- 2018-10-17
Amazon's entry into offline physical grocery stores
Recently, Amazon officially denied the news of opening 2,000 physical stores. According to rumors, Amazon offline stores will provide consumers with different services. For example, Amazon GO stores will use artificial intelligence and other technologies to allow users to pay without queuing up. Some are similar to car mobility service points (drive- through), the customer can complete the consumption in the car. Amazon spokesperson Pia Arthur responded via email, “We have no plans to open 2,000 offline stores. The rumors are untrue.”
Amazon's response may disappoint some people who are looking forward to innovation after the integration of e-commerce and offline retail. At the same time, Amazon's response also shows that unmanned and fully automated offline retail stores have not been able to do so quickly. Physical stores caused an impact.
Amazon plan?
In a gloomy industrial area northwest of Seattle, an unnamed building has been lit up. This will become Amazon's new grocery store, one of two stores that Amazon will soon open in its hometown, marking the first step for the retailer to enter a physical grocery and daily necessities store. However, it is definitely different from the traditional convenience stores you have seen. The store is built around the concept of “drive through” and features a huge inclined awning, creating an atmosphere of a car restaurant in the 1950s.
Customers who come here don’t need to walk around in the store—they will place an order online in advance, and then wait in the car for the groceries they ordered to be delivered to the car.
Amazon's entry into physical stores marks a dramatic change in it-bid farewell to online-only strategies. It is the success of this strategy that makes this company one of the most valuable companies in the world. This move also highlights a key new goal of Amazon: to secure the grocery market. This is a goal that has been difficult to achieve so far.
The company has recently expanded its grocery delivery program, Amazon Fresh. In 2016, its footprint has more than doubled to cover 17 markets including London, but according to Cowen and Company estimates, Amazon only controls 1% of the US $800 billion grocery market.
"Grocery is the company's most potential revenue growth point," said John Blackledge, an analyst at Cowen. Blakeridge predicts that Amazon's food and beverage sales may grow from 9 billion U.S. dollars in 2016 to 23 billion U.S. dollars in the next five years, making it one of the top 10 grocery sellers in the United States.
For Amazon's competitors such as Walmart and small supermarket chains such as Kroger and Albertson’s, this could mean fierce competition.
Wal-Mart is struggling to achieve growth in grocery sales. According to a consumer survey conducted by Cowen, Wal-Mart’s grocery sales fell 2% year-on-year in October. Amazon's grocery sales increased by 12% during the same period.
Amazon’s attempt to operate a physical store comes at a time when its growing overall sales give it room to experiment with new strategies. In the past 12 months, Amazon's sales have grown to 117 billion U.S. dollars (excluding Amazon Web Services), a year-on-year increase of 25%-far exceeding the growth rate of the US online retail market.
Nevertheless, more than 80% of retail sales in the United States are still offline transactions. Those familiar with the company's thinking say that Amazon is looking for new ways to get a share of offline transactions.
"The growth rate that is faster than the market can only last that long, and then the law of large numbers will work," said Scott Jacobson, a former product manager at Amazon. "You have to enter some different markets. -And this is a different market." Jacobson is now an executive director of Madrona Venture Group.
Although groceries are notoriously low-margin, groceries are often purchased more frequently than other categories of goods. This feature of groceries makes Amazon want to enter the field very much. The company is working hard to increase the stickiness of users to its Prime membership service (in the future, Amazon's Prime membership service may be included in groceries), and strive to match customers who buy groceries. Sell other goods.
Royal Bank of Canada (RBC) analyst Mark Mahaney pointed out that Amazon's retail profit margin is already low in the small single digits, so it is no longer significantly different from the general operating profit margin of the grocery industry.
He pointed out that "their core competitiveness in physical logistics and distribution" can be easily applied to the grocery field. "They have built such a large physical (logistics) infrastructure, and the only thing left is how to make these infrastructures most effective."
Amazon has been investing heavily in logistics infrastructure, by establishing a network of small warehouses close to the city center, making it deeper into the city center and closer to customers. These warehouses form the basis of Amazon's one-hour and two-hour delivery plan Prime Now. The service has been expanded to more than 20 cities in the United States, as well as London and Paris.
New drive-through stores can be built next to Prime Now warehouses, which already cover a limited number of groceries. People familiar with the company's thinking say that self-pickup stores may significantly reduce the delivery costs of fresh grocery services (the delivery costs of fresh products are extremely expensive due to the need for refrigeration).
Currently subscribing to a one-year Amazon Fresh Service (Amazon's grocery delivery service), you only need to pay $15 a month. Amazon declined to answer questions about its new store for this article.
Analysts reminded that the current drive-through grocery store is still in the experimental stage. "Will they open a series of physical retail stores? I don't think they will." Mahaney said.
However, the company has recently begun to add physical locations in other regions. Amazon opened its first physical bookstore in Seattle a year ago, then opened another two in Portland and San Diego, and will open a fourth in Chicago in 2017.
Analysts predict that Amazon will definitely start to try the physical store strategy in other areas, but it is only a matter of time. The first area it will try will be clothing. Amazon has already overturned the traditional retail market with the success of its online model, and now it is ready to launch a challenge closer to the home of its competitors.