Amazon (AMZN) Is Getting Ready To Tap The Next Trillion Dollar Market

Seattle continues its expansion outside the bounds of online shopping as it enters the massive $800 billion grocery market.

Amazon AMZN truck

The e-commerce pioneer (NASDAQ:AMZN) envisions a future that goes beyond online retail as it continually searches for ways to reach out to customers. Other than its widely used online store, the company is increasing its physical presence with 22 pop-up shops across 12 states, and will expand to 100 pop-ups next year.

The outcome of their physical stores that opened early this year must have exceeded expectations since Amazon is planning to open up 20 more brick-and-mortar grocery stores in a span of two years. In fact, Business Insider, citing documents from Amazon, reports that the company will ultimately roll out 2,000 grocery stores that carry Amazon Fresh products over the next decade. When that happens, the company would become the fourth-largest grocery chain after Walmart and Kroger.

The report also mentions that Amazon is opening 20 pilot grocery stores in places like the Bay Area, Las Vegas, Miami, New York, and Seattle in the next two years. The company is anticipating the varied needs of consumers by diversifying the store concepts. Half of the stores will be “click-and-collect” drive-in shop where Amazon consumers can pick-up their online purchases. The other half will be traditional grocery stores complete with shelves, carts, and fresh grocery items that consumers can see, touch, smell, and inspect for themselves. The “click-and-collect” store would be 10,000 square feet while the physical stores around 30,000 square feet.

Furthermore, Amazon’s new stores will be exclusive for Prime Fresh members only. The subscription costs $14.99 per month for Fresh delivery service while $99 per month for Prime membership is available only in select cities. While the grocery market accounts for $800 billion worth of spending in the United States, the industry Amazon wants to experiment with is precarious and volatile. Considering that grocery items have limited profit margin, if Amazon goes exclusive, the company can use the subscription fees to cover the high operational expenses of running a grocery chain.

Amazon started experimenting the idea of having a grocery chain in 2007 when it launched Amazon Fresh in Seattle. The subscription offered delivery services for a limited assortment of groceries. The convenience of “Amazon Fresh” gained traction among consumers who dislike the inconvenience of visiting grocery stores. Little by little, the service expanded to other U.S. markets like New York, Boston, Los Angeles, and many more. And in June, Amazon brought its Prime services in London, which is the first time it’s ever been offered outside the United States.

With over 4,500 stores in the US, Amazon is competing with giant retail stores like Walmart (NYSE:WMT) in the massive $800 billion grocery market. Bentonville, Arkansas-based Walmart accounts for almost 20% of grocery store spending in the United States. However, Amazon wants to further dip its toe in the grocery arena by offering a more consumer-accommodating alternative to grocery shopping. After years of offering trouble-free online retail services to consumers, Amazon might now be ready to accept the geographical limitations of running a grocery chain.

Amazon Stock Action

Amazon shares found a little support around the $800 level following the company’s big earnings miss after the market closed on Oct. 27. Should they drop below the $775 zone, the next strong support looks like $750 and then $742.

Shares of Amazon, which have gained nearly 15% year to date and 23.8% year-over-year, have posted a weekly loss of 5.4%. The stock’s $774.39 price-per-share puts Amazon’s current value at about $357 billion.

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