How will AmazonFresh Pickup stores affect the grocery business?

Discussion
Photo: RetailWire
Mar 15, 2017
George Anderson

It’s not exactly a secret that Amazon.com has been working on its own drive-up grocery concept. New reporting, however, shows the company is getting closer to launch and as the time approaches come the inevitable questions of what Amazon plans to do with its new concept and what will it mean for rival retailers.

Geekwire reports that Amazon received permission from permitting authorities in Seattle to install signs reading “AmazonFresh Pickup” at two locations in the city’s Ballard and SoDo neighborhoods. Windows at the entrances of the store read, “Hello Ballard” and “Hello SoDo.”

Amazon’s permit filings also show signs on the exterior walls of the stores that read, “Shop online. Pick up here.” and “Relax while we load your groceries.”

Each location, according to Geekwire, will include a physical store as well as an awning for drivers to park under. Hours of operation for the stores are expected to be between 7:00 a.m. and 10:00 p.m. Amazon has yet to publicly acknowledge plans to open the grocery pickup stores.

Research by Cowen estimates that online grocery sales will grow at a 20 percent annual compound rate over the next five years. Amazon, which is currently the ninth largest grocer in the U.S., according to the firm, will likely move to the number three slot by 2021.

Separately, the Food Marketing Institute and Nielsen project consumer spending on online groceries may reach as high as $100 billion or 20 percent of total dollar grocery purchases by 2025. That is equivalent to 3,000 grocery stores, based on volume.

With the AmazonFresh Pickup concept, Amazon continues to explore the potential of using brick and mortar locations to improve its business. The company recently unveiled an Amazon Go convenience store concept in Seattle. It also announced plans to open its tenth Amazon Books store and a pickup store on the campus of Ohio State.

DISCUSSION QUESTIONS: Will Amazon climb into the ranks of the top five grocery retailers in the U.S. over the next five years? How do you expect the opening of the first two AmazonFresh Pickup stores will affect planning by other grocery retailers?

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"I think that it's a fair bet that Amazon will at least come close to the top five U.S. grocery retailers by 2022."
"...it’s hard not to imagine a very different grocery retailing landscape by 2022."
"Achieving a top five grocery position in the U.S. in five years is a tall order for Amazon..."

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22 Comments on "How will AmazonFresh Pickup stores affect the grocery business?"


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Max Goldberg
Guest

Amazon is not afraid to innovate, test and adjust. As such Amazon will continue to grow its share of the grocery business, especially when combined with its Prime subscription and high levels of consumer trust.

Ken Cassar
BrainTrust
Ken Cassar
Vice President, Research, Shoptalk
2 years 8 months ago

Historically, Amazon had been very careful about its moves in the grocery market. Amazon Fresh (with delivery) has had an extremely slow rollout. But Amazon does seem more urgent now. Amazon Prime Now skews much more heavily toward food than Amazon proper (about 35 percent of sales are grocery), and we see experimental store formats in Amazon Go and now Amazon Fresh Pickup. I think that it’s a fair bet that Amazon will at least come close to the top five U.S. grocery retailers by 2022.

David Livingston
Guest
2 years 8 months ago

I think by 2022 that all the relevant grocers in the U.S. will have a click and collect program. Many already have for a long time so Amazon is late to the game.

Ross Ely
Guest

AmazonFresh Pickup should be successful in urban markets, and Amazon has an opportunity to become a top-five player in high-density population areas. However, the BOPIS model is still unproven in rural and suburban markets, and it’s not clear that success in urban areas alone can vault Amazon into a top-five position in the industry.

Other grocery retailers are continuing to test BOPIS and home delivery to find models that work for their shoppers. These moves by Amazon are no surprise and will not significantly affect retailers’ strategies around adding BOPIS options for their shoppers.

Camille P. Schuster, PhD.
BrainTrust

Amazon has been increasing its rank in the last few years. These experiments will help. If they are successful and if the rollout is successful then they will surely climb in the ranks. Other retailers will be watching the rollout of physical stores and the pickup spots with interest to see how successful either or both strategies are.

Ryan Mathews
BrainTrust
First of all … a little perspective. Amazon has used pickups as a way of circumventing delivery costs in markets like Tokyo for years, so it’s not exactly a new idea — even for them. Second, the grocery market share projected for e-tailers has never reflected actual performance. One can project all they want. Me? I’d like to see hard sales data, not projections. Finally, I expect some other grocers will panic in the face of Amazon’s moves — assuming of course they actually move past a beta test and become sustainable retail fixtures — but they shouldn’t. There is a direct relationship between volume and cost at work here. The higher the value of grocery goods Amazon sells, the higher their cost structure climbs. The higher their cost structure climbs, the more inclined they will be to pass those costs on to the consumer. The higher the cost to the consumer, the smaller the effective target market becomes. So … could they become the fifth largest U.S. grocer? Anything is possible, but let’s wait… Read more »
Richard Layman
Guest
2 years 8 months ago

The real problem for the grocery industry is the same problem for the retail industry in general. Traditional retailers only need to lose a small percentage of sales to online channels (Amazon mostly, but not only) to significantly and negatively impact their margins, revenue and profitability. They’ve lost that proportion of business and their revenue and business models are suffering.

