Target CEO Brian Cornell isn’t being kept up at night on fears Amazon’s potential foray into grocery stores will eat up all his sales of affordable meat, poultry and fish.
“I am worried about a lot of things, I haven’t spent a lot of time thinking about that one,” Cornell told Yahoo Finance Tuesday after a day-long presentation to Wall Street when asked about Amazon potentially expanding into groceries. “I worry about lots of things right now, that’s probably not on the top of the list.”
Cornell emphasized that the grocery business is challenging and complex and success doesn’t happen overnight. Cornell would know. Cornell cut his teeth as an executive at grocery store chain Safeway, was a key executive at beverage and snacks giant PepsiCo and led Walmart’s Sam’s Club division.
Amazon’s expansion into groceries won’t be easy
Amazon is reportedly planning to open dozens of grocery stores (separate from Whole Foods) in several major U.S. cities. The stores are said to offer a wider array of products and lower price points compared to Whole Foods. Amazon’s first store of this kind is expected to open in Los Angeles by year end.
The push into mass market groceries would be quintessential Amazon.
More grocery stores give Amazon an important source of household data and shopping frequency, points out Morgan Stanley analyst Brian Nowak. Success in grocery, says Nowak, brings Amazon a greater market share of trade spend budgets (think vendors like PepsiCo) that could boost the company's surging advertising business. And finally, the stores could help propel sales of Amazon’s high-margin private-label goods and spur more Prime accounts.
But it would be insane to think Amazon could run roughshod over the major grocery chains anytime soon (if at all).
For one, Amazon is up against an army of formidable store networks. Kroger, Walmart and Target almost operate a combined 10,000 stores in the United States. Walmart Sam’s Club and Costco weigh in with more than 1,100 membership clubs in America. Not only are their stores in some of the best locations, but they have unmatched supply chains in the fresh food business.
All also continue to push deeper into online grocery delivery and same-day-delivery services.
Target has a head start in groceries
At Target specifically, it continues to remodel hundreds of stores to include larger, better looking departments for fresh food and other groceries. The retailer is also bringing in more emerging, healthier food brands to capture business.
Amazon isn’t even on the ground yet with grocery stores beyond Whole Foods.
Secondarily, opening grocery stores won’t be cheap for Amazon. Morgan Stanley’s Nowak estimates 12 stores — at 35,000 square feet in size — would cost Amazon a whopping $100 million to build. “Barring acquisition, however, we would expect any roll-out to be slow given Amazon’s mathematical, methodical and ROI-driven manner of investment,” Nowak says.
Remember that Amazon isn’t just a retailer. It needs a good bit of capital to support its leading Amazon Web Services cloud business and Jeff Bezos’s vision for grandeur when it comes to original movie content. Amazon further has large capital requirements for Whole Foods and initiatives to build its own fleet of delivery trucks and cargo planes.
All of these businesses have to be nurtured — it’s not as if Amazon can go full bore into grocery stores without harming one of its crown jewels.
So for now, Cornell could rest (somewhat) soundly.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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