NASDAQ stock Amazon stock: Despite job cuts, Amazon is planning "big" with its grocery stores

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• Amazon’s stationary trade with weak growth
• Job cuts also affect Amazon grocery stores
• Nevertheless, CEO Jassy is planning “big things” and refers to Amazon’s history

The purchase of the high-priced US supermarket chain Whole Foods by Amazon in August 2017 for 13.7 billion US dollars attracted a great deal of attention in the food industry – after all, the online trading giant Amazon was preparing to also want to dominate the stationary food trade. In addition, Amazon, with its Amazon Fresh sub-brand, runs hundreds of supermarkets primarily in the USA, but also in Berlin, Tokyo and Singapore. Since then, however, Amazon’s successes in this sector have been limited. Amazon Fresh and Whole Foods have not really been able to put supermarket giants such as Walmart, Kroger or Ahold Delhaize under pressure.

Despite weak growth: Jassy wants to expand Amazon’s food division

Amazon’s physical store division, which includes supermarkets, pop-up stores and outlets, has grown by just 10 percent since buying Whole Foods in 2017, significantly less than the company as a whole. This means that the business with stationary shops only accounts for 3.4 percent of Amazon’s total sales. Just under a year ago, Amazon announced that it would be closing all of its bookstores, 4-star stores, and pop-up stores in the US and UK. The goal at the time was to focus more on grocery and clothing stores. However, Amazon suffered a $720 million loss last quarter as it slowed its grocery expansion plans. In addition, many of the 18,000 job cuts announced in early January also affect Amazon Fresh and Whole Foods.

Despite the sluggish expansion and the cost savings, Amazon CEO Andy Jassy is by no means considering discontinuing the stationary retail division, but is instead opting for a rapid growth policy. “We are still in the early stages,” Jassy told the Financial Times. “We’re hoping that in 2023 we’ll have a format that we want to go big with, and that’s on the physical side.”

Trial and Error – Amazon’s corporate philosophy

In the Financial Times interview, Jassy explicitly refers to Amazon’s corporate philosophy, which has been based on a radical version of trial and error since the company was founded by Jeff Bezos in 1994. This is how Jassy describes Amazon’s recipe for success: “We’ve experimented a lot in the past and acted quickly. And then when we’ve found something we like, we double it, and that’s exactly what we intend to do.” Jassy is alluding to Amazon’s various attempts to gain a foothold in various areas – for example in the field of mobile phones, but Amazon’s Fire Smartphone 2014 turned out to be a big flop. Amazon Destinations, a hotel booking portal, also disappointed across the board. In other sectors, such as the cloud industry, the shopping giant set milestones in economic history with its trial and error tactics.

Jassy obviously also senses enormous growth opportunities for Amazon’s stationary food sales. Most recently, Amazon has closed several of its Fresh supermarkets and put plans to open new stores on hold as managers try to figure out a format and concept that works. Jassy noted that many Fresh stores opened in the midst of the coronavirus pandemic, so Amazon “didn’t have much normalcy.” Now they are working flat out to make the Whole Foods and Amazon Fresh stores even more attractive in order to grow strongly in this area.

Amazon share: disillusionment after the big boom

In fact, it would certainly do the sentiment around the Amazon share good if Amazon could again celebrate strong and long-term growth in a company division. Because the online trading giant is in crisis in many areas, as the last quarterly report bluntly revealed. The mail order business has recently suffered from the declining consumer spending mood of US consumers, whose purchasing power has been reduced by the high inflationary pressure. The previous jewel of the group, the cloud division Amazon Web Services (AWS), recently had to accept a significant slowdown in growth. In the fourth quarter of 2022, this was only 20 percent, while it has mostly grown by around 40 percent in recent years. In addition, Amazon is still struggling with very high cost pressure, since the group pursued a very aggressive hiring policy during the rapid Corona boom and is now trying to reduce the high number of employees by cutting jobs – this in turn causes high severance pay costs. To make matters worse, Amazon’s billion-dollar stake in the electric carmanufacturer Rivian represents a major burden, as Rivian’s valuation has more than halved in recent months.

Given all of these negative factors, it’s not surprising that Amazon’s stock is trading at a current price of $94.23 per share (as of the closing price on February 28, 2022), down a whopping 50 percent from its all-time high of $188. $65 which the papers marked on July 13, 2021. It remains to be seen whether Amazon Fresh and Whole Foods will help Amazon’s share price bounce back. There is no doubt that this represents a major challenge given the weak development to date and the enormous competition in the US food sector.

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