2,000 Amazon Food Stores Wouldn't Disrupt The Grocery Business -- And Might Not Succeed

November 01, 2016

You can almost smell the fear of some retailers.

Originally published on Forbes.com

The unconfirmed reports that Amazon is planning to build 2,000 food stores within ten years here in the U.S., beginning with a pilot program of 20 stores by the end of 2018, has the grocery industry in a tizzy. The stores will reportedly be under the Amazon Fresh banner and will be tested in two formats – a more traditional store with shelves and shopping carts and one which is “click & collect” where you order beforehand (or in-store on a kiosk) and just pick up.

There is little doubt that Amazon is already a player in food, both online and with its Amazon Fresh service (now in 17 markets), where shoppers pay $14.99 a month for the service which requires an Amazon Prime membership as well. 

Business Insider reported the plan based on documents they obtained that share many details, including that the pickup locations would be 10,000 square feet and the more traditional format would be 30,000 square foot. The plan reportedly includes using cutting edge technology like AR to read a customer’s license plate as they enter the area to speed up their curbside delivery. According to the report, “Amazon believes that some of its stores will offer enough of a draw to become “destination stores” that consumers are willing to drive across town or even out of town to shop at.”

You can almost smell the fear of some retailers. I’m not sure that if Amazon does follow this plan that it will be as disruptive and game changing as many predict. I see it a bit more iffy. I’m afraid that Amazon may well be looking at the past iterations of grocery shopping with a few technology whiz-bangs rather than looking to the future, as they try to fill in a niche between two already successful formats that are on the cutting edge. Their advantage over Amazon, as least as detailed by these plans, is that they are leading with “food” not convenience or technology.

Millennials and Generation Z take technology for granted, they are leading the food trends, and they are, in everything from sustainability, trace-ability, social responsibility as well as unique and different culinary creations. They want a total food experience and are demanding that from retailers. For them technology is just a tool to achieve that, not the raison d’être. 

First of all, convenience stores have evolved. Greatly. The candy, men’s magazines, beer and cigarette model is long gone. The C-store environment is cleaner, more contemporary and has much broader offerings. Take a look around the U.S. at retailers like Sheetz, Wawa, KwikTrip and QuickTrip along with countless others including supermarket chains’ c-stores from Hy-vee and Kroger — they have all upped their game. And one of their keys to success is their foodservice offerings. Not hot dogs or tacos that have been sitting for hours on a roller grill or under a heat lamp; but sushi, upscale prepared foods to go and even in-store dining areas for breakfast lunch and dinner.

Ryan Sheetz, Assistant Vice President of Brand Development of the family owned and operated chain of 513 stores with fuel pumps in PA, VA, WV, MD, OH and NC has inside seating in 213 of their stores and are opening a new store every 10 days. Sheetz has used their “food” offerings as a competitive advantage since 1952 and Sheetz reports that his stores appeal to Millennials, and are a big part of their success. He says “Millennials are willing to try new things. They see they can get great food at Sheetz and say “cool, let’s try it.” They don’t have the same hang-up as other people who think they can’t get quality food at a gas station because they were once scarred by bad service or crusty nachos. Millennials are very sociable, and we offer them a fun in-store experience to connect with friends over great food. Technology, such as our ordering terminals and wifi, help too.”

What seems to be missing from the Amazon plan is in-store dining, which is one of the biggest trends in grocery. Typical grocery sales across all the aisles is flat or a fraction of a percent increase depending on the chain and location in the US, while foodservice at retail sales according to the 2016 Technomic report are topping nine percent and expected to sustain a similar pace over the next ten years (which by the way is also outpacing traditional restaurant growth). Technomic also reports that 56% of consumers feel convenience stores are “just as capable as restaurants in offering fresh foods and beverages.” Especially younger consumers – 67% of Millennials agreed with that finding.

Then there is the elephants in the room – Aldi and Lidl. European retailers with a smaller footprint that carefully curate their private brands to offer high quality, low prices and bare-boned store environments. Aldi already has 1,500 stores in 32 states in the U.S. and Lidl, which has already built their warehousing and offices in Virginia, is planning to open at least 150 stores by 2018, with many more to follow. Aldi has already attracted a huge Millennial following for their award winning foods and beverages, and then there are the prices which are traditionally 40-50% lower than you would find for comparable goods at traditional supermarkets.

What opportunity do these leave Amazon? Certainly the reports that their stores will only be available to those who have paid the additional fees for Amazon Prime and Amazon Fresh will be a turn off to Millennials unless they take a significant turn and drastically reduce their food and beverage pricing, which as an Amazon Fresh user I can share are not lower than I can find at a nearby supermarket.

Amazon may well have an uphill battle unless these uncorroborated plans are wrong, or they make some changes pretty quickly.