A key strength is its willingness to experiment — and fail

SEATTLE — Amazon has revolutionized American retailing.

Already by far the dominant force in e-commerce, over the past five years the online behemoth has made serious moves to develop its brick-and-mortar presence and become a major player in omnichannel grocery retailing. With vast resources, a keen strategic grasp of the opportunities before it and a long runway of growth, the company is poised for accelerating expansion. For that reason, the editors of MMR have selected Amazon as the Omnichannel Retailer of the Year for 2021.

Amazon’s impact, in fact, goes far beyond its competitive prowess in the retail business. Over the last several years, it has created a new model for growth that has carried it into other industries where it has quickly become a leading actor. As a result, Amazon is no longer dependent on its strength in e-commerce to fuel its continued expansion.

Other major retailers such as Walmart and Kroger Co. have quickly adopted similar strategies that promise to generate alternative revenue and profit streams to complement their core retail businesses.

In 2017 Amazon signaled its intention to enter the brick-and-mortar retail space in a major way by acquiring Whole Foods Market for $13.7 billion. It soon implemented price cuts to broaden the appeal of the upscale grocer — wryly known as “Whole Pay Check” to some — and added online ordering as the first step toward developing an omnichannel infrastructure. Amazon also accelerated Whole Foods’ physical expansion, opening 16 stores across the country during 2020 despite the COVID-19 pandemic and adding another six last year. Two more locations, one in San Francisco’s Stonestown district and one in Towson, Md., are slated to open this month.

Although the impact of Amazon’s ownership and the changes it has implemented thus far are subject to debate, Whole Foods has unquestionably provided Amazon a laboratory in which to learn the detailed reality of the retail grocery business. But with a fleet of more than 500 stores, it clearly is more than that. This year Whole Foods will open two locations, one in Washington, D.C.’s Glover Park neighborhood and one in Sherman Oaks, Calif., that will feature Amazon’s Just Walk Out technology that enables customers to avoid the checkout line. Last June Amazon opened its first Amazon Fresh supermarket boasting the technology, which was first deployed in the company’s Amazon Go convenience stores, in Bellevue, Wash.

In the view of many industry observers, it is the Amazon Fresh banner that will ultimately be the primary vehicle of the company’s omnichannel ambitions. The flagship location debuted in September 2020, in a former Toys ‘R’ Us location in Woodland Hills, Calif. According to the company, by the end of 2021 there were 23 stores in operation, including 10 in California, six in Illinois, three in Washington state and one each in Maryland, Pennsylvania, Virginia and Washington, D.C.

More are on the way, including a confirmed fourth location in the Seattle region, according to the Puget Sound Business Journal. The outlet will occupy a 38,000-square-foot space formerly occupied by a Sears store in the Commons Mall.

Amazon Fresh is clearly a complement to Whole Foods, targeting a broader customer demographic with extensive national brand offerings and sharply competitive pricing coupled with Amazon and Whole Foods private label goods. Industry analysts have noted that the format incorporates some innovative approaches to assortment that set it apart from typical competing ­supermarkets.

For example, according to the consulting firm Brick Meets Click, in the first 12 Amazon Fresh stores the average assortment was comprised of just 16,000 items — well below the 30,000-plus SKUs found in a typical supermarket. The reduction is apparent in the smaller number of flavors, package sizes and facings offered.

Moreover, Amazon’s efforts to provide a truly localized assortment produced a distinctive mix of products across certain categories. For instance, only 8% of all beer SKUs were found in all 12 stores, while 18% of wine offerings were available chainwide.

“In its Fresh stores, Amazon appears to be working to simultaneously reduce the number of SKUs and improve customer satisfaction with an optimal mix of products in each store,” observed The Outlook, the online newsletter of Brick Meets Click.

Private and exclusive brands are an important part of the strategy. For starters, Amazon is drawing on the private label offerings of Whole Foods. According to Brick Meets Click, about 1,000 of the 2,400 private label products found in nearby Whole Foods locations are already on Amazon Fresh shelves.

Amazon is thus freed of the need to invest time and money in developing an entire private brand offering for its Fresh banner. It also incurs less risk, since the products selected have already demonstrated strong customer acceptance at Whole Foods.

In addition to its innovative approach to assortment, Amazon Fresh leverages Amazon’s vaunted technological flair to provide a distinctive and, presumably, superior customer experience. Store shelves feature digital price tags and the Dash Cart, which is designed for a quick fill-in shop and employs computer vision algorithms and sensors that enable customers to find products, track their purchases and skip the checkout lines.

In addition, customers can access Amazon’s Alexa app to help them find items more easily in-store. “When customers arrive in-store, they can access their Alexa shopping list through the Amazon app or on the Dash Cart, enabling them to quickly navigate the aisles and check off items as they shop,” explained Jeff Helbling, vice president of Amazon Fresh stores, in a blog post on the Amazon website. “Throughout the store we have Amazon Echo Show devices available to ask Alexa for help — simply say, ‘Alexa, where can I find the hot sauce?’ ”

While some analysts have questioned the deliberate pace of the Amazon Fresh rollout, it is clear that the company is testing and learning as it grows. Moreover, it has laid a solid groundwork for rapid expansion. Last year Amazon established a closer relationship with grocery wholesaler and retailer SpartanNash Co. through a warrant agreement that gives it the right to acquire a stake in the company. SpartanNash has supplied Amazon since 2016.

In addition, the locations selected thus far, which include several repurposed retail spaces, reveal a savvy awareness of real estate opportunities that can make rapid expansion possible at a low capital cost. Amazon Fresh stores will likely be less expensive to launch and cheaper to operate, making their economics highly attractive.

Of course, Amazon Fresh and Whole Foods are not the company’s only brick-and-mortar assets: The company also operates book stores in 12 states and the District of Columbia; Amazon 4-Star, with locations in 17 states, offers a highly curated selection of items from the top categories on Amazon.com, including devices, electronics, books, toys and home products; Amazon pop up, which offers themed selections of top brands, frequently updated; and, of course, Amazon Go, the high-tech convenience store that offers cashierless checkout. But it is Amazon Fresh and Whole Foods that represent the company’s most serious retail ambitions and pose the greatest potential challenges to mass market rivals.

Viewed from a wider perspective, Amazon’s omnichannel initiatives are part of its drive to revolutionize the shopping experience, to make it simpler, more convenient and more satisfying. A current example is Amazon One, which allows customers to use the palms of their hands to enter, identify themselves and pay. The technology has so far been deployed at more than 70 Amazon and Whole Foods locations and third-party locations.

In addition, Amazon has steadily expanded delivery and click-and-collect options. Last year, for instance, it introduced same-day delivery to nine more cities, raising the total to 15. Members of Amazon Prime, the company’s subscription membership program, can shop up to 3 million items across a dozen product categories and receive their orders in as little as five hours.

Perhaps the greatest strength that Amazon possesses is its willingness to experiment — and fail. That willingness powers the company’s apparently limitless innovation, which has driven the creation of  Amazon Prime, its subscription membership program; Amazon Marketplace, its online marketplace for third-party sellers; Amazon Web Services, the cloud computing services arm that now accounts for most of the company’s profits; and its expanding media and entertainment empire.

Amazon’s willingness to take risks will undoubtedly continue to propel it into new fields, such as health care, where it has already taken its first small steps. It is difficult to imagine a more dynamic enterprise than this company, which started out as an online bookseller in 1995.