Getting ready for Amazon grocery
Experts speculate on how commerce giant will enter ring
As Amazon readies its grocery chain, analysts and competitors are trying to predict how the commerce giant will make what many expect to be a major move into the biggest category of retail spending.
Picture a grocery store with a miniature version of a highly automated fulfillment center on an upper floor. Robots whiz between tall, narrow shelves, plucking canned goods and boxes of cereal ordered by customers shopping online or in the wide aisles of the fresh market on the floor below.
Outside, delivery drivers wait to ferry grocery orders to nearby homes, while other customers drive up to collect their shopping.
That’s one industry specialist’s vision for Amazon’s possible approach. It’s an idea already under development by Boston-based Alert Innovation — which has a crucial piece of it, the robots, in use at a Walmart store.
Or perhaps Amazon’s new grocery chain will look more like that of German discount grocer Lidl, which takes a no-frills approach, providing low prices and rotating a selection of discounted general merchan
dise that gives customers a reason to come back regularly in search of deals.
The company on Monday confirmed its first standalone grocery store will open next year in suburban Los Angeles. Earlier reports suggest the company has signed leases for more than a dozen other stores, and many industry watchers expect the company to open perhaps a thousand stores across the country in the coming decade. Amazon’s own job listings seek people to lead large-scale programs to support stores offering a “unique customer experience.”
But just what that experience will be, Amazon isn’t saying. A company spokesperson said the new grocery store will have a conventional checkout experience, and is neither a version of the natural and organic Whole Foods chain nor an Amazon Go, the convenience stores that use sensor technology to track customer purchases so they don’t have to wait in line to pay.
John Lert, co-founder and CEO of Alert Innovation, said his company’s “Novastore” concept, which it’s developing independent of the robotics work with Walmart, would revolutionize the grocery business, letting customers peruse the fresh foods and produce, while automated systems quickly gather together the packaged foods on their grocery list and fulfill online orders.
A crucial piece of the system is the company’s Alphabot, a small robot that would move among the shelves in the store’s micro fulfillment center. Walmart began using these robots earlier this year in its own micro fulfillment center for online orders added to the side of a store in Salem, N.H. The big box retail giant is using other robotic systems for cleaning floors and unloading merchandise at other stores, including in Washington.
Walmart and Amazon and other competitors in mass-market grocery are putting together other pieces of a multi-channel grocery strategy using existing stores where employees or gig-economy workers go through picking up orders for online customers.
The automation piece is the hardest part, Lert said. The systems have to be cheap and compact enough to install in hundreds or thousands of stores, but also fast and reliable enough to gather items before customers finish selecting their fresh foods in the market below.
“There’s never been an automation application that can touch this in terms of complexity and challenge,” said Lert, who began working on grocery store automation in 1994.
He said his company could have a working prototype of the Novastore concept in two to four years.
If anyone else is poised to do it, it’s Amazon, he said, pointing to its network of increasingly automated large-scale fulfillment centers that use robotics technology first developed by Kiva Systems, which Amazon acquired in 2012.
“How far they’ve gotten with solving the automation problem, I don’t know,” Lert said, adding, “when they figure it out, they’re going to build a lot of stores.”
Amazon’s existing logistics prowess coupled with the opportunity to build grocery stores in this way from the ground up could give it a huge potential advantage as it vies for a bigger share of the trillion-dollar-plus grocery category. This kind of store-level automation would also extend the company’s fresh foods supply chain much closer to the end customer, facilitating faster grocery delivery.
Lert said he expects the total cost of developing and operating an automated, multi-channel grocery store to be lower than that of today’s traditional stores, because they would require less land, parking and human labor, meaning they could sell groceries for lower prices.
But no one expects Amazon to limit itself to grocery sales.
Mike Trafton, a retired grocery executive from Boise, Idaho, sees another model for Amazon in German discount chain Lidl. He’s been living in Europe for a year, staying at
Airbnbs and shopping exclusively at Lidl stores.
“Lidl and Aldi” — another discount European grocery chain — “sell huge amounts of general merchandise, appliances, clothing, tools, just stuff that they buy on deals. The customers flock to their stores daily because if you don’t buy it, it’s gone,” Trafton said via email.
Amazon, he said, could do something similar. Moreover, the company’s world-leading inventory management systems could help manage out-of-stock items and shrinkage (shoplifting and employee theft), which are “a huge problem in the grocery business,” he said.
Amazon’s long-rumored grocery store plans were confirmed in job postings for a single Woodland Hills, Calif., store. In recent months, the company has also posted several other positions related to its launch of “a new Amazon grocery store.” Language in the job listings point to Amazon’s ambition to create a large-scale chain of grocery stores with a “unique customer experience.”