Amazon strategy for grocery retail domination revealed by Amazon Go

There has been plenty of hyperbole following the announcement of Amazon Go – Amazon’s innovation which completely removes the need for checkouts and manual scanning of products. Questions of how practical the solution is, how expensive it is, and so on. And there has been plenty of hyperbole suggesting that Amazon Go alone will change grocery shopping completely.  While Amazon Go is undoubtedly cool, the question that hasn’t been addressed is why Amazon are doing this. To understand Amazon Go we need to understand the Amazon strategy for grocery retail in its entirety. Through that lens Amazon Go is a completely different story. It’s the missing link which explains how Amazon plan to kill the hypermarket, and create a brilliant solution for online and offline grocery retail.

Amazon strategy for grocery retail – Putting the pieces together

Amazon Go is a small piece of the Amazon strategy for grocery retail. Amazon’s desire to break into the grocery retail market is no secret: they’ve been trialing home delivery for years. We’ve had Amazon Dash, too – another attempt to disrupt the grocery shopping and encourage shoppers to build online lists of their regular purchases. Then earlier this year there was news of Amazon’s step into convenience stores, which will double as collection points for ‘click and collect’ style orders. And now Amazon Go. How are these things related? They are all part of a clear strategy to dominate online and offline grocery shopping.

Amazon Go on its own won’t change grocery retail forever. But together with the rest of Amazon’s grocery offer, it just might.

How can this be? Let me explain.

Amazon strategy for grocery retail: The home delivery problem

Everyone I’ve spoken to in grocery retail suggests that the major stumbling block is the cost of home delivery. The cost of picking is high, too, but delivery is a killer. Addressing this is the first piece of the jigsaw that is the Amazon strategy for grocery retail. Amazon’s move into convenience stores is perhaps not just a move into convenience stores.  These stores are collection points, key to making online grocery shopping significantly more profitable. But they are collection points with a difference. And that difference addresses the second problem with online grocery shopping.

Amazon strategy for grocery retail: What shoppers don’t buy online

One of the other challenges with online grocery shopping is that there are items that some shoppers prefer not to buy online. Fresh fruit, vegetables and meat are categories that many shoppers prefer to pick up themselves. Add to this the items we forget, plus perhaps unpredicted needs and distress items. How about a ready meal for dinner tonight? An online grocery order business struggles to meet all of these shopper needs.

And so Amazon’s neighborhood stores deliver against this, and make collection points more profitable in the process. An online order is placed, then additional items can be picked up at the same time: perhaps items that were forgotten, or perishables which perhaps the shopper didn’t want to buy online. Add a bottle of wine and a ready meal for dinner tonight, and the revenue from that shop has soared. These strategies enable Amazon to hoover up revenue which currently falls outside of the average online shopping cart.

Amazon Go – Making convenience stores pay

Unfortunately, there is a problem with this. Picking up my box of pre-ordered groceries – that’s supposed to be a speedy process. A top up shop is a nice idea, but it’s painful if I have to queue. Unless, of course, I don’t have to queue. Enter, Amazon Go, the master stroke in the Amazon strategy for grocery retail dominance.

Amazon strategy for grocery retail is suddenly very clear

Putting these things together creates a clear strategy of how to maximize sales from online shoppers.

Collection points. Collection points replace home delivery. Having lots of local collection points makes Amazon more convenient that hypermarkets, the key competitor for their online business.

Make the collection point work harder. Make them profitable by adding additional sales in the form of a neighborhood store. Focus on ready to eat, fresh products – products that will complement the online order the shopper is here to collect.

Make ‘topping up” easy. Make that top up process accessible by eliminating the checkout process. Make my convenience stores competitive by making them more convenient. How do you make a convenient store more convenient? You eliminate the queue.

Make your convenience store competitive. Amazon Go makes Amazon’s convenience/neighborhood stores competitive too. In many parts of the world cities are saturated with convenience stores. Why would you go to a different store?  – no queue is a reason to cross the road.

Amazon Go drives value from existing and new shoppers. Amazon Go is the missing piece of the jigsaw. It enables a small store format, with low staffing levels, that acts as a local collection point for online orders, a convenient top up for high margin items that would never be included in the online order, as well as a neighborhood store that is simply easier to shop. That sounds really powerful!

I may be wrong, but it seems to me that Amazon will focus on small stores, doubling up as convenience/fresh outlets with a collection point at its heart. Amazon aren’t planning to build lots of hypermarkets with this technology. Amazon are planning to make hypermarkets redundant. Online shopping alone can’t do this. But with Amazon Go, neighborhood stores, and online orders collected at stores, Amazon believe they can. This is much more than a neat piece of technology that makes stores nice to shop in. This is about making online grocery profitable by delivering a total grocery solution, meeting your big shop, small shop, top up and convenience purchases all from one outlet.

Now that is cool!

Whatever happens, the world of retail and shoppers is changing very fast. If you are in marketing or sales, then understanding shoppers and channels is key. Check out this new online community and join our free webinar to start your journey to being a shopper marketing expert.