Amazon Pausing Fresh Banner Expansion

Retailer is working to refine store formats to find ones that resonate with customers
Marian Zboraj, Progressive Grocer
amazon fresh
Amazon is refining its store formats to find the ones that will resonate with customers, build its grocery brand and allow it to scale meaningfully over time.

During its fourth-quarter earnings call, Amazon CEO Andy Jassy confirmed that the company has no plans to expand its Amazon Fresh banner in the near term.

“I think if you want to have a mass physical-store offering, you need a different offering,” said Jassy. “And thats what weve been working on with Amazon Fresh, and we have a few dozen stores so far. Were doing a fair bit of experimentation today in those stores to try to find a format that we think resonates with customers. … weve decided over the last year or so that were not going to expand the physical Fresh doors until we have that equation with differentiation and economic value that we like, but were optimistic that were going to find that in 2023.”

[Read more: “H-E-B Topples Amazon as Top U.S. Grocery Retailer”]

Jassy said that the company sees some encouraging signs and that “when we do find that equation, we will expand [Amazon Fresh] more expansively.”

Meanwhile, Jassy is pleased with the performance of another Amazon grocery banner: Whole Foods Market. “For what I think is the very best organic physical-store experience and selection, we have Whole Foods, which is a very significant-sized business thats continuing to grow,” he said.I really like the progress that, that business has made on profitability in the last year. ... Its a good business for us in the grocery space.”

Whole Foods recently celebrated two high-profile store openings in the past month. First, the banner opened a New York City store in the Financial District's landmark One Wall Street building. Second, Whole Foods debuted its first store in the state of Montana, expanding its operational footprint. 

“We continue to believe grocery is a significant opportunity, and we’re focused on serving customers through multiple channels, whether that’s online delivery, pickup or in-store shopping,” noted CFO Brian Olsavsky.  

However, Amazon recently made headlines for raising the order threshold for free grocery delivery from $35 to $150 as it continues to navigate the volatile omnichannel marketplace.

Q4 and FY2022 Earnings Snapshot

Meanwhile, Amazon is celebrating a successful fourth quarter. For the quarter ended Dec. 31, its North American segment sales increased 13% year over year to $93.4 billion -- a 14% increase excluding changes in foreign exchange rates. Operating loss remained the same, at $0.2 billion.

The company’s net income decreased to $0.3 billion in the fourth quarter, or $0.03 per diluted share, compared with $14.3 billion, or $1.39 per diluted share, in the fourth quarter of 2021.

For full-year 2022, Amazon reported that North America segment sales increased 13% year-over-year to $315.9 billion and operating loss was $2.8 billion, compared with operating income of $7.3 billion in 2021.

Net loss was $2.7 billion in 2022, or 27 cents per diluted share, compared with net income of $33.4 billion, or $3.24 per diluted share, in 2021.

Operating cash flow increased 1% to $46.8 billion for the trailing 12 months, compared with $46.3 billion for the trailing 12 months ended Dec. 31, 2021.

Commenting on the numbers, Jassy said: “Our relentless focus on providing the broadest selection, exceptional value, and fast delivery drove customer demand in our stores’ business during the fourth quarter that exceeded our expectations — and we’re appreciative of all our customers who turned to Amazon this past holiday season. We’re also encouraged by the continued progress we’re making in reducing our cost to serve in the operations part of our stores business. In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon.”

Industry experts are also optimistic about Amazons earnings. Sean Turner, CTO and founder of Seattle-based grocery technology platform Swiftly, noted: The current economic conditions have put pressure on Americans, with over two-thirds reporting to a Swiftly survey that they struggle to pay their grocery bills. Amazon’s results speak to the sheer power that sale pricing and discount tactics can hold during uncertain economic times, pointing towards a slowly but surely improving retail economy. If we use Amazon’s results as a roadmap for the future of the retail industry, we should expect to see a progressive swell in consumer spending, especially as inflation declines.”

Seattle-based Amazon is No. 2 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.

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