Photo: RetailWire
Will Amazon give new meaning to convenience stores?
There is a lot of grocery news coming out about Amazon.com. Construction on its not-so-secret drive-up grocery store in Seattle’s Ballard neighborhood appears to be heading to completion. The e-tail giant just dropped its annual subscription fee and converted to a monthly charge for Prime members to entice them to use AmazonFresh. Could it also be, as reported by The Wall Street Journal, that Amazon is planning to open convenience stores?
The stores, according to the paper, would stock a variety of dairy, meat, produce and other perishable items that customers could take home with them. The idea is to capture those customers who like to make quick stops to pick up small orders of groceries on their way home from work. Shoppers who need other items not stocked in the stores would be able to order them for same-day delivery by either using provided touchscreens or their personal mobile devices.
With its recent moves, Amazon seems intent on capturing greater share of the U.S. grocery market where it currently holds a 1.1 percent share, according to Cowen and Company.
Should Amazon pursue opening convenience stores, according to USA Today, it would follow unsuccessful attempts by Walmart with its To Go stores as well as Tesco’s Fresh & Easy. And it’s doubtful that the major, established c-store chains will cede ground easily.
Seven & I Holdings, the parent company of 7-Eleven, recently announced plans to expand in North America through an aggressive acquisition strategy. The company plans to up its store count in North America to 10,000 by its fiscal 2019. The convenience store giant currently has 8,900 stores.
- Amazon to Expand Grocery Business With New Convenience Stores – The Wall Street Journal (sub. required)
- Amazon convenience store? Don’t worry, 7-Eleven – USA Today
- Amazon reportedly plans to open convenience stores – Engadget
- 7-Eleven Seeks North American Expansion, in Bow to Daniel Loeb – The Wall Street Journal (sub. required)
- Amazon’s secretive drive-up grocery store takes shape in Seattle neighborhood – GeekWire
- Will Amazon drive-up grocery stores disrupt retailing? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Are American consumers ready for a new type of convenience store emphasizing fresh foods? Do you think Amazon could create a winning concept?
Poll
BrainTrust
Chris Petersen, PhD.
President, Integrated Marketing Solutions
Robert DiPietro
SVP Energy Services and New Ventures, HomeServe
I can hardly wait. Amazon has taught all brick-and-mortar retailers a thing or two with things like Fire, Prime, Echo, Dash, One-Click, etc., so I would expect to see the “Convenience Store of the Future” in this effort as another lesson. Let’s get on with modern retail, shall we?
I’ve been tracking Amazon as an analyst since 1998 and have said this before, and I’ve been wrong most of the time. But THIS time I really do think that Amazon is out over its skis. Moving aggressively into fresh food categories in brick-and-mortar at the same time that it is expanding aggressively into new Prime Now markets, while trying to maintain its lead in cloud computing and keeping its lead in the digital assistant world is too much even for Amazon.
Compete is a verb! The announcement of convenience stores is a clear sign that Amazon is gearing up to compete … compete with pretty much everybody.
I think that it would be a false assumption to conclude that Amazon’s convenience stores will be like a traditional convenience store. They are much more likely to be distribution/collection points than stores heavily stocked with merchandise. And who would be better than Amazon in using data on local market purchase trends to curate customer-tailored assortments?
The convenience store seems to be an ideal format for Amazon to continue its march for AmazonFresh, as well as propagate the value of Amazon Prime.
Opening, maintaining and managing a network of convenience stores is a daunting task. Amazon certainly has the means to do something like this, but why? They would be better served by learning how to integrate their online expertise with the challenges of the physical store through a network of Amazon stores, then leveraging all these learnings in creating the next generation “store-within-a-store” concept. I suspect there isn’t a convenience store operator from 7-Eleven or Kroger to Couche-Tard (McDonald’s? Starbucks!?) that wouldn’t be interested in landing a contract with Amazon. It would give Amazon relatively fast market penetration and access to a broad consumer audience. The new retailing frontier, indeed!
Amazon definitely learns from its own mistakes and the mistakes of others. It also learns from the successes of others (Prime is based on the Costco membership model). They have the shopping data to determine what will have the most impact for the most consumers in the markets they go after. They have pulled in the merchandising expertise from the industry, with several former brick-and-mortar retail execs now working for them. And, perhaps most importantly, they have people with great imaginations that can pull off engaging shopping concepts. Just like the rest of retail, the keys for success will be pricing, inventory/assortment and service.
As a side note, the Cowen stat of Amazon having 1.1 percent of the U.S. grocery market is highly suspect. Maybe, just maybe, Amazon hits that figure if all sales of anything typically sold in a supermarket are included. But they’re not even close in the basic center store and fresh categories.
