Amazon has paused expansion of its Amazon Fresh supermarkets and Amazon Go checkout-free convenience stores, CEO Andy Jassy told investors on an earnings call. The ecommerce giant is searching for a “format that we think resonates with customers,” with “differentiation and economic value that we like.” Despite this temporary setback, Jassy expects the company to find what it’s looking for in 2023.
“We’re working hard at it,” said Jassy. “We see some encouraging signs. And when we do find that equation, we will expand it more expansively. But I think that we have a very significant opportunity in the grocery segment. I think we’re building a pretty broad grocery network across online and physical, and you’re going to see us continue to work on it.”
For the time being, the company has decided to “exit certain stores with low growth potential”, according to EVP and CFO Brian Olsavsky. It took a $720 million charge from these actions in Q4 2022, which contributed to operating income declining to $2.7 billion in Q4 2022, compared to $3.5 billion in 2021.
However, Jassy still sees a lot of potential for Amazon in the grocery space. The ecommerce giant already has the infrastructure in place for a strong digital grocery offering; it just needs to find the right approach to the physical side.
“We think grocery is a really important and strategic area for us,” said Jassy. “It’s a very large market segment, and there’s a lot of frequency in how consumers shop for grocery. And we also believe that over time, grocery is going to be omnichannel. There are going to be a lot of people that order their grocery items online and have it delivered to them, and there are going to be a lot of people who continue to buy in physical stores. But you’re going to also see a hybrid of those, where people pick out what they want online and pick it up in stores, or people are in stores and there’s something that’s not in inventory in the stores, so they go to their app or to a kiosk and order it to be delivered from online.”
Amazon’s current operations put an emphasis on non-perishable foods, which are more popular online. Building out a physical footprint will be necessary for expanding Amazon’s market penetration in perishables, according to Jassy. Whole Foods Market has given the retailer a strong foothold in this area, but it is focused on the premium segment. Reaching a broader audience will take a different approach than what Whole Foods can offer alone.
Even though Amazon’s grocery operations were somewhat disappointing, the retailer had a successful Q4 overall. Net sales increased 9% to $149.2 billion, with sales in North America standing out by rising 13% year-over-year to $93.4 billion. The retailer saw a 9% sales increase to $514.0 billion for 2022 as a whole.