For groceries, Amazon has the luxury of only having to focus on submarkets where its membership penetration with Amazon Prime is already high. This helps them build even more share of wallet with their members and allows for cross-sale opportunities to improve profitability/transaction that don’t normally present themselves for traditional supermarkets, which have limited scale and capacity for semi-related add-on sales. Kroger and H-E-B, with their marketplace formats, might have some opportunities here not typically possessed by most other supermarket chains.

Paula Rosenblum
BrainTrust

I think if Amazon can actually do it well and profitably it will find itself in the top five. Regardless, it appears that grocery is finally poised to make its online move. I think for center-aisle things it already has, to be honest.

Existing retailers would do well to figure out the best customer-friendly approaches — most critically, managing the pretty awful out-of-stock situation I find every time I shop.

Adrian Weidmann
BrainTrust

According to a recent NPD study, retailers now account for 14 percent of meals traditionally served at restaurants. This along with the explosion of delivery services available to consumers will continue to drive delivered groceries and prepared meals/food. Amazon continues to experiment in ways that extend and support their business model. Delivery is a fundamental part of their business model. Anything, or any place, that can leverage the delivery of products to where shoppers and customers live, work and play is worth exploring.

Di Di Chan
Guest

As successful as e-commerce is,about 95 percent of business is still done in traditional retail stores. As data-driven as Amazon is, it’s not a surprise that the online giant is coming off-line too. While they may not have much direct grocery experience, with what they’ve learned from working with grocers via Amazon Fresh and their years of online training on what customers like, Amazon have a huge efficiency advantage that could catch them up pretty quickly. Given that their core competency is technology (e.g. line-free checkout with Amazon Go) and delivery (e.g. the new AmazonFresh), Amazon is a competitive contender in grocery retail.

Amazon coming into the grocery space will shift consumers’ expectation of grocery shopping even more. Competition in grocery will extend beyond price and quality into customer experience and convenience, too.

HY Louis
Guest
2 years 8 months ago

Too much attention goes to Amazon and we often forget that other grocers are quietly developing new technology or subscribing to similar solutions.

Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
2 years 8 months ago
Applying Cowen’s estimates and the FMI/Nielsen projections, it’s highly feasible that Amazon will be in the top five grocery retailers in the US in the next five years irrespective of how successful AmazonFresh pickup stores turn out to be. Center store products are ideal for Amazon’s traditional model and subscription business. From price comparisons to in-stock position, to ease of ordering and fast deliveries, it’s hard not to imagine a very different grocery retailing landscape by 2022. Amazon is experimenting to find the right mix and size of physical stores to not only complement their online core but to discover and validate the options that grocery shoppers will come to expect and value. The company is pushing hard to establish the standard shopping experience by moving quickly, being novel and being totally irreverent to the status quo. For other grocery retailers, fresh has been a major differentiation and, when executed well, a strong margin contributor for the business. With Amazon’s steady attack on the center store aisles, their continued probes into fresh — from identifying… Read more »
Keith Anderson
BrainTrust

Pickup points improve the economics of online grocery by compromising with shoppers on convenience, labor and fuel, enabling lower prices and broader access.

It’s very early, but this certainly reflects the large and growing demand for more convenient options for buying groceries and everyday essentials and Amazon’s customer-centric approach to investing in innovation.

Richard J. George, Ph.D.
BrainTrust

I would not bet against Amazon. In some respects this latest Amazon experiment is another way to deal with the expensive “final mile” costs as well as provide the opportunity for the purchase of additional items in-store while collecting the online-ordered goods.

