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Lately in the news, Amazon was said to have opened its first-ever online-only Whole Foods store. While some might be confused over why Amazon would do such a thing as their Whole Foods stores continue to garner growing sales and growing traffic, it all points towards Walmart and its plan to compete against Amazon. While Walmart is looking to compete against Amazon Prime by releasing its own subscription service, Amazon is looking to venture into new territory.
While both Amazon and Walmart might offer free unlimited delivery and a whole lot of other perks, Amazon is looking to differentiate itself by reducing its delivery times for many goods and services. Seeing that cloud kitchens have been successful at speeding delivery times for food delivery services and in reducing operating costs for restaurants, Amazon was considering taking a page off of the idea and applying the concepts into grocery delivery. Currently, these "dark stores" as Amazon calls them, are only serving the Brooklyn area exclusively.
What are the benefits of these "dark stores?"
Like Cloud Kitchens, Amazon's "dark stores" were made to help Whole Foods deliver groceries to consumers faster while at the same time decreasing the operating costs of the business. With no need to be in a prime location, no need to invest in the beauty of the property, and with more flexibility on how things are arranged, the economics for an online-only store is attractive. Plus, the labor costs to go even lower as these stores have a lot more room for automation than an average grocery store.
Additionally, these "dark stores" can serve as important pieces of Amazon's infrastructure. Once their drone delivery system gets ready to operate commercially, the deployment and management of these drones will be a whole lot easier.
Conclusion
While these online-only stores are one of Amazon's latest
experiments, there is a lot of potential for this idea to be a success. If the concept of a cloud kitchen can work well for the restaurant and the food delivery business, then it does have a good chance of succeeding in the grocery business. Even if the grocery business is high volume and low margin, if these "dark stores" can lower costs significantly, then Amazon's Whole Foods division will be a margin expansion.
If a margin expansion does happen for Whole Foods, then investors that didn't like Amazon's move to buy out Whole Foods will soon realize that Whole Foods was one of Amazon's best acquisitions.
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