MorningWord 2/6/17: Does Amazon Dream of Electric Shoppers?

by Dan February 6, 2017 9:32 am • FREE ACCESS

Amazon is coming. No matter what your established business model is, no matter whether it’s online or offline, you name it. If the product or service has some sort of structured data component, and there is the opportunity for automation of the processes related to delivering said product or service. Then they are coming for you.

At the dawn of the eCommerce age in the 1990s Amazon set its sights on Book and Music stores. For the most part they have both been decimated, and the product digitized. Oddly 20 years on, Amazon is now opening a bookstore in the middle of Manhattan, per

The mammoth online retailer is opening a brick-and-mortar bookstore inside Manhattan’s Time Warner Center at some point in 2017, a spokesperson said. The store will join retailers such as J. Crew, Diesel and Microsoft inside the Shops at Columbus Circle, an indoor mall that also features high-end restaurants. Defunct bookstore chain Borders once operated a location in the same mall.

And, back in December, after a successful launch of their local delivery services Amazon Prime Now, Prime Pantry and Fresh Delivery, the company introduced the idea of bricks and mortar grocery stores, but not like ones you have ever been in. Per the Washington Post (which Amazon founder and CEO Jeff Bezos owns):

The store will be powered by a web of technology that allows customers to fill their shopping bags and walk out without going through a checkout process, a concept that has long been discussed in the retail industry but that has not been implemented at major U.S. stores. The idea is that it will shave time off the shopping experience.

Here’s how Amazon Go will work: Customers download an app and then swipe their smartphones as they walk through the store’s entrance. Then they start picking up groceries. In a process that the company does not describe except to say that it involves computer vision, machine learning and artificial intelligence, every item the shoppers tuck into their bags or carts is tracked on the phone. If an item is put back on the shelf, it’s deleted. As shoppers exit, their bill is calculated, a digital receipt appears on their phones, and their Amazon account is charged. This video produced by the company offers visuals that might help you imagine what that will look like.

Last night the New York Post highlighted the potential for Amazon to not only take on quick stop convenience grocery stores, but also stores “that could span anywhere between 10,000 and 40,000 square feet” and “Amazon will utilize technology to minimize labor” , which could call “for staff to max out at 10 workers per location during any given shift”.

While investors might immediately think this could be the end of Whole Foods Markets (WFM) and smaller rivals like Sprouts Farmers Markets (SFM), it might make sense for AMZN to purchase the infrastructure and re-automate the stores in locations that consumers are already conditioned to go to.

For instance, SFM operates 220 stores in about a dozen states that include two of the most populous in the U.S. (California and Texas) ranging from 28,000 to 30,000 square feet, with 20,000 employees. The company has about $4 billion in annual sales, that grew 12% in 2016, down from 21% yoy growth in 2015. It’s not just Amazon coming for your grocery store, but big box retailers like Costco, Target and Walmart, and that’s really who Amazon is pitted against, not to mention Kroger that operates nearly 4,000 stores in 35 states nationwide, with $155 billion in trailing 12 month sales. So Amazon’s move has little to do with the likes of WFM or SFM as they have bigger fish to fry, but both will be swept up in the disruption, and one of the two could even be a means to an end for Amazon in their broader grocery battle.

SFM and WFM’s stocks are absolute train-wrecks with SFM down 60% and WFM down 55% from their 2013 all time highs, and it’s starting to feel like M&A is their only way out (maybe among themselves first) of what appears to be a death rattle for this segment of grocery. Both report earnings later this month, we will be sure to check back on both.