Why Amazon wants to open 3,000 automated Amazon Go Stores

Amazon will reportedly open 3,000 physical stores within three years. Some stores will carry a small number of groceries and others will carry prepared foods. Amazon has the advantage of being able to draw on the vast amount of data they collect from customers to determine what items to stock. Following is a transcript of the video.

Dennis Green: If you’re the operator of a local convenience store or corner shop or bodega and an Amazon Go opens up just around the corner, you might wanna look over your shoulder.

Amazon first announced its Amazon Go project in 2016. The first store didn’t open until 2018, January. There are now four Amazon Go stores in operation. Three of them are in Seattle and one of them is in Chicago. Reportedly they want to open at least 3,000 stores in three years. That seems a little optimistic when it took so long for them to open the first one. They’re pretty small stores to start out with. They’re only a couple thousand square feet which is kind of closer to a convenience store than a full-fledged grocery store.

Amazon Go stores are the famous thing that Amazon likes to say is it has just walk out technology where you can go in, scan your app, you can take whatever you want off the shelf and then you just walk outside and then it charges you for whatever you took. It uses sensors and cameras to kind of tell what customers are taking in order to charge them correctly. There’s two kinds of Amazon Go stores. There’s a more grocery-oriented where you can go in and get some light groceries. And there’s another format that’s more oriented towards prepared food that’s kind of like a lunchtime spot. You can just go in and grab a sandwich or a salad. So this isn’t stuff that you really wanna wait for. It’s maybe like a candy bar that you just wanna grab. Something that you’re gonna go and kind of consume immediately or a grocery item that you need for a recipe that you wanna cook that night.

They also sell their Amazon meal kits in these stores which are refrigerated kits with a bunch of different ingredients that you can cook.

Ninety percent of all retail sales are offline. It’s kind of staggering when you think about it. You think about the fast growth of online is still only amounts to ten percent even in 2018 so there’s kind of like a lot of room to run there. Most estimates peg Amazon as taking up basically half of all e-commerce. There’s some room for them to grow and estimates by analysts show that they will grow but they’re looking for other avenues of growth to maintain the velocity that they have. And the one that they’ve pegged right now is bricks and mortar.

When Amazon moves into a market they kind of operate with this low margin mentality where profitability doesn’t really matter until they kind of achieve mass scale and then they can kind of tinker with the levers. As far as Amazon making money off of these stores, that’s kind of TBD. There’s a report that the technology that went into the first one cost a million dollars to install. That adds a big additional cost to opening the store in the first place. As far as the break-even point, we don’t really know what the economics of these stores even are, so it’s hard to say if they’re making money, or they’re not making money.

Amazon uses what customers are already buying online to guess what customers wanna buy in their Amazon Go stores. So that’s kind of like a reminder of what they have on you. It’s a reminder of what they know that you already like to kind of entice you to buy it again in a store. So if they know that a specific neighborhood or city likes a certain kind of seltzer they’re gonna stock more of the seltzer and they’re gonna have more flavors of the seltzer. Whether or not that’s a good thing, I mean, it’s serving customers, right? It’s what customers want. It’s putting it in front of them in a new way. But it might make some customers uncomfortable.

Other retailers are trying to come up with things that compete with Amazon. A lot of them have new pick up options where they can order online and then pick up in store or can deliver right to customers some even with autonomous vehicles. But no grocery stores have that kind of data to draw from like a big e-commerce giant like Amazon has.