Amazon is testing a new small format grocery store concept in Chicago.

According to Chain Storage, the company has opened a 3,800 square foot small format grocery store concept in downtown Chicago in a building that also houses a Whole Foods market in Amazon.

Spokesperson spokesperson confirmed the new store called Amazon Grocery.

Gotta love that name.

Amazon Grocery and not to be confused with Amazon Fresh or Amazon Go features a selection of approximately 3,500 products and is located in the One Chicago building.

The new store allows customers to complete quick trips like grocery top ups, coffee and Grab and go meals all during their regular trip to Whole Foods.

It also offers national grocery brands or household essentials that are not available at Whole Foods.

Lakshman, I'm going to go to you first on this.

What in the heck is Amazon's grocery strategy?

Like I just cannot put my finger on it at all.

Like wtf?

What are they doing here and what do you think of this new concept?

Does it help things at all or does it just muddy the waters?

Yeah, let's add another banner under the grocery experiments that are happening right now with Amazon.

Listen, this is a walled garden, right?

You cannot have.

It's a small store format, 3500 SKUs, very limited national brands.

They do not allow the customer to go and transact between the two.

They cannot have one single cart that moves up and down.

So from a.

It is going to be a walled garden because the private labels they cannot place it.

They cannot increase the penetration of their own products.

They have to rely on trade funds and everything that's coming from the national brands to fund their marketing expense for this particular channel, which is quite expensive.

Shall I say the name of the game here is convenience, right?

Looking at the age group of about 25 to 35 people living in the cities with an income of 80 to 120k who just need to go and buy or get that one small item that they forgot to get.

Whether it's Coke or it's a packed sandwich.

That's a convenience thing.

Play here.

It squarely goes against what 711 is trying to do which is upscale their convenience format and make it more interesting.

I think it's got very limited shelf life.

It is an experiment.

I feel like they probably are going to try a couple of other huge city centers locations and likely it will saturate at that point.

Is it a good experiment though?

Is it an experiment worth running just by the fact that you have to put it next to a Whole Foods and the whole strategic premise that you're pitching in this article is that it's next to a Whole Foods.

Yeah.

And, and think about the cost delta between the two.

Right.

You have to have a separation of at least, you know, 20 to 40%.

If not, the customer is not going to walk in.

And the other thing is you're likely cannibalizing your own sales.

If there is an equivalent national brand, same quality price point is 20% higher, then you are competing against your own private label in some ways and you are competing against, you know, your higher end Whole Food products themselves.

Right.

So it's a very interesting assortment tiering problem, which is why this is very baffling for me to co locate it in the same spot.

If it were at least a mile away and there was some separation between the two.

It makes a ton of sense that they're trying to get entry into this particular fast moving segment.

But to co locate it is what is really the baffler here.

Interesting, interesting.

Chris, I saw you shaking your head.

What, what's your points that you'd add here?

No, I mean I actually just had a different take on.

I thought Lakshman's take was really interesting.

I kind of thought about it differently.

Okay.

I think the whole point was co locating it or what I wonder is, is the whole point co locating it?

I agree with Lakshman.

It's not a concept that's designed to scale.

I kind of see this one as a data gathering experiment, a pet project from someone there.

And I think it's all about exploring like the, the, the whole Amazon Whole Foods piece where you can't have national brands in the store.

There's a big customer problem that that customer now has to make two shopping trips to do their grocery shopping.

So I think it's an experiment to place national brands in close proximity without violating that and see how many of those customers you can actually get to shop in Whole Foods then buy national brands right next door on the same shopping trip.

Because Amazon's actually experimenting with other concepts that are similar.

So in Pennsylvania they have like a micro fulfillment center tied to a Whole Foods where the idea is you place your Amazon order on your phone and you can get your national brands products right outside the door of the Whole Food.

So you can do one trip.

So I kind of see it as more of like a similar very small scale test concept to, you know, further discussions and test data on how do you integrate national brands within the Whole Foods channel.

But you know, I could be wrong.

It's a weird spot to do it too because to lock like the one Chicago It's a residential building and you have to imagine a lot of those 3500 SKUs are just convenience focused, like quick grab and go stuff.

So.

So that's the part that doesn't quite tie for me.

Yeah, yeah.

Okay, so.

So you're kind of liking it.

Lakshman's a little more baffled by it.

And what do you think here?

Yeah, I mean, I agree with Chris.

I think this is just another version of the test that is happening in Pennsylvania right now.

Like what's the threshold ultimately?

What do I think is going to happen?

I think that this is a continuation of our conversation last week, Chris.

I think this is the death of Whole Foods as we know it right now.

I think that eventually Amazon' going to see people want to get all their private brands or sorry, all their keep saying private brands, all of their national brands and their Whole Foods brands in one place.

But I'm wondering, and I think that this store, Whole Foods is going to go away and eventually it's just going to be called Amazon Grocery because I think it's just going to be easier to put all those brands side by side inside the Whole Foods.

Now.

Yes, you lose this coveted Whole Foods, you know, experience.

But I honestly am wondering if this is the only opportunity that Amazon has in Grocery.

If it seems like it may be the, the winningest strategy where you know, yes, you have other competition from some of these nicer upscale groceries where that have this access to some of the organic foods.

But will Amazon be able to offer some of these brands at a more affordable price because of the scale that they have with delivery with Grocery?

Like to me it seems like this could be the only chance that Amazon has a success in Grocery which is, is combining everything, the Whole Foods, the national brands and him having this Amazon Grocery experience.

But wow, you are not in the camp.

No, I mean I think if, I think if you play that out, you know who wins in that game?

Sprouts.

Because all the Whole Foods shoppers start going to Sprouts and Sprouts explodes nationally.

Because Sprouts have the national brands though to the effect.

But that's why I'm saying that those people don't want that.

So Sprouts gets it.

Because if you stop back and you look at grocery from a mass market perspective, the mass market already determines what products are going into.

Kroger, Target, Walmart, Safeway, Albertsons, they're already doing that.

So Amazon's got to come in with an entirely new concept to make this work.

So that's why?

That's why I think this idea is.

This test particularly is the dumbest idea I've heard in a long time.

To your point, if people want, if you, if you really think people want to buy, you know, general national brand products next to Whole Foods, just put them in freaking Whole Foods and run that experiment.

Like, what's the point of doing this?

The small format is going to give you fake false positives or false negatives too, because it's a separate location.

And like, why, if I need to make another trip, I already go to Whole Foods.

And most of the time I have to compliment my trip by going to another store.

Why would I go to a store that has 3,500 items when I can go to my local grocery store that has a broader assortment and all the other options that, that are available to me that I can't get at a Whole Foods?

So this just makes no sense to me from a testing perspective and why you would waste your time on it.

But I don't know, somebody else take the last word on it because I got on my soapbox pretty quickly on this one.

Well.

I just questioned then, like, does Amazon Grocery really just become Amazon, the mass retailer where they, like, is that where they are successful?

You don't think so?

Yeah.

I mean, good luck.

I mean, people are trying to do that all the time.

Good.

I mean, I just think that's a, that's, that's a tough, tough game.

And they've shown that they haven't been able to create their own grocery concept, which if, correct me if I'm wrong, but Amazon Fresh has some of the, I don't remember, but doesn't it have some of the Whole Foods elements inside of it already?

So they've kind of been running this experiment too.

And that's not blowing the doors off anyone from a consumer love standpoint either.

So I don't, I don't know.

I just don't get it.