Will Amazon drive-up grocery stores disrupt food retailing?

Discussion
Source: Walmart
Aug 22, 2016
George Anderson

Amazon.com may have the brick & mortar bug. Following the launch of bookstores and pickup locations on college campuses and in New York, Amazon is reportedly planning on building drive-up grocery stores in the San Francisco Bay area and Seattle. If the reports are true, what will Amazon grocery stores mean for competing retailers in areas where it opens for business? What will it mean for the industry as a whole if Amazon takes the concept nationwide?

According to GeekWire, permits filed in Seattle point to plans to renovate a building in the city’s Ballard neighborhood for the purpose of constructing a 9,759-square-foot space where customers can place their orders online and pick them up at the store.

Workers at the site, dubbed Project X, either have no idea what they are working on or are contractually obligated to keep mum on the subject, according to workers who spoke with GeekWire.

The description of the project in the planning documents are “matches” to those found in California where Amazon was reported to be building drive-up grocery stores just over a year ago by Silicon Valley Business Journal. The same architect is involved in both the San Francisco Bay area and Seattle projects.

The documents for the California stores said customers would place orders for groceries and other items online and then choose specific 15-minute to two-hour windows to pick up their orders. Customers would have the option of picking orders up on their bikes or on foot as well as in their cars.

As previously reported by RetailWire, Amazon would not be the first with drive-up grocery stores as both Walmart Pickup – Grocery began operating in the chain’s in hometown of Bentonville in September 2014. Independent Zoomin Market has been operating its own drive-through service since April of the same year.

Beyond drive-through services, buy online and pickup inside or outside the store services are going through a period of tremendous growth at the moment. Doug McMillon, president and CEO of Walmart Stores, told analysts on last week’s earnings call that gains made in the latest quarter were directly attributable to “the continued rollout of online grocery and growth of pick-up in stores and clubs.”

DISCUSSION QUESTIONS: Do you think it is likely that Amazon.com will open drive-up grocery locations? How will this affect other retailers competing in the same space? Do you think it will affect Amazon’s other grocery services – Prime Pantry and AmazonFresh?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Given Amazon’s distribution prowess, I expect this to be a winner. Probably not overnight, but definitely over time."
"This is still NOT a brick-and-mortar store, it’s just moving warehousing and pickup to a more local place."
"Worth keeping an eye on the Millennials. They will lead the way with these boxes in densely populated neighborhoods. "

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28 Comments on "Will Amazon drive-up grocery stores disrupt food retailing?"


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Tom Redd
Guest

Neat concept but not effective or simple enough. Especially for fresh items. A majority of the market will still go to a market. Some Millennials and others will jump on this for a few months and then drop it. Just adds another stop to the shopping process.

A real grocer has a better shot with this and some already deliver this.

Someday the retail press will figure out that Amazon does this stuff for inches of news space — I estimate that some efforts are funded via the PR budget. Quit falling for the tricks.

Lee Kent
BrainTrust

While I admit to not being the grocery shopper in my household, I just don’t get it. Is Amazon significantly cheaper than other grocers? My husband would certainly never buy his produce or meats sight-unseen so that leaves the staples and many of his staples are brand specific.

OK, so that’s not the question here. Will Amazon open a drive-up grocery? In keeping with their focus on the last mile, I would say yes. Will it affect others grocers? Pretty likely if it is cost effective. Will it affect their other grocery services? It will likely enhance them in the markets where the drive-up stores operate.

For my 2 cents.

Charles Whiteman
Guest

Grocery is the ultimate data-driven replenishment category. The ability to tie menu-planning, at-home on-hand (IoT) and grocery store shopping together provides the makings for the ultimate killer app. Add the benefit of avoiding an hour in the grocery store and I for one can’t wait.

Given Amazon’s distribution prowess, I expect this to be a winner. Probably not overnight, but definitely over time.

Ryan Mathews
BrainTrust

Let’s exercise a little perspective here. First, there is not clear evidence that this is — or will be — a grocery pickup location. Just because they are using the same architect doesn’t mean he or she is designing the same kind of building. Secondly, Amazon frequently experiments with ideas and, more frequently, files patent applications to garner free media coverage, intrigue its customers and make its competitors nervous. So in addition to not knowing what they are or aren’t doing in San Francisco, we don’t know if what they are testing will ever get to a beta stage. Third, “s” is the key consonant in the question. How likely is it they will open multiple locations to sell groceries? Not too likely at this point, at least if you are defining multiple as more than ten tests.

