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Amazon plans new grocery store in L.A. as it thinks about how to conquer the industry

Amazon
Amazon offices in Sunnyvale, Calif. The online retail giant is set to open a grocery store in the Woodland Hills neighborhood of Los Angeles next year.
(Lisa Werner / Moment Editorial)

When Amazon.com Inc. rolled out its grocery delivery service in 2013, some wondered whether the move was a harbinger of a new era.

When it bought Whole Foods Market in 2017, there was speculation Amazon would revolutionize the supermarket industry.

Change hasn’t been quite so quick — but the e-commerce giant hasn’t lost its appetite.

Amazon said Monday it plans to open a new type of grocery store in Los Angeles next year, marking another attempt by the Seattle company to edge into one of the few retail segments it does not yet dominate.

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The store in the Woodland Hills neighborhood will be distinct from Whole Foods, the higher-end chain specializing in natural and organic groceries, Amazon said.

Amazon declined to say how the new store would differ, what it would be called or whether it planned to open additional stores under the same banner. It said the store would have traditional checkout stands rather than the high-tech, cashier-less system used at Amazon Go, its 16-location chain of smaller convenience stores.

The planned store is the latest example of the patient march into the grocery world that the Seattle company has taken since its $13.7-billion purchase of Whole Foods, which now has 506 stores, including 35 in the Greater Los Angeles area.

Although the Whole Foods stores appear largely the same as they did two years ago — and remain a relatively small player in the Southern California market against such leaders as Albertsons Cos., which owns Vons and Pavilions, and Kroger Co.’s Ralphs chain — they have done three rounds of price cuts on selected items. Whole Foods deals now target Amazon Prime members, who for $119 a year get fast shipping of products they buy on Amazon.com, as well as access to streaming video and other benefits.

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Meanwhile, Amazon is “mining data, experience and knowledge about the grocery business” through Whole Foods and its other projects, said Juozas Kaziukenas, founder of the research firm Marketplace Pulse. “They’re trying to understand what you need to run a grocery supply chain and how to take that supply chain and, in particular, apply it to online grocery delivery.”

Last month, Amazon began offering Prime members two-hour grocery delivery for free in 2,000 U.S. cities. Whole Foods stores also serve as part of Amazon’s “locker” system where online orders can be picked up.

Amazon Go — with stores in San Francisco, New York, Chicago and Seattle — is another part of the effort. In those stores, the company uses cameras, sensors and other technology tied to Amazon’s phone app, enabling customers to pick up ready-to-eat food and beverages and leave without waiting in line for a cashier.

With the new type of store in Woodland Hills, analysts expect Amazon will attempt to build off what it has learned from its other brick-and-mortar forays to bring new innovation to the grocery industry.

“Grocery spending is one of the major parts of consumer spending,” Kaziukenas said, “and as it moves online, Amazon doesn’t want to be left out of the transformation.”

This new store could be a game changer, or just a small experiment. Amazon hasn’t minded a wait — early on, it posted annual losses for eight years in a row before finally turning a full-year profit in 2003 — and has shown a willingness to tinker with formats and innovations that don’t always keep growing.

Early this year, for instance, Whole Foods quietly decided to no longer expand its chain of Whole Foods 365 stores, which are smaller, more affordable versions of the chain’s conventional outlets. There are a dozen 365 stores, including four in Southern California.

Amazon has a few other brick-and-mortar efforts, including Amazon Books bookstores; Amazon 4-Star stores, which carry highly rated or new products; and Presented by Amazon stores, which offer a themed selection of top brands. Each of those has fewer than 20 locations.

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Amazon’s sales last year were $232.9 billion. Its physical stores, mostly Whole Foods, accounted for $17.2 billion, or 7.4%, of the total.

Although it’s not entirely clear to the public how Amazon sees its future role in groceries, the company long has said that it has no intention of simply imitating the way retail is run by others and that it’s willing to take time finding a format that works.

Amazon Chief Executive Jeff Bezos said as much several years ago in a television interview with Charlie Rose. “We like to pioneer, we like to explore,” he said. “Every new business that we have ever invested in has taken years.”

Bezos also said that “if you’re going to invent new things ... you’ve got to be willing to endure a lot of criticism.”

Amazon’s record of automation and low wages has helped the company achieve market dominance and vast profits. It has also upset unions, which largely have not been able to crack the company’s workforce.

Marc Perrone, president of the United Food and Commercial Workers International Union, said in a statement that the new store represents “an aggressive expansion of Amazon’s market power as it seeks to fundamentally change our country’s food retail and service economy while eliminating as many retail workers as possible.” The UFCW represents workers at several major supermarket chains.

Amazon listed four job openings in Woodland Hills: two grocery associates and a food service associate with pay starting at $15.35 an hour, and a “zone leader,” a type of manager, starting at $16.90 an hour.

John Rossman, a former Amazon executive and author of the book “Think Like Amazon,” said he expects the company to eventually combine what it’s learning from its various grocery formats — including the high-tech Amazon Go stores — into a grocery store of the future.

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“Once they get the technology and operations really pressure-tested and proven, then they’ll figure out how to roll it over” into Whole Foods or a chain of another name, said Rossman, who managed the Amazon Marketplace, where third parties sell on Amazon.com.

“It will take a long time and it will feel like Amazon is crawling,” Rossman said. “It won’t be like a light switch flipped on and off.”

Burt P. Flickinger III, managing director of Strategic Resource Group, a retail consulting firm, said several major questions remain about how big a player Amazon can be in groceries.

He noted that Whole Foods still does not carry the wide variety of household goods found at major supermarkets, so it isn’t the one-stop location many consumers desire. His firm’s studies of industry pricing also have found that a family of five would save thousands of dollars a year by shopping at lower-cost rivals such as Ralphs or Costco Wholesale Corp. instead.

Amazon and Whole Foods also continue facing stiff competition. Walmart Inc., the nation’s largest retailer, is among the rivals that have stepped up its grocery delivery business. Other chains have added more natural and organic foods to their shelves.

Ralphs, for instance, is overhauling its Ralphs Fresh Fare format stores this year, adding thousands of natural, organic, vegan and gluten-free produce items, meats and other foods. There are 63 such stores among Ralphs’ 189 Southern California locations.

“It is validating that a tech company like Amazon sees the value in brick-and-mortar grocery sales,” Ralphs spokesman John Votava said in an email.

There’s also the question of how successful Amazon will be delivering and managing an inventory of fresh fruits, vegetables, meats and other perishables, Flickinger said.

“Amazon has to unwind this whole supply chain of warehousing and transportation and then build it out again,” Flickinger said.

Despite the questions and challenges hanging over Amazon’s effort, the company’s history shows it should not be discounted in the grocery business, Rossman said. Even now, he said, Amazon is deftly using Whole Foods to leverage more customers for its Amazon Prime membership and vice versa.

“They’re still figuring it out,” Rossman said. “But Amazon’s superpower is how patient it can be to let markets develop and to let customer adoption of them happen.”

Times staff writer Samantha Masunaga contributed to this report.


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