Andy Jassy on the strategy of Amazon Fresh

Amazon CEO Andy Jassy made a rare and unexpected appearance on the company’s fourth quarter results call last week. Just as his predecessor Jeff Bezos had, he typically left the handling of calls and analyst questions to his CFO.

But with the company’s profits falling to $278m in the quarter, down from $14.3bn in the same period a year ago; with 18,000 job cuts announced last month; and huge doubts hanging over the e-commerce giant’s commitment to physical grocery, Jassy decided to step in and set out his stall.

“Given some of the unusual parts in the economy and in our business, I thought this might be a good one to join,” he explained.

So what did Jassy – now a year in the top job – have to say on Amazon’s strategy in these ‘unusual’ times?

Amazon is still committed to physical grocery stores

With the first closure of an Amazon Fresh store in the UK last month – in Dalston, less than 18 months after it launched – and a significant dialling down of reported store opening plans, some had questioned Amazon’s continuing commitment to physical grocery stores.

But Jassy confirmed grocery is “a really important and strategic area for us”.

“It’s a very large market segment, and there’s a lot of frequency in how consumers shop for grocery. We also believe that over time, grocery is going to be omnichannel. There are going to be a lot of people that order their grocery items online and have it delivered to them, and there are going to be a lot of people who continue to buy in physical stores,” he said.

“If you really want to have significant market segment share in perishables, you typically need physical stores,” he added.

But it hasn’t yet nailed the channel

While praising Whole Foods Market – “it’s a good business for us in the grocery space” – Jassy conceded that it was somewhat specialist. “If you want to have a mass physical store offering, you need a different offering,” he said.

“We’re doing a fair bit of experimentation today in those [Amazon Fresh] stores to try to find a format that we think resonates with customers; is differentiated in some meaningful fashion and where we like the economics,” Jassy explained.

Until that is sorted, expansion is on hold. “We’ve decided over the last year or so that we’re not going to expand the physical Fresh stores until we have that equation with differentiation and economic value that we like, but we’re optimistic we’re going to find that in 2023. We see some encouraging signs, and when we do find that equation, we will expand it more expansively.”

To that end, last week saw a pair of grocery veterans – Woolworths Group MD Claire Peters and former Boots retail director Peter Bowrey – start work at the company under former Tesco COO Tony Hoggett, who joined a year ago.

The future of Amazon grocery is omnichannel

For Jassy, the future of grocery is a “hybrid” model, in which shoppers may order in store for delivery just as easily as at home for collection from a store.

“You’re going to see a hybrid of those, where people pick out what they want online and pick it up in stores, or people are in stores and there’s something that’s not in inventory in the stores, so they go to their app or to a kiosk and order it to be delivered from online,” he said.

“And so I think having omnichannel is going to really matter.

Despite the company’s current struggles, the customer experience is still the priority

Just as his predecessor Bezos did, Jassy continues to regard customer service as the all-important engine powering Amazon’s success.

“The connective tissue for everything we do across the company, is we realise that we exist to make customers’ lives better and easier every day and relentlessly want to do so,” Jassy said.

“And being maniacally focused on the customer experiences [is] always going to be a top priority for us.”

Prime members and boosting their numbers remains key

Last week, Amazon revealed plans to raise the minimum order size for free Amazon Fresh grocery delivery for Prime members in the US from more than $35 to more than $50 at the end of this month. A similar hike – from £40 to £60 – is being trialled in some areas of the UK.

Despite this, Jassy maintained Prime – with its video platform and other perks – is “remarkable value that you just don’t find elsewhere”.

And it is “still early days” for the service, he added.

“We will continue to add things to Prime and continue to experiment with lots of different features and benefits.”

Investments in new ventures will continue

The cost-cutting strategy Amazon is now enacting has meant some ventures have been killed off or wound down. “There were just some areas we didn’t have conviction that they were going to be big needle movers for Amazon,” Jassy said.

Among them were Amazon’s short-lived 4-star retail stores, a telehealth service and some of its devices.

But experimenting – and sticking with what works – is something Amazon is known for. And investments are not a thing of the past, Jassy emphasised.

“We have a way of looking at investments that is different maybe from some other companies,” he explained.

“I’m not saying it’s right or wrong. It’s just the way we look at it, which is when we think about big areas to invest in, we ask ourselves a few questions.

“We ask, if we were successful, could it really be big and move the needle at Amazon, which is a high bar at a place like Amazon? Do we think it’s being well served today? Do we have a differentiated approach? And do we have some competence in those areas? And if we don’t, can we acquire them quickly? If we like the answers to those questions, we will invest.”