What’s Next for Amazon: Expanding AmazonFresh Beyond Online Grocery and into Brick-and-Mortar Stores

What’s Next for Amazon: Expanding AmazonFresh Beyond Online Grocery and into Brick-and-Mortar Stores

Dropping monthly fees associated with AmazonFresh and instead making it a free benefit for Prime members is not just about reenergizing Amazon’s online grocery service. It suggests that Amazon intends to use the brand to grow beyond the limitations imposed by Whole Foods-Prime Now relationship.

Behind the scenes, Amazon has clearly been trying to figure out how to balance AmazonFresh and Prime Now, its 1-2 hour delivery service. Since acquiring Whole Foods in 2017, Amazon seems to have given Prime Now more attention, leveraging the upscale natural and organic supermarket leader to build out its Prime Now footprint and put the service into high gear. Already, Amazon has moved to blend existing online grocery strengths with the tantalizing potential of almost 500 Whole Foods locations and millions of loyal customers via Prime Now. And the secret sauce in Prime Now is quality and freshness, characteristics it gleans from Whole Foods.

While the service rollout has had some hiccups, Prime Now users are generally enthusiastic about the service. Per Packaged Facts’ survey results published in Amazon Strategies and the Amazon Shopper, 2nd Edition, fully 58% of Prime Now users say they are “very satisfied” with the service, and another 32% say they are somewhat satisfied.

It’s a marriage made in heaven: Compared to the average adult, Whole Foods users are far more likely to engage in online activities partial to Prime Now that underscore the online grocery delivery promise that Amazon has begun to actualize. In 2019, some 14% of Whole Foods users tapped an online grocery delivery service—roughly three times the percentage of all U.S. adults who do so.

But as with all marriages, there are limitations. Whole Foods presents an ideal starting point for Amazon’s foray into omni-channel grocery. But for the same demographic reasons, expanding via another brand is necessary to broaden the target audience beyond Whole Foods’ affluent shopper base and to avoid risking the dilution of the Whole Foods brand. Packaged Facts believes Amazon will move to expand its physical grocery presence using something other than the Whole Foods brand.

Meanwhile, for the last two years, AmazonFresh hasn’t gotten as much love: Service availability did not grow appreciably, and grocery product assortment fell below the selection offered by Prime Now. And while online food/grocery ordering usage grew 211% during 2014-2019, Amazon Prime Pantry/AmazonFresh usage declined slightly in 2019.

Integrating AmazonFresh as a free benefit for Prime members is yet another masterstroke from an online giant whose growth continues unabated. This is more than just becoming one more spoke in the Amazon Prime loyalty flywheel. The announcement increases the odds that the AmazonFresh brand will soon be displayed across physical storefronts, where Packaged Facts envisions that click-and-collect and home delivery will be offered for free to Prime members.

So, when will the AmazonFresh stores begin to open?

This blog was written by Packaged Facts financial analyst David Morris, author of the recent report Amazon Strategies and the Amazon Shopper, 2nd Edition (published 10/2019, available for $3,995)