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Amazon must "find a mass grocery format" that works, Jassy says

Illustration of a grocery basket full of cash.

Illustration: Gabriella Turrisi/Axios

Amazon CEO Andy Jassy put a spotlight on physical retail in his second annual shareholder letter, emphasizing that the e-commerce giant must "find a mass grocery format that we believe is worth expanding broadly."

Why it matters: The only way for the tech conglomerate to continue to significantly build its retail operations is via physical stores as online sales have slowed, particularly in the U.S.

Of note: Slowing e-commerce growth comes after Amazon's consumer business increased from $245 billion in 2019 to $434 billion in 2022, driven by pandemic-era shopping behavior.

  • To satisfy the demand, Amazon doubled its fulfillment footprint and built "a last-mile transportation network that’s now the size of UPS," according to Jassy.

Details: While Jassy said he is "pleased with the size and growth of our grocery business," he still wants to grab a bigger share of the $800 billion segment.

  • "To do so, we need a broader physical store footprint given that most of the grocery shopping still happens in physical venues," he said.
  • Jassy noted that while Whole Foods is "a large and growing business," Amazon "must find a mass grocery format that we believe is worth expanding broadly."

Between the lines: Whether Amazon Fresh is the answer remains unclear.

  • "Amazon Fresh is the brand we’ve been experimenting with for a few years, and we’re working hard to identify and build the right mass grocery format for Amazon scale," Jassy said.
  • Per previous reports, some Amazon Fresh stores have sat empty. The company has even moved to close some locations.

The big picture: "While we have a consumer business that’s $434B in 2022, the vast majority of total market segment share in global retail still resides in physical stores (roughly 80%)," he said.

The bottom line: "Grocery is a big growth opportunity for Amazon," Jassy said.

Go deeper: For additional insights from the letter, including thoughts on generative AI, read the latest from our colleague Hope King.

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