The Amazon Effect   //   August 4, 2023

Why Amazon’s grocery delivery efforts have fallen flat

Amazon is revamping its grocery business, after recent setbacks including job cuts at Amazon Fresh and a pause on the rollout of Amazon Fresh stores earlier this year.

Amazon’s senior vice president for worldwide grocery stores Tony Hoggett, the executive in charge of this reset, told Bloomberg that the company will combine its multiple online grocery platforms from Whole Foods, Amazon Fresh and into one online basket. This month, Amazon is also starting to offer non-Prime members fresh food delivery in a further push for growth. Overtime, other significant changes by Amazon will include redesigning its Whole Foods stores and testing new automated distribution centers.

Before this, Amazon has updated its grocery strategy more than a few times — it acquired upscale grocer Whole Foods six years ago and consistently introduced new grocery formats over the years. But, Amazon’s new decision to open up its grocery delivery business to non-Prime members suggests that the e-commerce giant is still in search of better growth rates in this division. Many experts said that the company’s overall experience of buying groceries online remains inconvenient. Amazon, for example, doesn’t offer some services like curbside pickup universally, while competitors like Walmart do.

A confusing experience

As Jason Goldberg, chief commerce strategy officer at Publicis, put it, “nobody has a good online grocery experience” in the U.S. and retailers are still trying to reinvent it. But, he added, Amazon’s grocery experience in particular leaves a lot to be desired. “Neither of the traditional Amazon online grocery experiences are particularly best of class,” said Goldberg.

Goldberg said that up until now, ordering groceries from Amazon is “particularly confusing,” because the company has two different brands — Amazon Fresh and Whole Foods — that each have a subset of the products that most Americans put in their cart. For instance, “if you want products with corn syrup in it, you need to go to Amazon Fresh and if you want, organic products you need to go to Whole Foods,” Goldberg pointed out.

To add to this frustration, there are two or three different carts that shoppers end up with. Although the carts are side-by-side, they are not all the same, so you could really put items from Whole Foods and Amazon Fresh in your basket while shopping for them and not notice that you had three different carts, added Goldberg.

Amazon entered the online grocery market with Fresh in 2007 as an add-on delivery service for Prime members. In 2017, Amazon added on another grocery delivery service when it acquired Whole Foods. As a result, Prime members had the option of buying from the Amazon Fresh brand or the Whole Foods brand if they wanted grocery delivery. Amazon opened its first store under the Amazon Fresh banner in 2020, and has expanded to over 40 stores across the country.

Bryan Gildenberg, founder of commerce consultancy Confluence Commerce, echoed that buying fresh groceries through the Whole Foods ecosystem on Amazon “was a little bit clunky.”

“On the product selection side what you see is sometimes a little weird and inconsistent. You can easily get routed out of that. You can sometimes get routed out of the ecosystem, it’s hard to figure out. If you’re just doing a search for grocery, it’s hard to figure out what part of the Amazon site you’re going to end up on,” said Gildenberg.

“I think, certainly from a UX point of view, there was an enormous amount they could do to make that better,” he said.

A lack of fulfillment options

Another gap that Amazon has yet to address is how to improve its in-store pickup or curbside delivery experience — that’s how 47% of Americans shop for grocery online according to data from Brick meets Click, added Goldberg.

“Amazon really doesn’t have a good solution for this. In some markets, Whole Foods offers curbside pickup, but the Whole Foods parking lots are a mess and a lot of the pickups are in-store not in curbside and it’s a super busy congested urban destination. They don’t have these suburban destinations with convenient parking lots and convenient drive-ups,” said Goldberg. “And then Amazon Fresh is even more limited and they dramatically slowed down their expansion plans,” he added.

Amazon’s Hoggett told Bloomberg that the company also plans to beef up its logistics network to support more grocery delivery, such as adding refrigerated sections to existing warehouses in cities, and also experimenting with a new, fully automated warehouse in Long Island.

Gildenberg said that Amazon has long struggled to manage its fresh and perishables aspirations because the company hasn’t had an enormous amount of control over the logistics infrastructure, compared to other parts of its business. Amazon is reliant on wholesalers like UNFI, for example, to distribute food to its Whole Foods stores.

But Goldberg argued that Amazon is late to realize this. “It’s super weird that the most technologically advanced retailer in the world has the most inefficient and rudimentary grocery picking and delivery experience out of them all,” said Goldberg. “And, so again, is it exciting and groundbreaking that they’re now adding some automation? No, it was more shocking that they opened stores two years ago, and that didn’t have it,” said Goldberg.

What a new grocery strategy could look like

Goldberg said that one way for Amazon to stay ahead of digitally-native grocers like Instacart, Fresh Direct and Peapod is investing in AI capabilities that help with substitution preferences to help shoppers, in case an item is out of stock.

Amazon is also trying to achieve bigger scale by adding non-Prime members to sign up for grocery delivery. But, Gildenberg said, that could be a difficult audience for Amazon to crack, given that these are already people who don’t want to pay for a Prime membership.

“For the most part, an overwhelming percentage of the people in America who are non-Prime members probably wouldn’t use home delivery for grocery as a solution because of the cost,” Gildenberg said.

“My observation with Amazon over the years is they’re very good at iterating user experience, they’re not great at reinvention,” Gildenberg said. “I think there’s a lot of improvements to the Whole Food store space, which is going to be important for creating a stronger connection for that shopper.”

Ultimately, Goldberg said, due to the silos it operates in, Amazon has had difficulties in selling groceries.

“We’re seeing the next generation of tests at Amazon to try to figure out what’s going to work,” said Goldberg. “And some of the announcements they’re making are just table stakes, like merging Amazon Fresh and Whole Foods together.”