For Amazon.com, the significance of its Whole Foods purchase is about much more than just organic foods. The nationwide network of 444 Whole Foods stores would put Amazon within a one-hour drive of over 70% of the U.S. population, roughly 224 million people, a Barron’s Next analysis shows.
Barron’s Next analyzed Whole Foods store locations, AmazonFresh fulfillment centers, U.S. census data, and a database of driving routes to measure the impact of an Amazon-Whole Foods combination. The result is a potential game changer for Amazon, which has been fortifying its “last-mile” delivery network, while also trying hard to crack into grocery sales.
Ten years ago, Amazon rolled out its grocery delivery service AmazonFresh in hope of tapping into the online grocery market. Its total grocery sales in the first quarter of 2017 was estimated at $350 million according to e-commerce data provider One Click Retail. Despite an impressive 30% year-over-year growth, it’s a fraction of the industry’s $150 billion in sales during the same period. Whole Foods on its own had $4.9 billion in sales.
Amazon has a large logistics network around the U.S. with over 100 fulfillment centers, where products are stored, and more sorting centers, where packages are filtered by zip code and then sent to the local post office for the last mile of delivery. The company is hiring more of its own last-mile carriers, as well, and still uses national shipping services like UPS and FedEx to send packages from fulfillment centers directly. This multi-layer network means that almost all Amazon Prime members in the U.S. get two-day delivery.
But delivering groceries for AmazonFresh is a different story. Unlike the ubiquitous coverage for Amazon Prime, AmazonFresh has only been available in selected metropolitan areas including Seattle, San Francisco, Los Angeles, New York City, Philadelphia, Baltimore, Boston, Atlanta, Dallas, Chicago and Denver. The challenge lies partly in the distribution.
Fresh produce and perishables require specialized warehouses with refrigeration and frozen storage. According to MWPVL, a supply chain consulting firm, out of all of the Amazon fulfillment centers, roughly 16 are dedicated to AmazonFresh and Amazon Pantry and a few others are partially used for food.
Fresh food also requires special delivery conditions, where items are packed with either ice packs or dried ice. Amazon has built its own last mile delivery system with the so-called “delivery stations.” Normally located in suburbs or airports around big cities, these stations receive and pack grocery orders properly and deliver them directly to customers on a same-day basis. But still, the delivery stations are typically outside of city-centers and away from the most populous areas. That’s where Whole Foods could come in.