Amazon Working on Several Grocery-Store Formats, Could Open More Than 2,000 Locations
Amazon.com Inc. unveiled Monday its first small-format grocery store, Amazon Go, one of at least three brick-and-mortar formats the online retail giant is exploring as it makes a play for an 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, according to people familiar with the matter. 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.
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, the people said.
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 such as Target Corp. and Wal-Mart Stores Inc., which plans to expand a service that lets shoppers order online and pickup curbside to 1,000 stores 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% 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 store-format in a video Amazon released Monday. It features artificial intelligence-powered 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, which according to the people close to the situation are slated to open in the next few weeks. The wood-paneled building with green trim and an overhang appeared to have at least three covered bays for cars to pull up and pick up orders, with a paved driveway in front.
The third concept, the newly approved multi-format store, combines in-store shopping with curbside pickups, according to the people. It will likely adopt a 30,000- to 40,000-square-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 touch-screen orders for delivery later. Stores in this format, which are smaller than traditional U.S. grocery stores, could start appearing late next year.
That concept bears strong resemblance to a 2013 report by former Deloitte consultant Brittain Ladd, who now works for Amazon Fresh. The paper, previously reported by GeekWire, describes stores focusing on a core 20% of foods -- eggs, dairy, meat, fruit, vegetables and bread -- that generate 80% of traditional grocery sales, with drive-through and touch-screen ordering options.
Amazon declined to make Mr. Ladd or other Amazon executives available for comment.
While Amazon is moving into brick-and-mortar grocery shopping, other large retailers are expanding their online services. Wal-Mart's curbside pickup service offers some convenience without the cost of home delivery. Last week Wal-Mart opened its second Pickup and Fuel store in Denver, a small-format store that offers a limited selection of fresh food, snack 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 full-service, 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.
The retailer currently offers a grocery-delivery service in select cities through a partnership with Instacart Inc., a grocery-delivery startup. However, executives are concerned the service is boosting Instacart's brand rather than the retailer's own brand, according to the person.
As Target pauses grocery delivery, Amazon envisions filling in the gap. The online retailer hopes to one day function as a grocery-delivery service and distributor for brick-and-mortar retailers, according to one of the people, a move that will help lower its own costs as it builds out its own transportation network. The more deliveries, the more cost-effective its service becomes -- including lower food prices as the online retailer purchases more.
Analysts say that many retailers would be reluctant to hand over the reins to Amazon.
Grocery sales produce slim profits for chains like Target and Wal-Mart but are important because they drive traffic to their stores where consumers buy higher-margin products like apparel and home items.
A future in which Amazon is delivering Target's groceries is "very very very unlikely," said Amy Koo, principal analyst at Kantar Retail. "Target is not going to give that benefit to Amazon."
--Jay Greene and Greg Bensinger contributed to this article.
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