After a dismal quarterly report and weaker guidance, many were wondering if the Seattle-based Amazon was aiming to take another scalp in Kroger. This worry was particularly prominent as a Wall Street Journal report on Friday suggested Amazon was planning to open "dozens of grocery stores in several major U.S. cities."
Not so fast, says Action Alerts PLUS portfolio manager Jim Cramer.
"My contacts at Whole Foods were quite surprised [by the WSJ story]," he commented. "What that would mean is that Amazon would compete with Amazon. I don't think Jeff Bezos is that distracted."
The argument to make from this standpoint would be that lower cost goods could easily be targeted for the new grocery locations.
Whole Foods is famous for selling overpriced varieties of kale and pumpkin spice infused foods, not generally popular items from PepsiCo (PEP) or Coca-Cola (KO) . The new Amazon-branded locations could swoop in to take care of this less health conscious market while not impinging on Whole Foods at all.
However, the ambitious new grocery operation would compete not only with its Whole Foods bricks-and-mortar operations, but also with its Amazon Fresh e-commerce driven grocery delivery service, which has been growing rapidly.
According to a 2018 survey from One Click Retail, Amazon's market share of U.S. online grocery sales was nearly 20%, twice that of second-place Walmart (WMT) . The dominance in market share is largely driven by convenience that online delivery services offer.
It would make little sense to take a step backward into bricks and mortar when consumer trends are so clearly shifting toward online purchases.
For reference, a Statista report suggests that online grocery sales should grow to nearly $30 billion by 2021. If the trend continues to become the dominant mode of grocery shopping, the locations would become little more than distribution centers. It would appear that Kohl's (KSS) is already happy to provide Amazon with this opportunity with no added cost to open locations.
For now, Amazon is not committing to any stance on the matter in public.
"Amazon doesn't comment on rumors or speculation," an Amazon press officer responded to Real Money's requests for comment.
With the closing of its pop-up stores just announced, it would not be surprising to see Amazon balk at adding more bricks and mortar to its business when more attractive investments await capital.
"One thing I don't really understand is why another long-term holding of mine, Amazon wants into the grocery business so bad," Real Money contributor Stephen "Sarge" Guilfoyle commented in his column on Thursday. "I would rather Amazon focus on the public cloud, and on their advertising businesses. Their e-commerce site is the meat, but AWS, and that ad biz... that's the gravy."
As such, Amazon's own shopping list may keep it too busy to kill Kroger with direct physical competition. Kroger appears able to attend to that matter all by itself.