Amazon’s Plan to Open Supermarket Chains Will Fail

As I’ve warned more than a few times now, Amazon is exhibiting classic “overreach” behavior.

What’s the surest sign of insanity? Repeating the same behavior and expecting different results.

Amazon is trying to break into the supermarket industry. In August 2017, the internet giant acquired Whole Foods Market with claims that the merger would make their organic goods and other products more affordable for everyone.

That promise is still on hold.

The latest effort comes to us from The Wall Street Journal: “Amazon to Launch New Grocery-Store Business.” According to the article, this is going to be the biggest direct threat against America’s supermarkets, ever.

I disagree. To me, this latest headline looks like Amazon’s Stalingrad. Where the delivery giant will have to retreat and leave its goals unconquered.

And as I’ve warned more than a few times now, Amazon is exhibiting classic “overreach” behavior.

Amazon’s Over-the-Top Expansions

Investors should take a step back and look at Amazon’s forest, instead of the trees. We have a company facing:

  • Increased antitrust scrutiny — which I’ve warned about as well.
  • CEO embroiled in distracting personal issues.
  • A second-headquarters debacle that went nowhere.
  • A deadly cargo jet crash in Texas amid rapid expansion of its air cargo fleet.

Added to all of that, Amazon’s now going to take on the U.S. supermarket industry.

The company is not just going after stores like Walmart, Target and Kroger. It’s also targeting well-capitalized, highly-efficient super-discount grocers like Germany’s Aldi chain. Never mind that the discount store is well on its way to having 2,500 stores in the U.S. by 2022.

Nearly two years ago I said Amazon’s purchase of Whole Foods would be a failure. It’s had that in spades.

Consumers expected cheaper prices — the opposite happened. Not only did prices not reflect the expected change, but customers started noticing things — like rotting fruit in the displays — that would have never happened under the founding management.

Last month, Amazon quietly killed off its cheaper Whole Foods branch called “365” stores. They weren’t working either, given the costs.

Sure, people still go to Whole Foods. The one near me is always crowded. But when you’re a company with $232 billion in revenue, you have to sell a lot of groceries to move the needle even a little bit.

As for turning a profit, well … good luck with the industry’s 1% to 2% margins.

Another example? Amazon Go. Last year the company floated the idea it would roll out 3,000 of its small format retail stores by 2021.

If it actually happened, it would mean a huge undertaking for any company. Amazon would need to open roughly 80 stores a month for three years straight.

Maybe I’m wrong. Maybe the big push for Amazon Go is yet to come as the company lines up leases, real estate and its suppliers.

But if you go on Google Maps, it shows a grand total of 13 Amazon Go stores across the continental U.S.

Bezos & Company had better get hoppin’ if the “3,000 stores by 2021” is anything more than the retail equivalent of vaporware.

If you doubt what I’m saying, just look at the troubles that Lidl, a very successful German super-discount chain, experienced after announcing its own U.S. expansion in 2017. The hard-charging company thought it had the U.S. supermarket industry all figured out.

Amazon’s Air of Invincibility

Want to see the biggest proof of Amazon’s failure in physical retail?

According to the Securities and Exchange Commission filings, the company had 6% less physical retail square footage at the end of 2018 (21.3 million square feet) than it did the year before.

According to the company, the discrepancy is because it no longer includes “stores under development” in its numbers.

But as a former financial journalist, I’ve seen this before.

In the corporate world, when something’s not working as planned (think Apple last year when it stopped reporting iPhone sales), executives have three options:

  • Tweak the numbers.
  • Move the goalposts.
  • Or better yet — make the goalposts disappear altogether.

If I were Amazon, bestowed by investors with a much-hyped air of invincibility, I’d quietly “disappear” key portions of my physical retail stats too.

Kind regards,

Jeff L. Yastine

Editor, Total Wealth Insider

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