On a gray industrial block in north-west Seattle, the lights are already turned on in a constructing that has no identify. That is set to be Amazon’s new grocery retailer, one in every of two that may open quickly in its residence city, marking the retailer’s first step into bodily shops for grocery and comfort gadgets.
Will probably be something however your typical comfort retailer, nevertheless. The shop features round a drive-in idea, and options a big tilted awning that provides it the air of a Nineteen Fifties drive-in diner. Clients who come right here won’t browse the aisles — they may order their items on-line prematurely, then keep of their automotive whereas their groceries are introduced out to them.
Amazon’s transfer into bricks-and-mortar retailers marks a dramatic departure from its on-line-solely technique, whose success has made the corporate one of the useful companies on the earth. It additionally underscores a key new aim, one which has up to now proved elusive: mastering the grocery market.
The corporate has been increasing its grocery supply programme, Amazon Recent. It has greater than doubled its footprint this yr and expanded to 17 markets, together with London, but Amazon controls simply 1 per cent of the $800bn US grocery market, in line with estimates from Cowen and Firm.
“Grocery is the corporate’s largest potential for income upside,” says John Blackledge, a Cowen analyst. He estimates that Amazon’s meals and drinks gross sales might develop from $9bn this yr, to $23bn in 5 years, making it one of many prime 10 grocers within the US.
This might spell robust competitors for Amazon rivals comparable to Walmart, which controls a fifth of the US meals and beverage market, in addition to smaller gamers corresponding to Kroger and Albertson’s. Walmart is struggling to seek out progress in its grocery gross sales, which fell 2 per cent in October in contrast with the earlier yr, in response to a shopper survey by Cowen. Amazon’s grocery gross sales grew 12 per cent in the identical interval.
Amazon’s experiments with bodily shops come at a time when its hovering general gross sales give it room to check out new methods. Up to now 12 months, Amazon’s gross sales rose to $117bn (excluding Amazon Net Providers), up 25 per cent from the identical interval a yr earlier — vastly outpacing the expansion of the US on-line retail market.
Regardless of this, greater than eighty per cent of US retail gross sales stay offline, and people conversant in the corporate’s considering say Amazon is on the lookout for new methods to get a bit of such gross sales.
“You’ll be able to solely develop quicker than the marketplace for so lengthy earlier than the regulation of huge numbers catches up with you,” says Scott Jacobson, a former product supervisor at Amazon, now a managing director at Madrona Enterprise Group. “You must go after a number of totally different markets — and this can be a totally different market.”
[Amazon has] constructed up such a big bodily [logistics] infrastructure, it’s a query of how do they maximise using that infrastructure?
Though groceries are a notoriously low-margin enterprise, consumers have a tendency to buy gadgets extra incessantly than some other class. This makes it extremely fascinating from Amazon’s viewpoint, as the corporate works to get customers ever extra hooked on its Prime membership service, which might in future embrace groceries, and to cross-promote different gadgets to grocery buyers.
Mark Mahaney, analyst at RBC, factors out that Amazon’s retail margins are already within the low single digits, and thus not dramatically totally different from typical working margins within the grocery enterprise.
“They’ve a core competency in bodily logistics and distribution” that may simply be utilized to groceries, he factors out. “They’ve constructed up such a big bodily [logistics] infrastructure, it’s a query of how do they maximise using that infrastructure?”
Amazon has been investing closely to convey its logistics infrastructure deeper into city centres and nearer to its clients by constructing a community of smaller warehouses near metropolis centres. These function bases for Amazon’s one-hour and two-hour supply programme, Prime Now, which has expanded to greater than two dozen US cities, in addition to London and Paris.
The brand new drive-in shops might construct off these Prime Now warehouses, which already embrace a restricted number of groceries. These acquainted with the corporate’s considering say the decide-up shops might dramatically scale back the supply prices of a recent grocery service, which is especially costly due to refrigeration wants.
A one-yr subscription to Amazon Recent, the corporate’s grocery supply service, presently prices $15 a month. Amazon declined to reply questions on its new shops for this piece.
Analysts warning that the drive-in grocery shops are nonetheless an experiment at this level. “Do I anticipate them to arrange a sequence of bodily retail shops? Completely not,” says Mr Mahaney.
Nevertheless, the corporate has lately beginning growing its brick-and-mortar presence in different areas too. Amazon opened its first bodily bookstore a yr in the past, in Seattle. It has since opened two extra, in Portland and in San Diego, with a fourth set to open in Chicago subsequent yr.
Analysts anticipate that it is just a matter of time earlier than Amazon begins testing out bricks-and-mortar methods in different areas, beginning with attire. Amazon has already upended the normal retail market with the success of its on-line mannequin, and now it’s trying to take the struggle nearer to its rivals’ house turf.