Ama­zon goes af­ter gro­cery store mar­ket

The Denver Post - - BUSINESS - By Dow Jones Newswires

Ama­ Inc.’s un­veil­ing Mon­day of its first small-for­mat gro­cery store, Ama­zon Go, is one of at least three for­mats of brick-and­mor­tar food stores the on­line re­tail gi­ant is ex­plor­ing as it makes a play for the one area of shop­ping that re­mains stub­bornly in-store.

Two of the other store for­mats Ama­zon is con­sid­er­ing are big­ger than the con­ve­nience-style Go store. In Novem­ber, Ama­zon’s tech­nol­ogy team ap­proved a pro­posal to open large, mul­ti­func­tion stores with curb­side pickup ca­pa­bil­ity, clear­ing the way to start hir­ing and plan­ning, ac­cord­ing to one of the peo­ple who are fa­mil­iar with the mat­ter. Two drive-through pro­to­type lo­ca­tions, which don’t offer an in-store shop­ping op­tion, are also slated to open within the next few weeks in Seat­tle.

Ama­zon en­vi­sions open­ing more than 2,000 brick-and-mor­tar gro­cery stores un­der its name, depend­ing on the suc­cess of the new test lo­ca­tions, ac­cord­ing to the peo­ple. By com­par­i­son, Kroger Co. op­er­ates about 2,800 lo­ca­tions across 35 states.

Adding gro­cery pick­ups will be “part of their se­cret sauce in terms of all of the dif­fer­ent ways in which they can en­gage the cus­tomer in bring­ing the prod­uct to them,” says Bill Bishop, chief ar­chi­tect at gro­cery and re­tail con­sul­tancy Brick Meets Click.

“Every­one is look­ing at gro­cery be­cause of fre­quency. Fre­quency guar­an­tees that you have den­sity.”

The de­vel­op­ments are the next step in Project Como, Ama­zon’s plan to cap­ture more food sales, open­ing the door to a key driver of con­sumer spend­ing that would broaden the on­line re­tailer’s in­creas­ing dom­i­nance in the re­tail mar­ket. It will also help Ama­zon bet­ter com­pete against ri­vals like Tar­get Corp. and Walmart Stores Inc., which has al­ready built out a gro­cery click-and-col­lect pro­gram that it ex­pects to ex­pand to 1,000 lo­ca­tions by the end of next year.

An Ama­zon spokes­woman de­clined to com­ment.

Un­til now, Ama­zon has cen­tered its gro­cery strat­egy around Ama­zon Fresh, a sub­scrip­tion ser­vice that prom­ises quick food de­liv­ery for on­line or­ders. But de­liv­er­ing gro­ceries is lo­gis­ti­cally com­plex, re­quir­ing fast de­liv­ery for cold items as part of large or­ders on less prof­itable routes, where stops are spread far apart. And many con­sumers still pre­fer to touch, smell and pick out fresh items like fruits and veg­eta­bles for them­selves.

On­line pur­chases com­prise about 1 per­cent of the $674 bil­lion mar­ket for ed­i­ble gro­ceries in the U.S., ac­cord­ing to Kan­tar Re­tail.

The Ama­zon Go store, at roughly 1,800 square feet in down­town Seat­tle, re­sem­bles a con­ve­nience store­for­mat in a video Ama­zon re­leased Mon­day. It fea­tures ar­ti­fi­cial in­tel­li­gen­ce­pow­ered tech­nol­ogy that elim­i­nates check­outs, cash reg­is­ters and lines. In­stead, cus­tomers scan their phone on a kiosk as they walk in, and Ama­zon au­to­mat­i­cally de­ter­mines what items cus­tomers take from the shelves. Af­ter leav­ing the store, Ama­zon charges their ac­count for the items and sends a re­ceipt.

Mean­while, in the sub­ur­ban Seat­tle neigh­bor­hood of Bal­lard, a hand­ful of work­ers on Mon­day were fin­ish­ing up one of Ama­zon’s two drive-through pro­to­types in the area, slated to open in the next few weeks.

The third con­cept, the newly ap­proved multi-for­mat store, com­bines in-store shop­ping with curb­side pick­ups, ac­cord­ing to the peo­ple. It will prob­a­bly adopt 30,000- to 40,000square-foot floor plans and spar­tan stock­ing style like Euro­pean dis­count gro­cery chains Aldi or Lidl, of­fer­ing a lim­ited fresh se­lec­tion in store and more via touch­screen or­ders for de­liv­ery later. Stores in this for­mat, which are smaller than tra­di­tional U.S. gro­cery stores, could start ap­pear­ing late next year.

While Ama­zon is mov­ing into brick-and-mor­tar gro­cery shop­ping, other large re­tail­ers are ex­pand­ing their on­line ser­vices. Walmart’s curb­side pickup ser­vice of­fers some con­ve­nience with­out the cost of home de­liv­ery. Last week Walmart opened its sec­ond Pickup and Fuel store in Den­ver, a small-for­mat store that of­fers a lim­ited se­lec­tion of fresh food, snacks and gas as well as al­low­ing shop­pers to pick up on­line gro­cery or­ders.

Tar­get in re­cent months be­gan con­sid­er­ing a pi­lot to de­liver its own gro­ceries, which face de­clin­ing sales as too few shop­pers are buy­ing per­ish­able items like milk and eggs. But it hasn’t moved for­ward with the idea, ac­cord­ing to a per­son fa­mil­iar with the mat­ter.

“While we don’t cur­rently have plans to pur­sue a fullser­vice, Tar­get-owned gro­cery de­liv­ery ser­vice in the near term, we will con­tinue to dis­cuss the idea, among many oth­ers, and as­sess if it is the right fit for the fu­ture,” said Tar­get spokes­woman Katie Boy­lan.

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