Amazon spent $13.7B on Whole Foods and years on grocery — and held 2.4% of the market

CNBC reported on Feb 19, 2022 that Amazon's grocery efforts had cost billions of dollars over 15 years without yielding a coherent strategy. It had spent $13.7 billion on Whole Foods in 2017, more than ten times its previous largest deal. Yet Amazon.com and Whole Foods together held 2.4% of the US grocery market in the year to mid-December 2021, against Walmart's 18%, per Numerator. Amazon's physical stores unit, which includes Whole Foods and Fresh, had lower sales in 2021 than in 2018 although its lease footprint grew 17%.

Insiders and former employees told CNBC that Amazon ran Prime Now and Amazon Fresh in parallel, and that Jeff Bezos saw them as too similar to justify the investment. In late 2017 Amazon ran a 'bake-off' between the two leaders. Prime Now's Stephenie Landry won and took over Fresh, whose head left groceries. Her teams were reported to struggle to work together, and Amazon shut the Prime Now app and site in 2021.

Amazon Go had been expected to reach 3,000 stores by 2021 per an early Bloomberg report, but had 24 in early 2022, concentrated in dense city centres hit by the pandemic. Leadership of physical retail changed repeatedly: Steve Kessel left in late 2019, Cameron Janes left in November 2021, and Tony Hoggett, formerly of Tesco, was hired in February 2022. Amazon declined to comment on the record.

Amazon funded Fresh and Prime Now in parallel, and Bezos judged them too similar for the cost each required, according to people familiar.

The Whole Foods deal added a third grocery model on top, and employees described culture clashes and integration problems, per CNBC.

Amazon Go's cashierless stores relied on dense city footfall, which fell away during the pandemic, so expansion was tempered.

Funding several competing versions of one market bet, then adding an acquisition, can burn billions without a strategy. Internal rivalry does not replace one clear plan.

CNBC's piece said new CEO Andy Jassy now faced a disjointed set of high-cost grocery assets. Amazon had begun combining its online grocery orders under Fresh and Whole Foods and was pushing the Fresh supermarket format, which had more than 20 stores in six states and Washington, D.C. One investor quoted called the grocery business 'an expensive hobby.'