Competitors' Shares Tumble On Report Amazon To Open New Grocery Chain

In the latest confirmation that Jeff Bezos will settle at nothing less than total domination of the grocery business, the Wall Street Journal reported on Friday that Amazon is planning to open a new chain of low-cost supermarkets in several major US cities. With potentially dozens of new stores, the chain would co-exist with Amazon-owned Whole Foods by offering a broader assortment of products at a lower price point, while Amazon's growing cashierless 'Amazon Go' chain will focus on a smaller suit of offerings similar to US convenience stores.

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If accurate, the report would suggest that Amazon plans to continue its conquest of the grocery space by growing organically (though it might acquire a few regional grocery chains along the way, per WSJ), which helped send shares of Wal-Mart, Kroger and Target to session lows on the news.

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The first store in this new chain could open in LA by the end of the year, WSJ reported. Meanwhile, Amazon is also in talks to open grocery stores in shopping centers in San Francisco, Seattle, Chicago, Washington, DC, and Philadelphia, and has already signed leases in some locations.

Amazon's growing focus on retail comes as the company has had mixed results with its grocery delivery business, and has decided that it would be better served by expanding its retail offerings. Meanwhile, Amazon is also planning to grow its Amazon Go offerings, with 10 stores already open.

In a sign these new stores could expand their offerings to include health and beauty products, Amazon has asked for flexibility in its leases.

Amazon has asked for more flexibility in lease negotiations, these people said. The company doesn’t want restrictions on the type of goods it may sell at its stores and wants the ability to change the store and sell health and beauty products for instance, said the people. Traditional leases in shopping centers often include limitations so that businesses complement rather than cannibalize each other.

It is unclear if these grocery stores will also be cashierless, but they will be heavily tilted to customer service and pick-up capabilities, according to the people familiar with the matter. Amazon is also looking to have some control over the attached parking lot, which would allow shoppers to get their groceries within a 10-to-15-minute time frame, the people said.

Analysts say that this new hybrid strategy where e-commerce is combined with physical stores to allow customers to shop wherever, whenever, could be the future of the retail industry.

“Customers want to be able to shop when it is most convenient for them, which could be in-store, online or a combination of the two," said a spokeswoman from the International Council of Shopping Centers.

Analysts at Spruce Point said Amazon's move into the grocery business would likely be a "long-term negative" for the industry, particularly for "poorly positioned" chains with higher prices.