I’ve always thought that Amazon didn’t get brick-and-mortar grocery.
And now they finally agreed with me. Amazon is pulling the plug on this long experiment. They’re closing all 74 Amazon Fresh and Amazon Go stores. It’s not just a story about tech pushing into the grocery aisle; it’s about ignoring customer behavior and industry realities.
Here’s what we can learn from their failure:
#1: Tech can’t ignore customer behavior or industry economics:
It’s hard not to be impressed by their Just Walk Out technology, which lets customers walk out of the store and skip the checkout line. But to make it work, their cutting-edge tech forced customers to change their shopping habits. For example, bins of fresh produce were replaced by sealed bags of individual items that could be easily scanned by their cameras.
Also, implementing this technology was cost-prohibitive at the store level, especially within a notoriously low-margin industry.
Lesson: Your cutting-edge technology should complement customer habits and be cheap to implement in a space where net profits run 1-3%.
#2: Footprint and scale matter in grocery.
The typical Amazon Fresh store was well under 40,000 square feet and carried 15,000 items. That’s on the lower end of your typical suburban store, which averages 60,000 square feet, and also carries more than 35,000 SKUs. Their stores felt smaller and carried less.
And there were less than 80 Amazon Fresh and Amazon Go stores spread across the country. Albertsons has over 140 stores in the San Francisco Bay Area alone. Location density drives profitability and customer loyalty.
Lesson: You can’t win in grocery by launching fewer isolated stores with small footprints and limited selection. And competitors with massive real estate advantages with decades of customer loyalty are hard to dislodge.
#3: Grocery operations are complex, costly, and local.
Again, grocery’s margins are notoriously thin. Its complexity lies heavily in managing fresh goods, staffing, and logistics on a local level. Amazon learned that the physical backend of grocery was more complicated than its digital‑first strategy anticipated.
Lesson: Grocery ain’t like selling books online.
Tech isn’t a magic wand. While Amazon has failed in physical stores, it’s found success rolling out its online Amazon Fresh grocery delivery service region by region.
It’s a good lesson in focusing on where you excel, rather than forcing your way into areas you don’t understand.
Source: Supermarket News