Yes, I think Amazon will give new meaning to convenience stores. What we must first do is throw away conventional logic that defines a c-store. Then use our imaginations in much the same way Amazon will as it launches into the brick-and-mortar fray. Honestly, I’d be very surprised if they do exactly what everyone else in the space is doing expecting different results … that sounds like insanity to me.
It is interesting to note that c-stores stands alone as the growth sector in U.S. retail. That means many are chasing it. From established brands hoping to satisfy The Street’s demand for growth to dollar stores opportunistically expanding, as well as regional players hoping for a national footprint.
In order to deliver value, retailers constantly balance time and price. C-stores have become compelling due to the complex demands in lifestyles that have reshaped shopping behavior.
I agree with Ken, operating a c-store is very different from a bookstore. The assortment complexity alone is daunting, not to mention 24-hour operation. And we’ve seen great retailers (Tesco, Target) struggle with convenient “fresh.” That said, Bezos found a way to successfully compete in the rocket business. Therefore I believe if any novice can win, it is Amazon.
Of course this comes with words of warning, “retail ain’t for sissies!”
Amazon could sneeze in the middle of the forest and it would be front page news. Fresh foods take an enormous amount of planning, labor, talent and skilled culinary people to pull off what this article is saying, and unless they do it like a scaled-down Whole Foods or Wegmans, success will be minimal.
Anybody can stock their shelves with shipped-in sandwiches and salads, but real foodies want to see fresh in-house made products that are outstanding, or they will go somewhere else. Perhaps on a college campus, where Amazon is a god, this could work but there are too many really good options from local stores which prepare amazing foods that Amazon can not compete with unless they invest in the proper people to make it fresh on site.
I could be wrong, but when I travel, I go to the places that have homemade signature foods I can enjoy, not something shipped in from who knows where.
Amazon can create a winning concept. I think we are ready to revolutionize vs. evolve the fresh food shopping experience. Given the vast resources of Amazon and the ability to worry about profits later they can try some ideas that haven’t been thought of before. I can’t wait to see it in action. Between Amazon and Google opening brick-and-mortar stores, it seems ripe for revolution.
Peters and Waterman, borrowing liberally from Peter Drucker, pointed out the value of “sticking to the knitting,” or doing what you do best, some 30 years ago. Amazon would do well to fully comprehend that wisdom.
They are entering an entirely new arena with added real estate costs (that box has to deliver an ROI), new and different labor costs, working with fresh meat (can they get to scale and move product fast enough to avoid sanitation issues that grocers work hard to master?), setting themselves up for return merchandise and where-does-it-go logistics that UPS and FedEx study daily.
I agree with Ken Cassar that the Seattle juggernaut is out over their skis.
Globally, retail sales exceed $22 trillion. Walmart gets $482 billion of that, Amazon gets $100 billion of it. In that context, the opportunity for these two retailers who want to be “the place” you go whenever you want or need anything is huge — and investments in capturing that opportunity are (and should be) proportionally huge. Given 75 percent of retail sales occur within 15 miles of the home*, Amazon either has to come up with a consumer value proposition that beats “oh, I’ll just pick that up on my way home” (Prime, Fresh) or they have to invest in brick-and-mortar, and probably a combination of both.
As for this particular concept, it could work — but traditional food retailers have an advantage considering the importance of data in making sure the assortment of such stores is optimized to drive frequency. Amazon does have some advantages — including the benefit of being able to invent from scratch and deploy technology better and faster, but traditional food retailers have the advantage of STILL being the consumer’s preferred store and they have significantly better/more relevant data if they can realize the value of that data to their and their shopper’s benefit better.
* I see this stat (75 percent of sales occur within 15 miles of the home) often, but it is rarely credited … I’d love to know where this stat originated from if someone can help out via comments.
It’s here. The moment that a lot of grocery and c-store chains have been dreading. It was always going to be here. It’s a small start but the signs are ominous. Amazon with its almost infinite skills in Big Data, personalization and most importantly logistics is entering the fresh foods market. This will surely mean more convenience to the customers who are already familiar with an incredibly reliable and efficient delivery system. One-click grocery, efficient pick-up, personalized recommendations and reliable quality.
It’s a small start, but grocery chains that don’t move now to usher in the new era of retail will be left behind in a few years. Leveraging customer data, improving personalization, mobile-centricity and building efficiencies into in-store experiences are the only options for those who want to survive in this new reality.
This is just a warning shot from Amazon. Of course there are tens of thousands of supermarkets, and I don’t mean to spell gloom and doom, but the future is evident and early movers will be the only ones to prosper in this new tomorrow. Supermarkets that build deeper relationships with their communities, get smarter with their data and build strategic partnerships to stay in the technology game are sure to weather this change.
