Expert Feels Amazon Grocery Struggling Because It Doesn't Work on Thin Margins

While I agree that Amazon is really screwed up in grocery, I don’t think it’s because they are not used to operating on thin margins.

They started as a retailer after all!

This quote is the one which does not sound right:

Secondly, let’s go back to those margins again, grocery stores traditionally survive on very thin margins. Amazon does not have a history of surviving on thin margins. That is not what the FBA program is about. It’s not what AWS is about. And here they are having to compete against Walmart and other grocery retailers who already have consumers in their pocket.


eh, it has been a long while since you could really consider Amazon as a retailer “primarily” and even when they were, they weren’t exactly turning a profit. I think there is a country mile between the know-how required to stock items in an FC, operate a web site, and scrape prices across the internet to ensure you’re a good deal vs. running a grocery store chain with a high amount of perishable inventory in an industry with a consumer base still motivated heavily by weekly sale ads. Being great at one doesn’t mean you’ll be even moderately good at the other.

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100% agree with what you’re saying. But I don’t think the problem is the margins per se. After all, Amazon does have some of the most patient investors in the industry. Although I think that is likely wearing thin.

I don’t think Amazon has the first clue at where the whitespace is in the grocery market.
Let alone how to execute it consistently.

In Amazon’s defense, they seem not to be giving up… which means Jeff would say we have “misunderstood” them.

I take the under on their grocery initiatives :slight_smile:

Part of the problem is knowing how to execute (in store and online).

But margins is an issue to some extent. Most grocers make a big proportion of their profit as payments that are not within the basic sales-cost price=margin of the product. Call it back margin, commercial income, deals/rebates/allowances, it all amounts to the same in the end–extra money negotiated by the buyer with the supplier/brand to justify the product remaining on the self and getting visibility. (slotting fees, promo money i.e move to end cap and signage/local publicity, distribution fees, and a bunch of randomness derisively called "gimmee"s if the grocery buyer isn’t making their KPI, although UK Grocery code is supposed to have stopped this)

Yes Amazon will be doing some of this (e.g. media sales, promotional costs to “buy” the buy box), but I am willing to bet not to the same breadth and depth as a traditional grocery retailer dealing with suppliers/FMCG brands. (Well maybe Whole Foods has something of a clue). The Amazon CRP process is a pale version of all the ways a physical grocery retail actually makes a profit.

Big challenge so far with Amazon Fresh/Just Walk out stores in the UK is the assortment of products in the store and the shelf layout hasn’t been right (Tesco, CoOp and others obsess about this, every square inch of shelf space counts, sometimes justifying a single pick in depot for the size of shop or getting supplier to make a smaller case size for convenience). So the top line isn’t right.

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I agree on both taking the under and that margins alone are not to blame here. I think they’ve misunderstood the market and they’ve yet to prove they know how to run B&M stores, never mind something as complex as a grocery chain.

Can they figure it out? Sure. They have deep pockets, smart people, loads of tech, etc. It is solvable.

Can they get customers to care? I don’t know. When you consider how many people get pissy when their grocery store redoes a few aisles, what does it take to get someone to change stores completely? Will I trust “deli by Amazon” or “seafood by Amazon” as much as my preferred grocer whose ENTIRE business is grocery? Hmmm. Those aren’t boxes of crackers and cans of soup. Not sure I want my seafood guy as overworked as the Amazon FC employee is.

Whole Foods was an interesting purchase. After some apprehension, I don’t think anyone that I know who was a WF regular has stopped shopping there… and I know nobody who started just b/c of Amazon. Maybe Amazon needs to scoop up regional chains are start operating them as-is, then slowly “Amazonize” them (e.g.: “Shoprite, an Amazon business”) before eventually going all-in on a rebrand.

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Ultimately, Amazon doesn’t have to run grocery to offer grocery to Amazon customers. And therefore shouldn’t buy any more chains (and maybe sell what they have bought).

Amazon could become the next Instacart or Ocado, offering regional grocery chains a compelling package of tech with a commercial model that creates mutual benefit. Maybe demanding that the grocer doesn’t offer a competing ecommerce channel as part of the deal, and maybe also demanding that the retailer offers PUDO for Amazon orders (lockers at least, maybe staffed PUDO). Amazon are already “renting” Just Walk Out to other retailers.

In short, stop trying to do grocery as a 1P offer (especially Bricks & Mortar), and make it a 3P offer.

The challenge for that in some countries (e.g. UK) is all the grocery chains have mature ecommerce offer (which is why Instacart hasn’t entered, either).

The last chain commencing ecommerce in the UK (Morrisons) tied up with Ocado as a JV; they might be willing to switch to an Amazon powered offer, but I can’t see any of the others switching (except maybe Asda might decide that building and running their own doesn’t make sense; although they may need to wait for Wal-Mart to sell down some of their remaining stake and finish off their disengagement from Wal-Mart before engaging Amazon).

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Quote of the week.

I’m ‘short’ (theoretically) in Instacart, personally. I believe the major chains will remove the need for Instacart with direct capabilities, leaving Instacart to play at the edges. Insta was an early enabler for chains that didn’t think ecom mattered to grocery. It is Target or ToysRUs letting Amazon run their early web store efforts. It won’t last (in the current form).

That doesn’t mean your premise is wrong, though, as Amazon certainly could become a tech/logistics enabler to those chains, but I think Amazon going the 3P model here is wrong, too. Better to focus on the B2B2C side of things and be the behind-the-scenes solution, IMO.


3P vs B2B2C? Could be quite a balanced decision. depends if the customer wants to “shop at Amazon (fulfilled locally by xxx)” or “shop at xxx powered by Amazon”.

The technological positioning would be pretty similar. and therefore this may not be an “either or” decision, it could be an “and also”.

But I think is is only a matter of time before Amazon decides that they “CRP” on a fully 1P end to end in house grocery model (including bricks and mortar stores).

It is Target or ToysRUs letting Amazon run their early web store efforts.

My favorite example there was Borders having their online store being run by Amazon. That was some real hubris that “this online thing is a fad”.