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Amazon is positioning its nascent Fresh grocery stores to look more like a conventional grocer than a pure discounter as previously thought, according to Morgan Stanley.
According to a note published on Wednesday, Morgan Stanley found that Amazon Fresh was roughly 9% cheaper than Ralphs, with 20 out of the 30 products compared having a lower price tag than at the Kroger-owned supermarket.
While the difference shows the grocery industry’s ruthlessly competitive nature, the price gap itself isn’t big enough to consider Amazon’s push into grocery as that of a pure discounter, the note said. Instead, Amazon may be setting itself up as an on-par competitor with national chains.
“Our sense is AMZN is positioning the Fresh banner somewhere between a discounter and a true full service conventional grocer, though closer to a conventional. This makes sense as Fresh stores are opening in densely populated, primarily urban markets and appear to be targeting a squarely middle income customer who may shop at both discounters and conventional grocers already,” Morgan Stanley wrote in the note.
Morgan Stanley also noted that the Fresh stores offer “nothing too special” compared to the typical conventional grocery stores, except that they are smaller in size and product selection.
“Fresh stores average 35-40k square feet, while typical conventionals are 50-65k square feet. Similarly, Fresh stores reportedly stock ~15k SKUs, while conventionals stock around 30-40k. The store we visited had some Amazon-like flourishes — including plenty of 365 private label products and the highly publicized Dash carts — but nothing that radically reimagines the typical grocery store, at least not at first glance.”
Amazon launched Fresh grocery stores in September, and now has 12 in the US and one overseas location in the UK. It’s part of Amazon’s growing array of different brick-and-mortar grocery stores, which include the Whole Foods chain and the cashierless Amazon Go Grocery stores. Amazon also offers grocery delivery through its Fresh service.
The focus on physical grocery comes amid slowing sales in Amazon’s overall physical stores segment, which include everything from Whole Foods and Go stores to its bookstores and 4-star stores. In the most recent quarter, Amazon’s physical store sales dropped 8% from a year ago, to $4 billion, its third straight quarter of deceleration.
In Amazon’s announcement of the Fresh grocery stores, the company mentioned consistently low prices as a differentiator. In this new note, Morgan Stanley noted the real value of Amazon’s Fresh stores may be in its role as a fulfillment center for online grocery deliveries. By placing these stores in close proximity to its customers, Amazon can enhance its free 2-hour grocery delivery service with a broader assortment of products, the note said.
“As consumers increasingly demand same day grocery fulfillment (both for delivery and pickup at store), Fresh stores could therefore fill a previously missing hole in AMZN’s grocery fulfillment process while also building AMZN’s brand in Food Retail,” it said.
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Source:: Business Insider
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