For other grocery retailers there are two implications: 1.) Online is still marching along to the projected forecasts and sitting on the sideline is no longer a viable option. 2.) Brick-and-mortar retailers should be better than Amazon in romancing the in-store experience and operating stores. This is their territory and potential competitive advantage. They need to use it.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
2 years 8 months ago
Achieving a top five grocery position in the U.S. in five years is a tall order for Amazon, but if any company can do the impossible, it is Amazon. Amazon will face a lot of challenges in this quest. Traditional grocers, like Kroger, are already laser-focused on BOPIS and home delivery and they have a head start and many points of distribution (2,778 stores, 36 distribution centers and 782 c-stores). Local grocers also have established relationships with local farmers, which appeals to many shoppers who are passionate about “buying local.” There are a number of brands like Whole Foods, Wegmans, Publix, Roche Brothers, etc. that have cult-like followings who won’t be seduced by Amazon. Another challenge for Amazon is establishing local warehouses of products that rival the breadth of merchandise traditional grocers already have in their stores (or even the local farmers markets which have increased in popularity as buying local has become increasingly popular). Amazon’s success will hinge on localized inventory and offering a broad enough offering so that consumers don’t have a need… Read more »
Michael Spencer
Guest

As many others have noted, for extremely high-density urban centers, AmazonFresh should do fairly well. Enough to disrupt local grocery chains? Probably. Amazon’s assault on brick and mortar shopping begins in 2017, but it scales rather rapidly.

It’s not just BOPIS, it’s click and collect done right, with savings and a more seamless path to purchase. If it you are a working professional, if it saves you time, it saves you money. I agree with the others, by 2022, there’s no reason why Amazon isn’t a top five in grocery.

Keep in mind, what BOPIS means (for a privileged few) circa 2025-2030, is literally sending a robot to drive in an AV (automated vehicle) to pick up an order likely made by your smart kitchen/fridge/dash/Alexa.

How AmazonFresh and AmazonGo evolve will help define the future of convenience and fulfillment, and as technological as we are becoming, we still need to eat.

Kenneth Leung
BrainTrust

I think the Amazon pickup model works for high density urban markets where traditional grocery stores have smaller footprints and smaller selections due to the cost per square foot, and the customers are more time crunched, and have less storage space and therefore shop more frequently. However for suburbia I don’t see that model working as well since parking is available, stores are larger and more geared towards browsing shoppers versus quick fulfillment. The goal for Amazon should not to be the Top five grocer by volume, but run a profitable grocery business that allows upsell, cross-sell and pickup, or other Amazon items and services.

John Fugazzie
Guest

I think they will — as many of the top 50 and possibly a few of the top five will also — probably combine/merge as we are now back in a merger-friendly federal administration.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
2 years 8 months ago

Amazon continues its evolution into brick and mortar. They’re able to mask it here with the idea of online ordering. But they’re wily PR folks. This gives them stores. And we could start placing bets on when this effort turns into stores — and accelerates what they started with bookstores.

This is key to Amazon’s future. At this point, they are only profitable because of cloud services — and they appear to be losing money on every retail-equivalent sale. Bricks are their only path to what Wall Street wants — that the bulk of their revenue return profit.

A brick is still a brick. But I’ll give them kudos. Efforts like this may create opportunity for them to arrive at bricks with new approaches.

Ricardo Belmar
BrainTrust

Amazon is very cleverly using its incredible skill at making a process convenient to drive adoption and continuing to apply this to traditional domains once owned exclusively by brick and mortar retailers. The Amazon Fresh Pickup concept sure looks to be a great execution of click and collect for grocery. If it saves people time, and maintains a high level of convenience and satisfaction, yes, they could quickly achieve top 5 status in the grocery market. They already have trusted brand recognition which will at a minimum drive many people to give them a try.

They are certainly not alone at this, particularly as we’ve seen outside the US — look at how retailers like Sainsbury’s are doing this in the UK and their adoption rate. We see Kroger and others in the US are active in this space so the competition will be strong, but history tells us Amazon knows how to execute successfully.

Tony Orlando
BrainTrust

I’m getting in to this a little late, but here is my take on this. Amazon Fresh can and will do well in affluent areas and with time-starved city dwellers. I spent a few hours going through Amazon Fresh and unless you have tons of money to spare, the prices are outrageous. Amazon can charge whatever they want, but 30 to 40 dollars per pound for strips or rib eyes and 45 to 50 dollars per pound for filets seems like a bit over the top. This goes on and on, and “free delivery” is no problem when you can charge twice or more for the same product you can buy inside a supermarket. Oreos and snacks on the dry side are pretty reasonable, but the perishables simply aren’t even close to being competitive, and that is my take on this. Amazon can charge whatever they want, but again, it is for a limited audience and they know it, so good for them.

Frank Poole
Guest
2 years 8 months ago

I was hoping you’d offer a view, so thanks!

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Braintrust
"I think that it's a fair bet that Amazon will at least come close to the top five U.S. grocery retailers by 2022."
"...it’s hard not to imagine a very different grocery retailing landscape by 2022."
"Achieving a top five grocery position in the U.S. in five years is a tall order for Amazon..."

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