Can Amazon Really Make a Cashierless Grocery Store?

Not even a dozen cashierless Amazon Go stores into its five-year plan to open 3,000, (NASDAQ: AMZN) is reportedly experimenting with using the technology in larger-format stores, which some think could mean it has its sights set on incorporating it into its Whole Foods Markets.

Yet there are so many issues that would confront Amazon in making that leap that the likelihood of it actually occurring seems doubtful. It may be useful to test the limits of the technology in such a setting, but the practicality of its deployment makes the possibility of using it in a full-sized grocery store seem farfetched.

Scaling up will be difficult

At the small scale of a convenience store, the "just walk out" technology Amazon Go employs remains viable. A customer activates the app before entering the store, chooses any number of grab-and-go items, and leaves. Cameras and sensors throughout the store monitor what's picked up and put back, and when the customer leaves, their Amazon account is automatically billed.

Such a system can easily track a relatively small number of items in a relatively small setting. It would also seem to translate well to various limited-size formats like hotel gift shops and airport convenience stores, a spot where Amazon is actually planning to debut a number of Amazon Go locations.

Duplicating that in a grocery-store format, however -- where there are high ceilings, produce that is sold by the pound, thousands of items in inventory, and simply more customers -- makes the viability of transferring the system to a larger format much more difficult.

The small-format style of the current Amazon Go stores is already quite expensive, estimated at around $1 million per location for all the technology needed to implement it. While economies of scale will probably be achieved with each succeeding store opened, multiplying that to a comparatively cavernous Whole Foods Market store would escalate the cost factor exponentially.

The first Amazon Go store was less than 1,500 square feet; subsequent stores have been larger than that, at around 2,100 square feet. A Whole Foods store runs anywhere from 25,000 to 50,000 square feet and carries around 25,000 products. Even the 365 brand by Whole Foods carries some 7,000 items.

A push to innovate

Experimenting with it, though, as sources recently told The Wall Street Journal Amazon is doing, could give the e-commerce giant valuable insight into the limits of the technology and shoppers' behavior, even if it doesn't ever actually deploy it in a grocery store.

It seems doubtful that a customer will ever walk into a Best Buy store, pick up and carry out a 4K smart TV, and have the item charged to their Best Buy account. But a time-pressed traveler wanting to buy a book to read on a flight or snack to eat while awaiting takeoff is an obvious use of the technology. It's why the convenience-store format that's tailored to a specific customer looking to grab a bite to eat was the first iteration of the Amazon Go store.

Grocery-store competitors like Walmart and Kroger shouldn't worry about Amazon encroaching further on their turf with this experiment, but it should spur the chains to do more to increase convenience for their customers.

Walmart, for example, is testing scan-and-go technology at one of its Sam's Clubs, though it doesn't expect to expand it beyond that one store. And it ended using scan and go at its namesake stores. And Kroger is expanding the use of its own Scan-Bag-Go technology, which has customers scan items as they pick them up.

Amazon, for its part, will continue learning consumer shopping habits, which if anything is probably the larger lesson it will use at its Whole Foods chain and where it may get the highest return for having invested in this technology.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.