U.S. markets closed
  • S&P 500

    -38.67 (-0.84%)
  • Dow 30

    -59.71 (-0.17%)
  • Nasdaq

    -295.85 (-1.92%)
  • Russell 2000

    -47.02 (-2.13%)
  • Crude Oil

    -0.28 (-0.42%)
  • Gold

    +21.40 (+1.22%)
  • Silver

    +0.17 (+0.76%)

    +0.0012 (+0.10%)
  • 10-Yr Bond

    -0.1050 (-7.25%)

    -0.0067 (-0.50%)

    -0.4090 (-0.36%)

    -4,454.30 (-8.38%)
  • CMC Crypto 200

    -74.62 (-5.18%)
  • FTSE 100

    -6.89 (-0.10%)
  • Nikkei 225

    +276.20 (+1.00%)

It’s Never Been About Groceries for Amazon Stock

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

The foray Amazon.com (NASDAQ:AMZN) made into the grocery arena in 2017 with its 2017 acquisition of Whole Foods Market was an interesting experiment. But, most AMZN shareholders would be hard-pressed to attribute the deal the Amazon stock price increase since then. More than anything, AWS and e-commerce growth lifted AMZN shares over the past year and a half.

Why Amazon Stock Could Be Hurt by a Lack of Focus
Why Amazon Stock Could Be Hurt by a Lack of Focus

Source: Shutterstock

It’s a nuance that might leave some investors wondering why the company would be interested in planning the development of a few dozen more traditional grocery stores. Not only is the landscape already saturated with well-established names like Kroger (NYSE:KR) and Walmart (NYSE:WMT), groceries have historically been a low-margin business.

Amazon is plowing in anyway, because it’s not really about groceries.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Data Is Key

While the so-called new economy is about the commoditization of consumer data, it’s not a strategy that’s historically found a place in the food arena.

That’s changing though. With a helping hand from new technologies and a forced acceptance of how the world has been changed by the wireless transmission of data, grocers are coming around.

Case in point: Early this year, Kroger unveiled a cooperation with software giant Microsoft (NASDAQ:MSFT) to develop a new kind of shopping experience. Using a pre-made shopping list, a mobile app guides customers to those items, and once nearby, a small screen affixed to that items shelf will point out the item’s exact location.

The technology only scratches the surface of what can be effectively done with a shopper’s data though. Kroger, borrowing a page from play books used by Amazon.com and Facebook (NASDAQ:FB), hopes to use that data to deliver highly-targeted ads to individual consumers.

While the Amazon Go concept has pioneered the idea of cashier-less shopping, Kroger has the jump on its budding rival in at least this one regard.

Something all grocers are likely to embrace soon? Using artificial intelligence to predict product demand, and ensure stores have enough of the right merchandise at the right time at the right price.

Eric Thorsen, with Nvidia’s global business development for retail and consumer products arm, explained late last year:

“Traditional business processes like SKU-store rollups have traditionally not been calculated regularly due to legacy hardware constraints. Now retailers with large assortments and many stores can accurately perform these calculations to understand product demand, promotion plans and replenishment schedules.”

Enter Amazon

Food Shopping and Amazon Stock

When all is said and done, it’s unlikely that even Amazon, which doesn’t mind taking losses in the name of market share, will be willing or able to offer meaningfully lower prices than its grocery rivals.

But, what it may be able to do better than any other grocer is use technology to develop a stunningly efficient management apparatus.

A better-run company is only part of the likely agenda though, explains Sylvain Perrier, CEO and of grocery ecommerce solutions provider Mercatus.

Amazon grocery stores will certainly use their expansive shopper data to merge the in-store and online grocery experience,” he said.

The average shopper’s experience will also merge with the other information Amazon has about individual consumers, helping the company build even more profitable customer profiles.

There’s another upside for Amazon in developing a wider grocery presence, however, that lies outside of food.

Most owners of Amazon stock are aware the company has delved into the private label arena, but most investors may not realize how deep into those waters it has waded. Amazon now owns dozens of its own brands including furniture, clothing, beauty and sporting goods lines just to name a few.

While Amazon.com has not hinted just how far away from groceries it will extend its selection in its grocery stores, given how far rivals like Kroger have gone to add goods like batteries, cooking appliances and patio furniture to its inventory, Amazon could and likely would do the same.

Amazon will certainly be recording purchases of those goods to suggest the purchase of other, related items.

It also matters, because profit margins and private label items tend to be significantly higher than sales of goods made by third party suppliers.

Bottom Line for Amazon Stock

For all that we do know about Amazon’s plans to step onto Walmart’s and Kroger’s turf, there’s still more we don’t know. Chief among those unknowns are what exactly Amazon intends to sell in these stores.

What’s almost entirely undoubtable, however, is that turning a profit on sales of food is the least of the company’s priorities with the initiative.

Not that it would be easy to determine given the organization’s usually-undetailed reports, but it may well run in the red with its grocery business.

Amazon stock holders need not sweat it. Whatever it may lose on the food front it’s going to more than offset by monetizing consumer data. And, consumers are apt to be more than happy to give it to them.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

More From InvestorPlace

Compare Brokers

The post It’s Never Been About Groceries for Amazon Stock appeared first on InvestorPlace.