I suppose we could get all carried away with the implications of Amazon trying to muscle into the food industry in a major way, but why don’t we wait for a couple of more facts?

Paula Rosenblum
BrainTrust

I thought that grocery delivery (and curbside pickup) had a definite market … just a profitability problem. Now, I’m not so sure.

I mean for paper towels and laundry detergent, sure … delivery works great. But there’s something that doesn’t feel right about having someone else pick out your produce. Plus, those impulse buys actually add some value to customers.

So maybe Amazon will try it, but I’m not sure it will be any more successful than Target was with curbside delivery.

Tony Orlando
BrainTrust

This idea will probably happen. But a huge success? Probably not. I wouldn’t drive to a pickup location and go home not knowing if my pack of ground round is the right size or knowing just how fresh it is and, for that matter, that’s true of any perishable product. I have checked Amazon’s grocery pricing and, for the most part, there is nothing that stands out price-wise. But again, the convenience factor, especially for some staples, might do well. With smaller-format food stores and local dollar stores popping up everywhere, it is a battleground for business. If Amazon can provide this service in the inner cities, where they have walk-up and bike traffic, it could do well. We will see.

Gene Detroyer
BrainTrust

More and more it is all about time and convenience. Ordering groceries online and picking them up when one is out and about goes a long way to eliminating the time it takes to navigate the grocery store. I don’t know if it is going to be the ubiquitous Amazon that makes this successful, but from a business point of view, not dealing with the brick-and-mortar store gives them a great economic advantage.

Ron Margulis
BrainTrust

I encourage all grocery retailers to believe this is true and act accordingly. Supermarket operators, especially the best of them, always need a bogeyman to keep them innovating and moving forward. It was Walmart for a long time and now it’s Amazon. Only by constantly looking over their shoulders do retail grocery executives meet the ever-changing demands of their shoppers.

Ryan Mathews
BrainTrust

I respectfully disagree with my old friend Ron here, admittedly a rare occurrence. I’d argue that much of what is wrong at retail starts with the adoption of reactionary, rather than innovative strategies. Reacting to what competition does with the furtive logic of a paranoid meth head isn’t necessarily the same thing as finding creative approaches to meeting the ever-changing demands of shoppers. How about blazing new trails rather than waiting for a competitor to move first and then having to figure out how to play catchup? How about finding better ways to communicate directly with customers and turning those insights into innovative offerings and practices instead of waiting for somebody, or some thing to disrupt a market? Sure, a little fear of competition is always a strong stimulant, but it’s never an adequate substitute for fresh, original thinking. Looking over your shoulder is one way to meet shopper demands, but it’s hardly the “only” one.

Ron Margulis
BrainTrust

Bad choice of words with “only,” Ryan’s right. My bigger point is the need for external incentives to drive progress.

Ryan Mathews
BrainTrust

Totally agree — provided those external incentives are mitigated by an even greater internal commitment to change. Of course you have to react to competitive activity, but you can’t let your competitors set your strategy. The rise of Walmart, Amazon.com., et. al. was fueled by a potent combination of denial and over-reaction — in the end, a heady blend but not very effective counter strategies.

James Tenser
BrainTrust
Based on too-little information in the news stories, it seems likely that Amazon is testing its own version of the click-and-collect grocery concept pioneered by Carrefours and Auchan in France and similar concepts already tested by both Kroger and Walmart here in the U.S. For me, the most convincing piece of information is the architect’s rendering filed with the city of Sunnyvale, CA and published in the Silicon Valley Business Journal article a year ago. The general design is strikingly similar to the Carrefours Drive facility pictured in a presentation at the 2015 TPA Supply Chain Conference and a similar image published by Walmart earlier this year. All these facilities resemble a Sonic drive in — a row of drive-thru, covered parking spaces adjacent to a relatively small building where orders are assembled. Drive up, pop the trunk, an employee loads the order within minutes — slam and go. Very convenient for a mom driving a carpool or a dad rushing home from the office. It’s not a bit surprising that Amazon would test its… Read more »
Keith Anderson
BrainTrust

Everyday essentials (including perishable food) are strategically critical to Amazon’s long-term growth. Within the U.S., they’ve slowly and steadily expanded their fresh food delivery service — and recently launched it in the UK.

