Amazon's grocery struggles stem from fundamental structural issues that have proven difficult to overcome despite the company's vast resources.
The most significant barrier is Amazon's limited physical footprint.
With approximately 500 Whole Foods stores and 50 Amazon Fresh locations (a number that continues to shrink), Amazon faces a massive disadvantage against competitors like Walmart, which operates roughly 10 times as many stores nationwide.
"In grocery, having a brick-and-mortar footprint is really the recipe to success," said our analyst Blake Droesch. "Despite the fact that Amazon has really deep pockets, they've been unable to just scale a brick-and-mortar footprint that works for them."
This store deficit creates both logistical challenges for fulfillment and limits Amazon's ability to capture the 87% of grocery purchases still made in physical stores.
Another critical weakness is Amazon's fragmented grocery approach.
- The company operates multiple grocery banners with different value propositions, delivery fees, and shopping experiences.
- "It's still a very confusing and fragmented experience from the customer perspective shopping online for groceries via Amazon," said our analyst Sky Canaves. "You have Whole Foods and Fresh and now Prime Grocery delivery, and they are all jumbled up in results. They each have different delivery thresholds or costs associated with delivery."
Amazon's continued search for answers
Amazon continues to experiment with new approaches to solve its grocery puzzle, with mixed results according to the analysts.
The "Amazonification of Whole Foods" represents one of the company's latest pivots.
- This initiative includes testing small Amazon grocery shops inside or adjacent to Whole Foods locations, featuring national brands and CPG staples not typically found in Whole Foods.
- The concept aims to keep shoppers' entire grocery basket within the Amazon ecosystem.
However, the analysts expressed skepticism about this approach.
- Canaves, who visited one such location in Chicago, described it as "very much like the grocery section of a CVS or Walgreens" with "mixed messaging" between the natural foods focus upstairs and conventional products downstairs.
- Droesch was more critical: "I think it's going to fail... it's too small of a space. It's not going to be large enough to have all of the national grocery brand items that are going to be able to satisfy an entire shopping cart."
Amazon's private label consolidation received more positive feedback. The company is unifying its Amazon Fresh and Happy Belly products under a new "Amazon Grocery" label, with approximately 1,000 items mostly priced under $5.
"It's a great idea, super necessary for them to invest in private label, particularly shelf-stable goods that are undercutting their competitors," Droesch noted, though he suggested the "Amazon Grocery" name itself lacks appeal.
Meanwhile, Amazon continues to close underperforming Fresh stores both in the US and internationally, signaling that the format isn't resonating with consumers. Amazon might be better served by either converting these locations to smaller Whole Foods stores or abandoning them entirely to focus on delivery.
What would move the needle by 2026?
Looking ahead, there are two key opportunities that could finally help Amazon gain meaningful grocery market share.
Expanding same-day perishable food delivery to all Amazon customers represents the most practical path forward.
- "The best thing they could do is make the same-day perishable food delivery just available everywhere to all of their customers," Droesch suggested.
- This approach leverages Amazon's e-commerce strengths rather than trying to compete directly in physical retail.
Creating a unified online grocery experience would address another critical weakness.
"Unifying the single grocery cart online... would be really important, along with the delivery, for a unified experience from the customer perspective where you can get your Whole Foods and whatever you would buy on Amazon and Fresh all in one cart," Canaves said.
This could potentially be paired with a tiered Prime membership specifically for grocery, similar to how Amazon handles its video streaming service. Such an approach would create a clearer value proposition for consumers while leveraging Amazon's existing Prime membership base.
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