Will other grocers follow Amazon Go?

The new checkout-free Amazon Go Grocery format holds both potential and challenge for the supermarket vertical.

Since Amazon debuted its Amazon Go cashierless convenience store in January 2018, everyone has been waiting for the retailer to do something bigger with the concept. After opening another 24 small-footprint Amazon Go c-stores, Amazon is expanding the format to a full-fledged grocery store. 

Amazon Go Grocery, now open in Seattle, is a 10,400-sq.-ft. supermarket with 7,700-sq.-ft. in front-of-house, offering about 5,000 unique items across major categories. Where Amazon goes, the industry usually follows. But let’s look at the biggest obstacle to widespread adoption of “Just Walk Out” retailing in the grocery sector, as well as a couple of reasons it may happen.

Cost and complexity
Amazon has never released cost figures for setting up an Amazon Go convenience store, but analysts have estimated that each location costs about $1 million in technology. This includes the cost of sensors and cameras equipped with computer vision and image recognition, as well as extensive wireless networking. The figure for a 10,400-sq.-ft. grocery store is undoubtedly much higher.

The sheer expense and sophistication of the technology required to support an Amazon Go-type shopping experience may well put it out of reach of all but the largest of Tier I retailers. Furthermore, a retailer needs to have a sophisticated loyalty program and connected mobile app that customers can use to identify themselves and then pay via registered credit/debit account. 

It is worth noting that some mobile software providers say they can provide an equivalent experience with much less infrastructure. Also, retailers including Ahold and 7-Eleven are currently testing Amazon Go-type grocery and convenience formats.

Return on convenience
Simply grabbing the products you want and walking out with them is an appealing notion for today’s constantly connected, time-starved shoppers. “Just Walk Out” truly combines the convenience of e-commerce with the immediacy of brick-and-mortar.

This is probably why analysts estimate the average Amazon Go store generates $1.5 million in sales per year, double that of a standard convenience store. Presumably, Amazon Go Grocery will also significantly surpass the sales of traditional grocery stores. That type of ROI can justify a lot of technology investment, especially at the scale Amazon and other Tier I retailers can achieve. 

Efficient operations
By eliminating the need for cash wraps, the Amazon Go model provides retailers extra selling space, further bolstering the ROI potential of the upfront expense. Checkout queues are eliminated, opening the door to increased traffic and conversion rates while improving customer satisfaction, likely elevating visit frequency.

And while Amazon is careful to point out that its Amazon Go stores still have human associates to stock shelves and provide customer service, the model eliminates the need for cashiers. Even if a cashierless store has the same number of employees as a traditional store, all of those employees can spend 100% of their time on customer-facing activities, boosting their productivity and increasing shopper satisfaction even further.

My best guess is the Amazon Go model will become commonplace among Tier I convenience and grocery retailers in the next few years. It will be harder to duplicate at the Tier II and III levels, but in the long term should likely spread to smaller retailers, as well.