For shoppers that won’t pay for the ultimate convenience of delivery — or where retailers can’t profitably offer delivery — online grocery pickup has a viable future.

It won’t disrupt a mature industry overnight the way, say, Uber did — it doesn’t have the knockout combination of being cheaper, higher quality and more convenient all at once.

But it does respond to a well-established market need, and as awareness and availability of online grocery services increase so does the size and importance of that market.

Roger Saunders
Guest

Worth keeping an eye on the Millennials. They will lead the way with these boxes in densely populated neighborhoods. Between 6 and 8 percent of Millennials say that they have shopped online in the past 30 days for groceries, based on the Prosper Monthly Consumer Survey.

The Walmart pickup in Bentonville is capturing more of the busy, suburban mom. She has a large parking lot to enter and can efficiently load the week’s shopping.

Two slightly different models, but each will have appeal for their targets and deliver on growth over time.

Ed Rosenbaum
BrainTrust

Some things and some ideas just seem extreme. The belief is that if Amazon tries it, it will be a success. I have my doubts about this idea. This is a 7-Eleven with a pickup service and no gas. Why are we making it seem so difficult to get out of our car, go inside the grocery store of our choice and select the items of our choice? Why are we designating that responsibility to someone we do not know and who does not know what our preferences are? Beats me!

Fool Me
Guest
3 years 9 months ago

The costs of operating this will far exceed their profit model. It will die quickly once the numbers roll in.

Herb Sorensen
BrainTrust

This is still NOT a brick-and-mortar store, it’s just moving warehousing and pickup to a more local place. It in no way fulfills the sentiment, “As long as people live in brick-and-mortar houses, they will be shopping in brick-and-mortar stores!” What is described here is NOT a brick-and-mortar store. Bear in mind that brick-and-mortar retailers are “merchant warehousemen,” relying on unpaid “stock pickers,” aka shoppers, to pick the stock and take it to the checkout.

In this new, “imagined” Amazon store, Amazon is paying the stock pickers and shoppers are NOT shopping in the “store” but just taking delivery of online orders.

Shawn Harris
BrainTrust
Shawn Harris
Director of NA Sales, SmartSight | EMA
3 years 9 months ago

This is a smart move. Along with AmazonFresh, this balances convenience for the shopper — and will come with a lower fulfillment and exception management cost.

Lee Peterson
BrainTrust

Sure they’ll try them, why not? They’ve tried everything under the sun, including telephones and drones. Walmart has a few free standing units in the ground right now so for once, Amazon isn’t first with the idea. And in the long run, this should only strengthen their hold on Prime members too as to hit one of these on your way home and have your groceries put in your trunk would be incredibly ideal. (Don’t forget, buy online, pick up AT store is still huge for consumers.)

As has happened previously, retailers with stores will react slowly, as to activate that kind of capital on a grand scale is almost impossible for them. Walmart might be the last soldier standing if this clicks for AMZ, look out.

Craig Sundstrom
Guest

As these pages will testify, I’m a skeptic — at best — of the idea of online grocery (i.e. the “normal” kind where you order online and have it delivered). This concept seems to go that one worse by still requiring you to go to the store … so I’m even less excited by it.

But hey, it’s Amazon … making money, or even making sense seem like secondary concerns. Score another one for the PR Dept.

Tom Dougherty
Guest

I’m not sure this is going to be a viable business for Amazon. Many supermarkets currently have a similar service and its adoption rate has not been that exciting (as much as I hate to disagree with Walmart). Much has to do with feet on the ground and an intuitive portal.

I say feet on the ground because it will require lightning fast delivery to the car. The model must substitute convenience with control because the shopper will feel the loss of control. The model also eliminates spontaneous buying, a lifeblood for the grocery category. Planned purchases are the bane of traditional supermarkets.

Jan Rogers Kniffen
Guest
3 years 9 months ago

Will Amazon enter online/pickup grocery in a big way? Yes. Will it be successful? If successful means taking share and disrupting the grocery status quo, yes. Despite my wife being a serious cook, we get virtually all of our groceries via Fresh Direct, including meat and produce. It works incredibly well, and is, on average, 4% cheaper than my nearby chain supermarket.

