Amazon Reportedly Launching New Grocery Chain

Amazon.com, Inc. AMZN will open dozens of grocery stores in several U.S. cities, the Wall Street Journal reported Friday.

Amazon is planning the first store, in Los Angeles, possibly by the end of this year, and has signed leases for two others to open in early 2020, the Journal reported, citing sources familiar with negotiations that the paper didn’t name.

Amazon shares were up 1.41 percent to $1,662.94 after the news broke Friday, and shares of several big competing grocery chains took a hit.

The Plan

The new stores won’t be intended to compete with Whole Foods, also owned by Amazon. The new chain will carry a broader selection, rather than focusing on upscale and healthy categories, the Journal said. 

Amazon, which started primarily as an online book retailer but has grown into the dominant e-commerce site in the nation, may also explore buying out regional grocery chains as part of its move into the market, one source told the Journal.

Cities involved in early negotiations for stores include San Francisco, Seattle, Chicago, Washington, D.C. and Philadelphia, the paper reported.

The Sector Reaction

Shares of other major chains in the $840-billion grocery business were dropping on the news, including Kroger Co. KR, which saw its shares fall 2.7 percent to $28.54. Shares of Walmart Inc. WMT were down 0.79 percent at $98.21, while Costco Wholesale Corporation COST was off 0.35 percent at $217.97. Target Corporation TGT shares initially dropped, but rebounded and were up marginally to $72.67.

BJs Wholesale Club Holdings Inc. BJ was also down 0.95 percent to $25.08, while Casey’s General Stores Inc. CASY dropped 0.3 percent to $134.33.

Amazon's Grocery Experiment

Amazon already has been experimenting with grocery stores, opening 10 Amazon Go stores in the last year that feature cashierless shopping where customers are electronically charged for whatever they take out of the store. It’s not clear if the new stores will have cashiers.

Amazon bought Whole Foods for $13.7 billion in 2017, a move that was hailed at the time as one that could revolutionize the grocery industry and blur the lines between online and brick-and-mortar retail.

A year-and-a-half on, the two brands are strongly integrated: walk into a Whole Foods store and you’ll have chances to buy an Amazon Echo and see lockers where customers can pick up food they’ve ordered online — a feature that has increased the number of short trips to Whole Foods. Customers also get Whole Foods discounts for being an Amazon Prime member.

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