods Market chain. It isn’t clear whether the new stores would carry the Amazon name.
After two decades of upending the retail industry by shifting shoppers to the internet, Amazon in recent years has become increasingly focused on physical retail, posing a threat to traditional grocers. The new chain would help Amazon in fulfilling a yearslong initiative to build out a physical grocery presence, which was at one point potentially envisioned to reach more than 2,000 brick-and mortar stores in a variety of sizes and formats
Amazon is also exploring purchasing regional grocery chains with about a dozen stores under operation, one person said, that could bolster the new chain.
While Amazon has already signed leases, that doesn’t guarantee it will open the grocery stores. Retailers sign contracts and then pull out or delay store openings if certain conditions aren’t met.
Amazon’s further push into physical retail is its latest move far beyond its origins selling books and music on the web. Over the years it has become a cloud-computing giant, a major player in Hollywood entertainment and a burgeoning provider of logistics services. More recently it has emerged as a major competitor in digital advertising and launched forays in finance and health care.
The company, which briefly took the crown of world’s most valuable public company early this year, also has taken steps to broaden its customer base to include lower-income consumers, such as by offering a discounted version of its Prime membership service to Americans who qualify for Medicaid and other government-assistance programs.
The new stores aren’t intended to compete directly with the more upscale Whole Foods stores and will offer a different variety of products, at a lower price point, these people said. Whole Foods doesn’t sell products with artificial flavors, colors, preservatives and sweeteners, among other quality standards.
Suppliers with big brands have hoped to have inroads into Whole Foods since Amazon bought the chain nearly two years ago. While Whole Foods has gradually expanded the big brands it carries — such as Honey-Nut Cheerios and Michelob beer — a conventional grocer can carry a much larger assortment of items.
Amazon has had mixed results with its food-delivery business, and it wants to better understand how it can cater to grocery shoppers, according to people briefed on the company’s strategy.
Supermarket operators Walmart Inc., Kroger Co. and others are also trying to find ways to offer delivery and pickup to customers in a more cost-efficient manner.
After The Wall Street Journal reported news of Amazon’s plans Friday, share prices of other supermarket operators tumbled, with Kroger losing 4.5% of its value and Walmart ending down 1.1%. Amazon shares rose 2% on the day.
Amazon’s new grocery brand also comes as the retailer rolls out its cashierless Amazon Go stores in urban areas. It is testing that checkout technology for bigger retail stores. Meanwhile, Whole Foods is expanding its national footprint.
For its new stores, Amazon is targeting new developments and occupied stores with leases ending soon. It could, for instance, consider a portion of a vacated Kmart, a person familiar with the matter said. Stores in the new grocery brand could be in strip centers as well as open-air shopping centers, the people said, and will be about 35,000 square feet, smaller than the typical 60,000-square-foot supermarket.
Amazon doesn’t want restrictions on the type of goods it may sell at its stores and wants the ability to change the store and sell health and beauty products for instance, the people familiar said. Leases in shopping centers often include limitations so that businesses complement rather than cannibalize each other.
It is unclear whether these new stores will be cashierless, but they will be heavily tilted to customer service and pickup capabilities, according to the people. Amazon is also looking to have some control over the attached parking lot to speed shoppers’ ability to get groceries, the people said.
Some analysts say a strategy where big retailers combine e-commerce with physical stores is the direction the industry is heading.
“Customers want to be able to shop when it is most convenient for them, which could be in-store, online or a combination of the two,” said a spokeswoman from the International Council of Shopping Centers.
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