Why Doesn't Amazon Open More Whole Foods Stores?

When Inc. (NASDAQ: AMZN) bought high-end grocery chain Whole Foods in August 2017, it paid $13.7 billion to get 490 stores in the United States and the United Kingdom. However, the e-commerce and cloud computing behemoth has only changed the way Whole Foods does business slightly. It has not increased the footprint of its locations, which would better allow it to compete with the much larger Walmart Inc. (NYSE: WMT) and Kroger Co. (NYSE: KR).

Walmart has 5,358 locations in the United States, and 3,565 are supercenters, which almost always have grocery sections. Kroger has 2,779 grocery locations. Presumably, this gives the two companies advantages in new areas like home delivery and systems that allow people to pick up preordered groceries quickly.

Whole Foods has done several things that might help it gain sales. It has sharply cut most prices, and Amazon Prime members get special discounts. Whole Foods also has started a new delivery system. Most of these advantages are blunted by the small numbers of Whole Foods locations. Most grocery items are only available in stores. The potential for the delivery of fresh items also is hurt by the Whole Foods the limited number of stores. NPD says 95% of Americans shopped at a Walmart in 2016. The number seems absurdly high, but it explains Walmart’s advantage.

Why would Amazon hold back on new Whole Foods locations? First, the addition of new stores is expensive, even for a company of Amazon’s size. And the choice of location cannot be easy. New ones have to be near affluent populations since this has been the core demographic of traditional Whole Foods shoppers. Additionally, Amazon may believe that, as groceries move from traditional store shopping to delivery, more stores will not be worthwhile.

None of Amazon’s possible reasons for not raising the count of Whole Foods stores addresses the issue, which is that people will be going to grocery stores for a long time. The fact that one is close to home has to be an edge for Amazon’s competition.