Amazon goes after grocery store market
Amazon.com 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.