Are Amazon Stores About to Disrupt the Grocery Industry?
Amazon.com, Inc. (NASDAQ:AMZN), a company known as one of the progenitors of the online shopping revolution is now looking to an altogether more traditional business to challenge: grocery stores. The new “Amazon Store,” set to open in Seattle in early 2017, promises food and ingredients, but plans to do away with cashiers and checkout lines, instead charging your purchases to the “Amazon Go” app.
The Amazon Store is powered by what the Amazon video release calls “Just Walk Out” technology, which combines machine deep learning algorithms and sensor fusion to track which items are removed from shelves. When you walk out, all the items contained in your bag are then rung up and billed to your Amazon account.
Seeing as how we all need groceries to, you know, survive, why not try and revolutionize an industry that has been around for a long time, and—so long as humans need food—will more than likely always be around. The Amazon Store hopes to accomplish exactly that, by eliminating the most annoying aspects of food shopping.
Next, we need an app to do something about shrieking children. Maybe send an alert when they’re near? Just spit-balling.
Some analysts see this new Amazon Store as a good middle-option between the popularity of brick-and-mortar grocery stores and the convenience of online shopping.
For instance, in a note to clients on Monday, John Blackledge, a Cowen and Company analyst with an “outperform”rating on Amazon stock, wrote that the grocery business could be Amazon’s “biggest potential source of revenue upside over time, with Go being another layer of Amazon’s multiplatform grocery strategy,” which also includes its “Amazon Fresh” and “Prime Now” two-hour delivery. (Source: “Amazon takes on tech’s white whale: grocery shopping,” MarketWatch, December 6, 2016.)
“We are encouraged by Amazon’s growing footprint in this category, which we see as ripe for potential disruption given younger demos increasingly purchasing food and beverage grocery items via digital channels,” wrote Blackledge.
And then there are the numbers that back up Amazon’s thesis. Cowen and Company finds that 65% of consumers surveyed preferred in-store shopping for groceries while 51% stated that they liked to inspect or select the food in-person. Online shopping, by contrast, is estimated by Cowen and Company to only account for four percent retail penetration in 2016, or about $33.0 billion.
While some investors are very positive on this Amazon Store move, others are concerned over the increased spending that the company will incur with these new physical shop investments. I suppose we’ll have to wait and see in 2017.
The company compared the technology to self-driving cars. As reported on Monday, Amazon requires chips in order to run these deep learning technologies, which means that the more successful these Amazon stores are, the more likely there will be a spin-off effect for chip-makers like NVIDIA Corporation (NASDAQ:NVDA).