Will Amazon Go Go?

The mere existence of Amazon Go is an acknowledgement of the limitations of e-commerce. That’s not a disparagement of Amazon but rather plaudits. Credit their management for recognizing that the e-commerce model is challenged in satisfying consumers’ need for fresh products and immediate consumption occasions. By nature, e-commerce is merchandise picked by others and delivered later.

As is their wont, Amazon has tested numerous means of addressing this shortcoming, like Amazon Fresh, one-hour Prime Now delivery and Amazon Key for perishables. But in their perpetual assault on capturing a greater share of American consumers’ pocketbooks, management understood that these alternatives would still leave holes in their attack. So they added a new arrow in the quiver.

Amazon opened its first Chicago Amazon Go store last week. The first store outside of Seattle launched as management announced plans to open another 3000 stores around the country. Along with Whole Foods, book stores and 4-Star, we have further evidence that Amazon is in the commerce business, not just the e-commerce business.

If you said that Amazon is reinventing the Convenience Store, you’d have some strong support. The “just walk out” checkout-line-free technology clearly plays on another dimension of convenience, beyond the “around the corner” and “assortment of convenient and emergency goods” definitions that have long been plied. Even their mission statement speaks to owning convenience: “We strive to offer our customers the lowest possible prices, the best available selection and the utmost convenience”

Amazon Go has smartly redefined the convenience assortment to fit its location, clientele and shopping occasions. The Chicago store allocates about 80% of its space to single-serve, ready-to-eat foods and beverages. Their refrigerated sandwiches, wraps, salads, vegetables and parfaits are not likely to compete with the hot dog roller at the 7-Eleven around the corner. This is a store where busy urban professionals go to grab a quick meal or snack to be eaten at their desk or on the go (there is a microwave station available after you’ve left the shopping area). No need to stock gallons of milk or loaves of bread, let alone emergency dog food or toilet paper. While it may be a Convenience Store, it will source much of its volume from foodservice operators.

Amazon Go will compete with C-Stores in categories like salty snacks, beverages and confections, but still their assortment positions them very differently than the typical C-Sore. Targeting the rushed urban office worker and millennial, they dedicate nearly as much space to probiotic drinks as to traditional carbonated soft drinks. Their brand mix also reflects their targets, going beyond the top selling national brands to include local, challenger and natural products. So the frozen meals space represents Amy’s, Evol and Applegate Farms next to Stouffers, Lean Cuisine and Jimmy Dean. Single serve shelf stable breakfast includes not only Cheerios, Quaker and Nature Valley but Think Thin, Bear Naked and Bobo’s. This is good.

Navigable Challenges

The million-dollar question of course is whether the customer experience can drive sufficient traffic long term to support the extensive technology and in-store labor investment (there were at least six staff stocking and facing shelves, monitoring entry and addressing guests’ questions on my visit). Population-dense locations will aid the traffic challenge, but the absence of destination categories like cigarettes and beer will drive some traffic into alternative C-Stores. When the novelty wears off, many consumers will likely revert to their old habitual destinations, so Amazon must find other ways to create excitement and draw shoppers in.

While Amazon Go’s fresh orientation offers potential for higher margin, it also creates a shrink risk as store management juggles a two-day shelf life on many items. Pre-made sandwiches and salads already have an uphill battle competing with made-to-order options in foodservice, and day-old product won’t help the customer experience. Finding the right balance of private label could support margin and leverage Amazon’s Whole Foods investment; 365 could only be found in bottled water, banana chips and veggie chips in the Chicago store.

Amazon Go’s assortment seems strategically aligned with their target and the trip/mission, but it may create tactical challenges in getting the sku mix right. My PepsiCo companions commented that Amazon was missing the top selling retail sku’s of Kevita, for example, speculating that they had evaluated e-commerce sales rather than retail when selecting the mix. Similarly, they’ve allocated multiple facings to nearly all sku’s, regardless of presumed velocity; these are issues that should be easy to refine over time given the surfeit of data and labor.

Will it Go?

So will Amazon Go be the next Amazon Book disruption or the next Tesco Fresh and Easy money pit?

While I admire the strategic awareness that is evident in this evolution of Amazon Go, I am not convinced that the primary differentiation of "no checkout lines" is sufficient to compensate for the financial and executional burden it creates. Beyond mastering the vagaries of Brick and Mortar (from quality control to staff turnover to road construction and beyond), Amazon must understand shopper and consumer behavior in a way they’ve never faced before.

We've forever seen research indicating the frustration shoppers have with checkout lines, and Amazon Go raises the question of what trade-offs consumers are actually willing to make to avoid them. Will the businesswoman be willing to walk an extra block to save that time? Will the professional Millennial settle for the pre-made wrap instead of one built to his order? Will the administrative assistant pay an extra dollar for her breakfast on the go?

Even if Amazon Go isn’t a viable stand-alone venture, it will serve a great strategic purpose as a learning lab for the company as they consider the future of how we buy and sell merchandise in America. And prove once again that they are not afraid to take on any challenge.