Brian Cornell CEO of superstore Target has recently said that he has no fear when it comes to Amazons expansion into grocery stores, saying he has no worries about his sales figures being cut by the move. “I am worried about a lot of things, I haven’t spent a lot of time thinking about that one,” Cornell explained in a recent interview, when asked about Amazons strong push into the grocery sector her said “I worry about lots of things right now, that’s probably not on the top of the list.” Cornell went on to say that the grocery business is both complex and challenging, and success isn’t something that happens overnight, and of course he is speaking from experience.
Amazon’s grocery expansion will be a long and difficult road
Amazon has been reportedly been looking at property throughout several major U.S cities to open dozens of new grocery stores (separate from there whole foods division). The stores set to be open within the next 4 years are set to offer a wider variety of products at a more affordable price compared to whole foods. Amazon has said that it is looking to open their first store in Los Angeles by the end of this year, with more to follow by 2024. The push into the grocery sector is going to be quintessential for Amazon.
“More physical locations for Amazon would be an important source of not only household data, but also shopping frequency too” Brian Nowak, analyst for Morgan Stanley claimed. Success in the grocery sector will bring Amazon a much larger portion of market share trade budgets that could potentially boost a company’s surging advertising business. Additionally, the stores themselves could propel sales of Amazons higher margin private label goods, and the domino effect we could see, would be more people using services like amazon prime.
However it would be incorrect to think that Amazon will be taking over the grocery space, if at all. Some facts to consider is that Amazon is up against a huge array of formidable companies in the grocery sector, such as Walmart, target and Kroger, who collectively operate over 10,000 stores in the US alone. Costco and Walmart’s Sam’s Club boast more than 1,100 membership clubs in America. Now not only are their stores located on prime real estate but they have unmatched supply chains in the fresh fruit industry. All of these companies who have a well-built foundation are continuing to venture further into the online grocery delivery and same day delivery services, so as Amazon is just starting and established companies are continuing to progress it will be a hard push for Amazon to keep up.
Target has a head start in groceries
Target the grocery giant, continues to progress and remodel hundreds of their physical locations to include larger departments for fresh food and are determined to increase the quality of the products they supply as well. Additionally Target is aiming to bring in more emerging, healthier foods to their shelves to capture a more modern crowd. In comparison to Amazon, Amazon have not even started the engine on their grocery sector except with their whole foods business.
Additionally, with today’s land prices, opening new locations will not be cheap for Amazon, it has been estimated that opening just 12 stores, at 350,000 square feet in size, would cost Amazon somewhere in the region of $100 million USD to build. This is purely from starting from the ground up and is not factoring in any acquisition which could definitely be a move Amazon can take. Amazon is not just a retailer either, they would need a large amount of capital to continue to support its Amazon web services, cloud business, and of course Amazon primes original content that it is creating. Amazon also has other commitments they need to tend to, with a large capital requirement for their Whole foods delivery service, they need to build their own fleet of delivery trucks and cargo planes. All of Amazons current projects will need the same care they are receiving now, without doing so, then Amazons push into grocery shopping could be potentially damaging to their already established line of great products.
So for now Target Ceo Cornell is resting easy, with the knowledge he has gained from being part of companies who have already done what Amazon is planning.
Catherine Han – Syracuse Group
