From books to music to DVDs to consumer electronics to department stores, successive segments of retail have enjoyed the existential trepidation of seeing what competitive threat Amazon has launched today.
Grocery-store operators, welcome to the club.
This isn’t coming as a surprise to the grocery sector, or it shouldn’t if they’ve paid any attention to trends over the past decade. Even if they haven’t been monitoring Amazon for that long, they’d have to work hard to miss the signs Amazon is coming for them, with recent news items about Amazon testing and rolling out grocery delivery and building online-ordering grocery pickup locations.
They’d certainly know about it if they read this space, because we discussed grocery retail and new models for how and where food is bought and sold just a few weeks ago. But we’re back to the topic again because Amazon is up to something new.
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The Seattle-based company last week publicly unveiled (with a slick one-minute, 49-second video) Amazon Go, its latest innovation. It involves a physical store and a shopper with an Amazon account. The shopper enters the store, signs in with a mobile device onto which the Amazon Go app has been loaded, picks out items from the shelves and walks out with them, without stopping at a checkout stand.
The technology behind Amazon Go will, the company says, track what you’ve taken off the shelf in a virtual shopping cart (it’ll even, the company claims, know if you change your mind and put something back). Once you leave the store, your purchases are automatically billed to your Amazon account. This technology, using the “same types of technologies used in self-driving cars: computer vision, sensor fusion, and deep learning,” has been dubbed with the uninspired name Just Walk Out shopping.
Amazon already has a prototype store set up in the South Lake Union area for its customers to test, but says it will open to the public early next year.
About all of which, some thoughts:
▪ Some of the technology and applications aren’t new. People have been talking about smart physical shopping carts for years capable of reading all the items that have been placed in them and automatically computing a running total, then billing at checkout. The prospect of Amazon on the horizon could well prompt the acceleration of retailers trying out similar technologies. Many parts are easily mimicked. Even 7-Eleven has a mobile app.
▪ The challenge isn’t the technology itself, it’s scaling it up. Amazon says its first Just Walk Out store is 1,800 square feet. That’s small even by convenience-store standards; 7-Eleven says its stores average 2,400 to 3,000 square feet. The median size of a typical grocery store was 42,800 square feet in 2015, according to the Food Marketing Institute (that number has actually been declining; Trader Joe’s smaller stores might be a factor in that trend). Grocery stores carry on average 39,500 items.
▪ That shouldn’t make the industry complacent, thinking that this is a worry solely for small, urban limited-lines stores, since Amazon Go, at least initially, doesn’t seem designed for those doing their shopping for a family for a week. Doing a small test makes sense. If Amazon can prove the idea works in a convenience-store-size setting, the next step will be to try something larger. And it’s not as though the company doesn’t know the logistical back-end of retailing.
▪ Then again, Amazon has a tendency to be an idea-a-minute factory. Some work big time, like cloud services. Others, like its branded phone Fire, flame out (sorry) and it’s on to the next idea.
▪ Lots of people have been practicing “just walk out” purchasing for years. It’s called shoplifting. Security is one of the big issues to be studied. Will this approach work better in deterring losses, or make five-finger discounts easier?
▪ This technology isn’t cheap, but one reason it’s getting such a close look is that grocery stores, operating on thin margins to start with, are facing big increases in labor costs with higher minimum wages. Stores still need inventory and stocking clerks, but they might not need checkout clerks. Self-checkout machines don’t appear to be the answer, since they irritate many shoppers and still require an employee to help when the scanners balk at recognizing an item.
For all of its challenges and headaches, the grocery business keeps attracting new entrants. Over the past three decades the big source of consternation was Walmart. Now comes Amazon. Oregon-based New Seasons Market is adding stores in Washington. Tomorrow it may be someone else. We all need to eat, but do we have enough appetite to keep everyone in business?
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at firstname.lastname@example.org.