Slow growth for Amazon in-store sales, but online delivery is up

While the big takeaway from Amazon’s first-quarter earnings report last Thursday was the announcement of free one-day shipping for Prime members, there was plenty of other news in the report and subsequent earnings call of interest to grocery retailers.

The company notched a record $3.6 billion in profit on almost $60 billion in sales during the first quarter of 2019, compared to a $1.6 billion profit on $51 billion in sales a year earlier. First-quarter sales rose 17% year over year, down from last year’s 46% sales growth.

Meanwhile, sales at the company’s physical stores—which include about 500 Whole Foods stores, as well as a growing fleet of Amazon bookstores, pop-ups and cashier-less Go convenience stores—grew just 1% to $4.3 billion from $4.26 billion a year ago.

In an earnings call with analysts, Brian T. Olsavsky, chief financial officer & senior vice president, Amazon.com, noted, “The physical stores’ revenue is principally Whole Foods revenue, but it excludes the online ordering component where people order on the Prime Now app and it’s delivered to them. That shows up in our online stores classification.”

He continued, “Last quarter I told you that our growth in store sales, including both shopping and also online deliveries, was closer to 6% in Q4. And it’s a similar number in Q1. So, again, we’re very happy with both the recognition of the Prime benefits at Whole Foods and also the purchases. And you may have also noticed that we lowered prices for the third major round of price cuts since we joined forces with Whole Foods in the summer of 2017.

“More Prime members have adopted the Whole Foods benefit than almost any other benefit we’ve offered them,” Olsavsky said. “And they’re saving, as a result, hundreds of millions of dollars. We continue to expand the coverage for delivery. We have delivery from 75 U.S. metros through the Prime Now app, and we also have pickup in over 30 metros through the Prime Now app.”

“We are also continuing to invest in our other grocery initiatives,” added David Fildes, director, investor relations, Amazon.com. “Amazon Fresh, Prime Now—which offers grocery as one of the components of the selection there for the two-hour or even one-hour delivery capabilities. We’ll keep investing in those areas and other initiatives as well where we can get food through — Amazon Pantry, Amazon Go. There’s a number of initiatives there. So we’re excited about what we’ll be able to continue to bring to customers on that space.”

As for that highly touted one-day free shipping, Amazon announced it will spend $800 million in the current quarter to reduce free delivery times for Prime customers to one day from two. Olsavsky said faster delivery times will increase the number and types of products customers are willing to buy from Amazon.

“We really think it’s going to be groundbreaking for Prime customers,” he said on the conference call. “We have the capability because we’ve been at this for more than 20 years.”

Amazon didn’t offer a timeline for the project’s rollout, which will begin in the U.S., but Olsavsky said, “we expect to make steady progress quickly and through the year.”

Thursday’s strong results and faster shipping announcement bolstered Amazon’s shares by almost 1% Friday morning while shares of Target and Walmart fell 5.4% and 3%, respectively.