The grocery and supermarket store industry is big. According to one research report, the industry is made up of more than 65,000 stores that employ more than 2.7 million people, and it generates about $633 billion in annual revenue. Convenience stores alone, according to another industry association, total more than 155,000 outlets.
Now Amazon may want in... and the e-commerce giant's entry could be a huge disruption for anyone in the retail business. Bloomberg reports the company is thinking of opening as many as 3,000 grocery stores in just the next three years, which would make it one of the biggest grocery chains in the country. If you run a convenience or grocery store, are you ready? Wait, if you run any kind of retail store, are you ready? You better be.
How will the stores be modeled? Like a 7-Eleven? Pret a Manger? Subway? All of that remains to be seen. But whatever decision is made, the move is sure to have an enormous impact on the retail industry -- and will cause many like-minded businesses to give pause to their business models. Why? Because Amazon's stores will rely heavily on internet of things (IoT) technology to make them work.
At AmazonGo -- that's the name of the chain -- customers will take stuff off the shelves and scan them using an app on their smartphones. Payment methods will be set up in advance. Stock on shelves will be monitored using electronic sensors, so that as soon as inventory falls below a reorder point, more items are automatically requisitioned. Of course, an employee or two will be needed to restock the products, and someone will need to be on hand to answer questions (until both of those roles are replaced by robots). But the key thing is that people will be replaced by machines and sensors.
The initial costs to Amazon could be high. It's estimated it will take $1 million in each location for just hardware alone, and much monitoring will be needed to determine what items are more profitable. But Amazon has deep pockets and has demonstrated it's willing to absorb significant short-term losses (think Amazon Web Services) for the longer-term good.
But the benefits to its customers could be enormous. No lines. Quick transactions. Deals for Prime members and other loyalists. People want this.
Not all grocery store owners will have to worry... yet. The company plans to focus on densely populated areas where consumers are willing to spend a little more for the ease of buying, so convenience stores in lesser-populated areas or attached to gas stations wouldn't be the company's main target. The convenience store industry, in fact, is trying to calm its members by telling them that Amazon is targeting food outlets like Subway and Panera Bread, and not their membership. "The key to success will be convenient locations," Jeff Lenard, a vice president at the National Association of Convenience Stores told Bloomberg. "If it's a quarter mile from where people are walking and biking, the novelty of the technology won't matter. It's too far away."
But Amazon's move, if successful, could have an enormous effect on many industries, not just convenience stores. It will be public proof that humans can be replaced by machines, and to the benefit of both buyers and businesses. It will show that robots, automation, and the internet of things is not science fiction. Amazon already has two such stores operating in Seattle and one just opened this past week in Chicago.
If I was running a grocery store -- or any retail shop for that matter -- I'd be preparing for the AmazonGo inevitability over the next few years. How? By saving as much money for automation, even if it's just a few self-checkout kiosks; investing in software to better manage my inventory; and spending on more training for myself and my employees to provide an extra level of service that AmazonGo's robots won't be able to provide.
Just like selling books, Amazon is going to show the retail industry that it can (and should) be stepping up its game. People may grumble about the loss of jobs (and that's another matter for another day) but they will soon get over it for a faster and better shopping experience.