The San Fernando Valley has emerged as Amazon.com Inc.’s chosen testing ground for its new Amazon Fresh grocery concept.Three of the banner’s first four stores are located in Valley neighborhoods. The inaugural location opened in a former Toys-R-Us site in Woodland Hills in September, followed by supermarkets in Irvine Market Place in Orange County, the Porter Ranch Shopping Center in Northridge and the bottom floor of an upscale apartment building in the North Hollywood Arts District.
But what makes the Valley the right place for the Seattle e-commerce giant’s grocery venture?In an email to the Business Journal, an Amazon Fresh representative declined to answer questions regarding the company’s rationale for launching in the Valley and instead offered a boilerplate statement.“We’re pleased to serve this community, particularly during this time when we know access to low-cost, quality groceries is important to customers,” the representative said.According to commercial real estate broker Matthew May, president of May Realty Advisors in Sherman Oaks, the San Fernando Valley has all sorts of attractive qualities for supermarket operators.
“From one perspective, it’s a perfect test kitchen of upscale suburban.” May said Valley shoppers are generally wealthier and willing to spend more on groceries than shoppers in other regions. He cited annual sales numbers at Ralphs, Gelson’s, Vons and Whole Foods supermarkets in Sherman Oaks, all of which in average years hover around $1,000 per square foot – roughly double the industry’s national average of about $500 a square foot.“From a productivity standpoint, if they’re doing $1,000 a foot, they can afford higher rents. It’s all about sales to occupancy cost,” May said.Meanwhile, unlike downtown L.A. or densely packed Hollywood, the Valley is rich with strip malls and shopping centers for which grocery stores make excellent anchors, especially in residential neighborhoods.“If we said, ‘Let’s do Wilshire Boulevard instead of Ventura Boulevard, you would not be finding that many (big box properties),” May said.
Of course, it also helps that Amazon already has a slew of real estate deals in place for its Whole Foods grocery subsidiary, which it acquired in 2017. Some properties earmarked years ago for Whole Foods have switched to the Amazon Fresh banner.
For example, Amazon Fresh in Porter Ranch replaced a 30,000-square-foot unit formerly occupied by Whole Foods. The Whole Foods didn’t close, but rather moved down the street to the neighboring Vineyards at Porter Ranch shopping center.Additionally, May said a source told him the North Hollywood grocery “was signed as a Whole Foods deal originally,” but the company decided to put Amazon Fresh there instead.May said Amazon needn’t worry about cannibalization in that regard.
“The average consumer will shop at two or three places for everything they want. They’re not going to one grocery store to get everything. That’s happening more than ever,” he said.
In line with that analysis, Amazon is marketing Amazon Fresh as a different shopping experience than health-forward Whole Foods, whose private-label products are more expensive. Amazon Fresh has been marketed as more economical for working families.
Amazon Fresh also marks the debut of the Amazon Dash Cart, a technology featured at every store, which eliminates the traditional checkout process by using sensors and algorithms to automatically charge customers based on the items they place in their carts – a service Amazon is billing as especially useful amid the coronavirus pandemic, because it eliminates the close proximity of the checkout counter.May said differentiating factors such as Amazon’s technology, including its focus on grocery delivery, help draw in different types of consumers.“As a consumer, we want to have some type of emotional connection with where we spend our money and where we go,” he said. “That’s part of the novelty of Amazon. They have a brand appeal.”There was also a transaction between Amazon and L.A. developer Caruso which saw Amazon take 31,000 square feet in The Promenade at Westlake shopping center in Thousand Oaks.That location hasn’t opened yet.