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How Amazon Plans to Expand in the Food Market

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Reports of plans for 2,000 grocery stores

Recent reports from the Wall Street Journal and other media outlets have suggested that Amazon (AMZN) is planning to open some 2,000 physical stores over the next decade mainly for selling food and beverages.

Though Amazon has not publicly disclosed its grocery store plan, investors and analysts will be eagerly watching the company’s updates in regards to the Amazon Fresh initiative for clues about the company’s grocery ambitions this year. Amazon Fresh, the company’s food delivery service, is available in US cities and in London, though its roll-out has been slow since its introduction in 2007.

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What will Amazon’s grocery store push lead to?

The US grocery market is valued at more than $800 billion, yet only ~1.5% of grocery purchases are made online, according to Kantar. Many shoppers still prefer to touch and inspect foodstuffs before they buy them. Amazon appears to be betting on physical stores to quickly expand its share of grocery spending. But Amazon’s grocery foray will further rattle legacy retailers such as Walmart (WMT), Kroger (KR), Costco (COST), and Whole Foods (WFM), which have benefited from offline food spending.

As part of testing the waters in the brick-and-mortar grocery store space, Amazon is reportedly planning to first open 20 grocery locations in a pilot program in the next two years. Half of those pilot stores will be in the format of traditional stores where customers can stroll and browse the shelves while pushing a cart. The other half will be fashioned as click-and-collect outlets for shoppers to order online and pick up offline.

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