If online grocery can work, online/pickup at store can work, especially for the working mom or dad who has no one at home to take delivery, but wants to save the hour in the store. I remember when shoes could not go online because you “have to try them on,” and when fashion apparel could not go online because you “have to see the true color and feel the fabric.” Grocery can go online even if you cannot see the meat or feel the melon. And for a significant part of the population, pickup is easier than delivery.

Jasmine Glasheen
BrainTrust
Jasmine Glasheen
Principal Writer & Content Strategist, Jasmine Glasheen & Associates
3 years 9 months ago

Amazon’s potential success with click n’ collect grocery depends entirely on the reputation they get for perishable goods within their first few months of operation. A few negative quality reviews are all it would take for this business scheme to go awry. They’d better sell some fair-worthy oranges to impressionable Yelpers darn quickly if they want to make a go of this.

It is a trust issue with produce — I’ll only buy dry goods sight unseen. Produce calls for the touch-test, until they figure out how to provide that through the Internet, I’ll continue driving to Whole Foods.

Yet … if Amazon develops a reputation for outstanding produce Millennials will trust the experience of their peers. The convenience factor can’t be ignored if they’re selling quality.

Kenneth Leung
BrainTrust

Is there an audience for drive up pickup service for grocery? Yes, the question is whether Amazon can do it profitably with that segment. When target offered the drive up pickup, every time I was by, it was never busy. Other grocers also offer online order pick up in store; the question is whether there is enough volume to do a store dedicated as a fulfillment center for drive up pickup.

I guess time will tell and it is good that Amazon is investing in trials of different retail formats. The reason why brick and mortar grocers exist is that is serves the largest common denominator of shopping modes including convenience, browsing, entertainment, dining etc. Building a dedicated space as a fulfillment center for drive up only (plus I am sure it will be a hub for delivery) is going to be an interesting model.

Phil Rubin
BrainTrust
3 years 9 months ago

It is a huge mistake to think that Amazon will fail to disrupt any market, given its track record. While it does not bat 1.000, it does pretty well and has disrupted business for everyone from Nordstrom to Netflix. Underestimate AMZN at your own peril.

Manmit Shrimali
Guest

If I were to summarize the comments thus far, it falls into three categories:

1. Will not trust buying produce: We are living in a world where rational approaches can be easily manipulated by offering that compels us to trade-off our preferences and habit. We don’t trust Amazon on produce but do trust daycare for our kids. Safety is most important, but the safest vehicles are never the top sellers.

2. Convenience: Possible that consumer may want to handpick few items but given how busy we are, most items or 7 out of 10 items could be delivered provided the right offer, quality assurance, and return policy.

3. Overnight success: Sure, they will not have overnight success but Amazon excels at something other retailers do not. When we built a recommendation engine for retailers, we are able to generate as much as 32% sales through recommendations and cold start. Amazon knows the power of personalization and they know how to do it very well.

Jon Polin
BrainTrust
I’m not surprised by this move from Amazon, and I think they may see success with branded, staple items such as laundry detergents and toilet paper. My bet, with all the changes we’re seeing in the grocery industry, is that click-and-collect (or buy online pick up in store) ends up as a dominant model in the industry in the coming five years. That being said, if Amazon ends up as a real player in this model, it’ll be because the incumbents fall asleep at the wheel, not because Amazon out-innovates them. With all of Amazon’s prowess, grocery is still an industry that incumbents should win. The grocery players who wisely blend the online and offline experiences and execute both well should beat Amazon when it comes to leveraging things like: local real estate assets, on-shelf inventory, enabling “discovery” and sampling of new products, pushing impulse buys, and promoting fresh and prepared foods. Will Amazon disrupt food retailing? Yes. But this disruption should end up helping both consumers and incumbent retailers. The whole industry should win… Read more »
Richard J. George, Ph.D.
BrainTrust

Amazon continues to test all viable options to the logistics and costs associated with the final mile. I think this is simply another option that provides Amazon customers with convenience, service and transparency. Plus, it puts more pressure on conventional food retailers to develop their own omnichannel experience.

wpDiscuz
Braintrust
"Given Amazon’s distribution prowess, I expect this to be a winner. Probably not overnight, but definitely over time."
"This is still NOT a brick-and-mortar store, it’s just moving warehousing and pickup to a more local place."
"Worth keeping an eye on the Millennials. They will lead the way with these boxes in densely populated neighborhoods. "

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