Amazon/Whole Foods working on new formats; AmazonFresh cuts service

Amazon revealed during its third quarter earnings conference call that it is working with Whole Foods executives on new grocery store formats.

"There will be a lot of work together between Prime Now, AmazonFresh, Whole Foods, Whole Foods products on the Amazon site, (and) Amazon Lockers at the Whole Foods stores," according to Amazon CFO Brian Olsavon.

Olsavon also said the company plans to open more Whole Foods stores.

Meanwhile, Whole Foods said last week that it will add in-store pop-up shops in select stores that feature technology products from Amazon. The stores will also provide information about Amazon's Prime membership and Prime Video offerings.

AmazonFresh

Amazon announced earlier this month that it would discontinue its AmazonFresh grocery delivery service to select zip codes around the country. Customers in several states, including New York, Pennsylvania, New Jersey and Delaware, have reported receiving notices that the service would soon end.

According to a Planet Retail RNG analyst, Amazon's Prime Now service, which provides grocery delivery in under two hours, appears to be more successful than AmazonFresh, which has been economically challenging to operate.

"There is some internal rationalization happening for Amazon in grocery as it integrates the Whole Foods stores into its business," said the analyst. "While Instacart does have almost three-and-a-half years remaining on an agreement with Whole Foods to be its exclusive perishables delivery provider, I think Amazon long term will take this over, delivering groceries from Whole Foods stores using its own Prime Now program."

"Amazon's move today away from the AmazonFresh program is a clear second step in integrating Whole Foods, with many more moves to come," said Spencer Millerberg, CEO of One Click Retail. "AmazonFresh on its own has not gained sufficient momentum in 10 years since it launched, while Whole Foods items on Amazon have been growing around 8% per week since launch."

Analysts agree that Amazon will likely expand its e-commerce efforts in areas where Whole Foods operates in order to leverage the retailer's brick-and-mortar presence.

USPS to deliver groceries for e-tailers

It was announced in October that the U.S. Postal Service has been granted permission to start a two-year test of a customized delivery program for grocery e-tailers. The approval follows the postal service's test partnership with AmazonFresh in San Francisco.

Despite protests from a group knows as the Taxpayers Protection Alliance, the Postal Regulatory Commission determined that this new service would not disrupt existing grocery delivery services.

The postal service expects the delivery program to generate at least $10 million in annual revenues.

Amazon planning major online grocery expansion

Earlier this month Reuters reported that Amazon is planning a major expansion of its online grocery service. According to the report, the expanded service will start in California and then possibly expand into 20 urban markets. And according to Globe Street, a national supermarket analyst says Amazon could be targeting 40 markets.

Amazon is no stranger to the grocery delivery business as it's been operating AmazonFresh for several years in Seattle, where the company is headquartered. In March, KTR Capital Partners, Amazon's development partner, acquired a 900,000 square foot complex in Woodbridge, NJ that it will renovate for Amazon. The facility was previously owned by C&S Wholesale Grocers.

Currently, Peapod, which is owned by Ahold (Giant, Stop & Shop), calls itself the largest online grocer. It serves more than 8 million households in the Northeast.