×

Why Amazon needs to do more brick and mortar, not less

  • To compete with grocery stores, Amazon may need to add more brick-and-mortar locations.
  • Cowen & Co. told CNBC that only about 12 percent of U.S. grocery shoppers bought their groceries online at some point in 2016.
  • Moody's analyst Charles O'Shea says competitor Wal-Mart was able to grow its food share from $50 billion to $220 billion in the last 15 years because of its brick-and-mortar expansion.

The acquisition of Whole Foods Market may finally be complete, but Amazon still has work to do.

The tech giant has been pushing to expand its online grocery business, seeing it as an emerging opportunity. However, to do so, the company may need to do something a little out of character for the brand — add more brick-and-mortar locations.

"Food delivery is a niche business," Moody's analyst Charles O'Shea told CNBC's "Squawk Alley" on Friday. "It plays in New York. It plays in Chicago. It plays to the upper-end demographic."

Currently, few people purchase their groceries online. Cowen & Co. told CNBC that only about 12 percent of U.S. grocery shoppers bought their groceries online at some point in 2016.

O'Shea said for Amazon to thrive, it will need to "do more brick and mortar, not less."

He compared the tech giant to retailer Wal-Mart, which has been able to grow its food share from $50 billion to $220 billion over the past 15 years.

"It got big quickly," O'Shea said. "It did it with brick and mortar."

Amazon's online success won't need to fall by the wayside, however. O'Shea said he expects the company will use its online strategy to "augment a great brick-and-mortar business."

After all, the majority of Amazon Prime members make more than $100,000 per year and 52 percent of them already purchase groceries online via the website.

WATCH: AMZN, BABA race to $500M market cap