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Amazon is closing certain Amazon Fresh and Amazon Go stores, suggesting that grocery hasn't been as fruitful as it hoped

Amazon Fresh store Just Walk Out technology
Inside an Amazon Fresh store.Reuters/HENRY NICHOLLS
  • Amazon said Thursday that it will close certain Amazon Fresh and Amazon Go stores.

  • It also said it would cut jobs across this area of the business.

  • Critics say the focus on tech rather than retail experience in stores is putting off shoppers.

Amazon said Thursday that it plans to close a number of Amazon Fresh grocery and Amazon Go convenience stores and pause new openings.

The announcement, which was made during its fourth-quarter earnings call, came just weeks after the e-commerce giant said it will cut 18,000 jobs in certain areas of the business.

Amazon confirmed earlier this week that these cuts would impact jobs across its grocery arm, including employees that work on the tech and design of these stores.

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The two announcements cast doubt over the success and future of Amazon's grocery business, which was primed to be a major industry disruptor.

A spokesperson for Amazon did not confirm which locations would be closing when contacted by Insider.

'An expensive hobby'

Amazon has tried to make inroads into food and grocery for many years. Initially, via its online delivery service Amazon Fresh, then through its acquisition of Whole Foods, and more recently with the launch of its Amazon Fresh supermarkets and Amazon Go cashier-less stores.

But experts have dubbed this arm of the business as "an expensive hobby" that has yet to come good.

In a call with analysts on Thursday, Amazon CEO Andy Jassy said the company was experimenting with these stores to find a format that is differentiated from competitors and resonates with shoppers.

"We're not going to expand the physical Fresh doors until we have that equation with differentiation and economic value that we like, but we're optimistic that we're going to find that in 2023," he said.

He continued: "When we do find that equation, we will expand it more expansively. But I think that we have a very significant opportunity in the grocery segment."

Too much tech, and not enough vibe 

Retail consultant Richard Hyman said that part of the problem is that Amazon is entering a highly competitive industry, and going up against food retailers that have had decades to master a complicated trade.

"Being big on its own is nowhere near enough to be good," he told Insider. "Amazon is not a retailer, it's a tech company, and their absolute core competence is in tech."

So while Amazon has paved the way in the art of e-commerce, physical retail is an entirely different experience, he said. This is a less transactional shopping experience, where customers that come into stores need to be seduced into buying products. The shopping environment, assortment, and price need to be on point, he said.

Other critics say that Amazon has made the mistake of focusing too much on the tech in stores rather than the retail experience itself.

Amazon Go's unique selling point is that you can pick up a product and walk straight out without having to line up, but critics say that's not enough.

Neil Saunders, managing director of GlobalData Retail told Insider that these stores are solving a problem that doesn't exist.

"Consumers are not going to shop somewhere just because it has walk-out technology or a fancy cart that scans items as you add them. They need something else to entice them," he said.

But the issue is that Amazon doesn't know what this enticing factor is, he said.

Saunders also feels that Amazon expanded without really considering the competitive landscape. He used the UK as an example where many of the big grocery chains already have smaller stores in urban areas, which is exactly what Amazon was trying to do.

"The bottom line is that Amazon doesn't really have its act together in grocery," he said.

"It's sort of stumbling around in the dark to see what might work, and it has been doing that for a very long time."

Read the original article on Business Insider