Amazon Plans to Broaden Its Empire With More Whole Foods Stores

Amazon's (NASDAQ: AMZN) dominance is well documented when it comes to e-commerce: As the doors close on 2018, the company is expected to account for nearly half of all digital sales in the U.S. While more recent estimates have yet to be released, Amazon nabbed 4% of all retail sales in the country in 2017, 44% of all online sales, and was responsible for the majority of growth in online purchases.

Investors will also be aware that the company has much broader ambitions that run from streaming video to artificial intelligence, and from advertising to cloud computing. It even made a significant incursion into brick-and-mortar retail with its $13.7 billion acquisition of Whole Foods. Now, it seems the company plans on expanding its domain by adding more Whole Foods Stores.

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More than just groceries

Amazon is moving to expand its network of Whole Foods stores, particularly in areas where the company is growing its customer base, according to a report in The Wall Street Journal (paywall). Since it acquired the struggling specialty grocer back in mid-2017, Amazon has put it back on the path to growth. Now the company has plans to open a bevy of locations in places were Whole Foods currently doesn't have a presence, including Idaho, Wyoming and southern Utah, according to the report.

Prime Now would be a key beneficiary of the expansion. The program allows Amazon Prime subscribers to get two-hour delivery of groceries and other items in 63 metropolitan areas. Customers can also order groceries online and pick them up at a growing number of Whole Foods stores.

Key strategic importance

While an expansion will no doubt increase competition with existing grocery stores, these additional stores will serve a number of purposes for the e-commerce juggernaut. Soon after it purchased the grocer, the company opened pop-up kiosks inside a number of Whole Foods stores where specially trained staff promoted Amazon devices. These provided shoppers an opportunity to interact in person with Echo smart speakers, Fire tablets, Kindle e-readers, and the like. Unstaffed displays also appeared at other locations, a lower-impact way of showcasing its devices.

That's not all. Amazon has more than 2,800 lockers located in 70 major metropolitan areas across the U.S. -- including at a growing number of Whole Foods stores. The lockers serve as secure delivery locations from which customers can pick up their Amazon orders at their convenience -- an often attractive alternative to leaving them unattended outside their front door all day.

Expanding the constellation of Prime benefits to include discounts at Whole Foods has been a successful strategy for getting more customers into the stores. A recent survey of 1,200 customers found that almost half said that they were patronizing Whole Foods as a result of those Prime discounts.

Ahead of the recent Thanksgiving holiday, Whole Foods broke its all-time record for turkeys sold during the period. Amazon said that "more customers than ever before opted to have their turkeys delivered this year with Amazon Fresh and Prime Now." This is a perfect example of the benefits of further blurring the lines between Whole Foods and Amazon.

Prime real estate

This latest move by Amazon will put an even larger share of its growing Prime subscriber base within range of its two-hour delivery offering. And it will also add more stores to areas where Whole Foods is growing its own customer base.

With more than 36% revenue growth and rapidly expanding margins so far in this fiscal year, Amazon continues to progress along its path toward world domination. Adding more Whole Foods stores to the 475 it already operates should only boost its momentum.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.