Game on.
Actually, if you focus strictly on shoppers and their needs and wants, this no-brainer has been obvious for at least a couple years. My own comment that “ALL supermarkets are essentially convenience stores with big long floppy tails,” foresaw this. Also, I have said that “as long as shoppers live in bricks and mortar houses, they WILL be shopping in bricks and mortar stores!” Looking at the frequent trips that shoppers take to buy food and drink also confirms the reality that food and beverage drives global retail through TRAFFIC.
I think there are serious needs for brain-transplants for an industry stuck like in thick mud from 100 years of “merchant warehouseman” retailing, ignoring the actual function of their unpaid stock pickers, aka shoppers. Dealing with the traffic alone, it was a stroke of genius that led Walmart in the ’80s and ’90s to focus on groceries. I remember the hoots and hollers of the commentariat about how foolish Walmart was to think they knew anything about groceries. Of course, that grocery move was the primary force behind Walmart becoming the near half-trillion dollar global behemoth they are today. They built 200,000 square feet “convenience stores” with BIG long floppy tails, that were actually rat maze warehouses, burying the convenience. And they have NO clue as to how to deal with Amazon’s coming onslaught with THEIR super efficient “infinite” long tail — “The Everything Store” — served up in a true “convenience store.”
And do notice how Amazon is “CONVERGING” bricks and online, something I have been adamantly promoting since 2005, to deafening silence: “Shoppers who need other items not stocked in the stores would be able to order them for same-day delivery by either using PROVIDED TOUCHSCREENS or their personal mobile devices.” At least I have a patent pending on such “touchscreens” in the store, I refer to as the “Long Tail Accelerator.” See: 20160247219 – INTERACTIVE TRANSACTION SYSTEM FOR PHYSICAL MERCHANT STORES.
Ah well! Nothing more difficult than changing your mind, and it’s been an exhilarating and painful process for ME over the past dozen plus years, changing MY mind — thanks to Glen Terbeek for getting me on the right track, way back when — and Mark Heckman for steering me to Terbeek!
(I’ve written enough acerbic comments about Walmart’s less than insightful efforts online, that I won’t repeat myself here. Even if I usually do. 😉 )
Quite frankly I just don’t get Amazon’s venture into fresh food. What do they know about the grocery business and what have they done in the past to ready them? This is a tough market too. Why not play to your strengths like other successful businesses do? And, what is going to compel me, the consumer, to buy from Amazon? I’m still scratching my head over this one.
That said, I would have been more excited to see Amazon open “convenience” stores that would make it more convenient for me to do business with Amazon. Pick up, drop off. A curated selection of popular items one might need on the fly. That sort of thing. Not groceries.
But that’s just my 2 cents.
Amazon has been redefining retail (and business) since selling its first book in 1995. How we come to define and experience convenience stores in the digital era will also change with innovators such as Amazon (and others yet to come).
By blending massive data stores, predictive algorithms, instant consumer access and connectivity, we are on the cusp of a new “Omniretail” reality that will take the future convenience store in an unprecedented multi-functional direction.
Those not anchored in the past will view the future as full of potential rather than being limited by existing models.
The C-Store business is sui generis. I am not convinced that Amazon can leverage either its brand or core competency to cover this new and unique area. I predict that it will have trouble gaining a foothold. But if established (Big If), then who knows? Sky’s the limit.
Amazon knows they aren’t just a retailer selling merchandise. They are a retailer that also sells convenience. First, a robust website with great selection and competitive (extremely competitive) pricing. Second, a delivery system that can include two hour deliver for some merch in some markets. And third, their delivery, pick-up and shipping programs are all about more convenience for the customer. Amazon has been in the convenience store business for a long time!
Time-starved Americans are definitely interested in convenient, fresh foods, especially those of high quality and truly fresh. This trend is reinforced by some of the leading convenience stores — like Wawa, Sheetz and QuickTrip — that are expanding and promoting their options for fresh and made-to-order sandwiches, pizza and other deli items. Amazon is also looking to take advantage of a best practice in the supermarket space by offering prepared foods to time starved consumers. The convenience stores that are doing this right are focused on quality, not quantity, as this is what keeps customers coming back.
Amazon has demonstrated that it has the funding, talent and infrastructure to dominate in whatever category or market they enter. As they expand into new offerings or markets they combine their scale and resources with the best practices of other retail sectors and individual retailers as a recipe for success. They are good at everything retail and convenience stores will be the next area they dominate. Watch out, here they come! Sounds like the Walmart playbook!