Omnichannel fulfillment may be at the heart of Amazon's new grocery store

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The e-tailer is seemingly set to open a new grocery store in Los Angeles based on pictures and plans reviewed by Bloomberg. This information shows that Amazon has made progress in opening its own grocery store since the initiative was first reported in March 2019 and it later confirmed the news.

The location is reportedly 33,000 square feet - for context, Whole Foods locations generally need to be between 25,000 and 50,000 square feet - and features a standard grocery store layout with aisles and coolers, counters for meat and seafood, a section for prepared foods, and a window for order pickup and returns near the entrance. Amazon is said to have multiple leases in Los Angeles that are being set up to become grocery stores as well.

The grocery store will likely be separate from Whole Foods so that Amazon can use it to expand its reach in the market. The chain may be called Amazon Fresh, like Amazon's grocery delivery service, considering one of the locations it's renovating in Los Angeles applied for a liquor license under that name.

But even if it uses a different name, it likely won't have a connection to Whole Foods, which Amazon acquired for $13.7 billion in 2017, because Whole Foods' brand image and history have limited Amazon's ability to introduce mass-market products, like Coca-Cola, to the grocer's selection. Amazon needs to offer such items if it wants to compete with the likes of Walmart and Kroger in the US grocery market, and its new grocery stores shouldn't be beholden to the same standards as Whole Foods.

The most crucial part of Amazon's grocery stores will be their omnichannel capabilities.

The new stores will need a way to differentiate from other major supermarkets, and their omnichannel services may be the best way to do so. Amazon has the opportunity to design stores so that they can quickly and easily fulfill delivery orders and in-store pickup, while other grocers had to retrofit their existing locations to accommodate online ordering capabilities.

This means that Amazon could create a better delivery and pickup experience than other merchants because it can build in features like a pickup window, potentially helping it attract customers and orders as the US online grocery market is set to grow to $117 billion by 2023.

Digital-focused grocery stores could help Amazon handle competitors' brick-and-mortar advantage. Retailers like Walmart - which has been finding success with grocery pickup and delivery - can offer quick delivery and pickup in part because they have stores around the country, so one should be conveniently located for many US consumers.

Amazon doesn't have a comparable network, but if it opens some stores that are optimized for delivery and pickup and leverages its e-commerce expertise to create a superior experience, it could convince consumers to shop for groceries digitally with it even if they have access to closer grocery stores.

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