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Amazon expects to open more Fresh stores later this year, after calling a halt so it can get things right. But what went wrong, and how will the company fix it?

In September 2020, when Amazon Fresh opened its first store, everyone expected big things. About 40 new stores quickly sprouted across the country, but some are closing now and some never opened at all. For example, signs went up on a new store in Arlington Heights, Ill., last June, but the store never opened. In its fourth quarter, Amazon recorded $720 million in impairments of property, equipment and operating leases, primarily related to its Amazon Fresh and Amazon Go physical stores.

Andy Jassy, Amazon.com’s CEO, says omni-channel is essential if Amazon wants to be in the grocery business (it does, and already is, with Whole Foods). The company is tweaking Fresh, trying to find a format that is more profitable, has more differentiation against competitors and resonates better with shoppers.

So what advice might you give Jassy? Feb. 6 postings by experts on Retailwire.com offered some observations and suggestions. They’re summarized here.

—”My last Amazon Fresh delivery order was filled with Whole Foods’ 365 private label products, with slightly lower prices than Whole Foods. Seems to me this strategy will only dilute the value of the Whole Foods private label brand while doing little to establish the Fresh brand.”

—Amazon tried to build differentiation around technology, but shoppers choose stores based on price, range of inventory, quality and location.

—A shopper walking in with me couldn’t find the one entry lane that didn’t require the use of an app. What’s up with that?

—With relatively few stores in about 10 different markets coast-to-coast, how do they learn the customer and what they want in each region? Where are the efficiencies in distribution and marketing?

—Three problems need fixing right away. 1. Product availability. The store starts with a limited number of SKUs, then sells out of them. 2. There are so many staff in the store pulling online orders that it’s difficult for customers to get to the merchandise. 3. Carts are too small. A typical family would have to shop several times a week.

—What was Jeff Bezos thinking? Why doesn’t Amazon instead take advantage of the powerful brand name it already owns: Whole Foods? Whole Foods has a reason for being; Amazon Fresh doesn’t.

—To benefit from Amazon’s data analytics superpowers, as opposed to their warehouse and delivery superpowers, will require better algorithms to account for changing demand patterns, the randomization of interest in specialty goods, and predicting cost/benefit of inventory vs spoilage.

—Amazon is great on technology, but hasn’t found the sweet spot with physical retail. The operation has to be spot on, especially with fresh produce.

—The “just-walk-out” technology is too sophisticated to lure people in. Why not focus on something more standard, like scan-and-go? If Amazon Fresh can do that better than Sam’s Club, it could move the needle today and phase in just-walk-out over time. Technical tricks like just-walk-out do absolutely nothing to build shopper trust in the freshness of chicken cutlets or the ripeness of a mango.

—Out-of-stocks are a problem for all grocers, but they are a real Achilles’ heel for Amazon Fresh. Whole Foods works because it launched a (real or perceived) clearly differentiated format, and differentiation is critical to changing long-established consumer buying patterns.

— They need to pick a customer profile and tailor the stores to match, while finding the right level of technology to create a unique experience for that customer profile. Amazon hasn’t done that yet.

—In grocery, perishables are key differentiators. Investing in suitable systems to manage perishable inventories and easy-to-adopt store processes is just the start. Labor content in perishables will never be replaced by technology. But as long as Amazon continues trying to do so, it will underperform in grocery.

Warren Thayer

Warren Thayer

Warren is the Editor Emeritus, Managing Partner for Frozen & Refrigerated Buyer.

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