Irrational Fear of Amazon Go

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\"rr_irrational-fear-of-amazon-go\"Should supermarket executives start ripping out their hair in despair because of Amazon’s new Amazon Go food-store format in Seattle?

Well, judging by some of the breathless publicity that has surrounded the new store, that might be the only reasonable course of action. Predictions abound that supermarkets will be driven out of business and thousands or millions of store workers will be kicked out of their jobs. Let’s hold on. Before anyone takes drastic action on account of Amazon’s little store experiment, let’s take a closer look at what’s going on to see which features of the store might pose a competitive threat to heritage food retailers, and which are benign.

Amazon Go is a store that opened a couple of weeks ago and measures 1,800 square feet. For readers in Seattle, it can be seen at the corner of Seventh Avenue and Blanchard Street. I say “seen,” because unless you’re an Amazon employee, you can’t shop there. The store is in beta mode, open only to Amazon employees, but is expected to open to the public at some point during 2017.

At 1,800 square feet, the store is about a third the size of many convenience stores. As for a supermarket comparison, Amazon Go is about the size of the entrance lobby of a supermarket. The average size of a supermarket in the U.S. is 40,000 square feet; many are two or three times that size.

As for Amazon Go’s product content, not much is known about that, but judging by its size it couldn’t possibly offer more than a couple of hundred items or so. By comparison, supermarkets offer 40,000 stock keeping units, on average. Many stores have a good many more.

So at the moment and on the face of it, Amazon Go is simply not a player in the food-retailing universe, and may not be for quite a while. Amazon tends to go slowly when it comes to physical store spaces, and for good reason. It’s an online merchant with virtually no experience with physical stores. Consider Amazon bookstores. The first opened in 2015. Two more followed in 2016 with two more slated for 2017. This doesn’t exactly represent a fast rollout schedule.

Of course, Amazon is a big retailing powerhouse and in some respects must be taken seriously by incumbent supermarket operators. Chief among those respects is technology. Clearly, the most important aspect of the store is its checkout method. Shoppers entering the store identify themselves using a smartphone app. Then, in-store video-tracking technology keeps tabs on what products they pick from the shelves and put in their basket. It also recognizes when a product is returned to the shelf. At the end of the shopping tour, shoppers indicate they’re ready to go, using the app, which then generates a scannable image. Shoppers hold the image in front of a reader, which causes the cost of selected products to be charged to a registered credit card. Shoppers then exit.

Such technology could certainly be a game changer if it can be perfected and made scalable to many thousands of products. That will doubtless take quite some time — maybe many years, if ever — but if cars can drive themselves, who knows? In the meantime, I predict that the Amazon Go stores, if more are opened, could be useful as pickup points for online-generated Amazon Fresh grocery orders and as points of purchase for a few grocery items. In the end, Amazon Go is something that all food retailers and many other retailers as well should watch, but I believe there’s no need to immediately surrender to despair.



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