About three years ago, Amazon.com (AMZN +0.13%) revealed a stunning upgrade to grocery shopping: Amazon Go. The concept store, infused with artificial intelligence (AI), does away with the checkout line by combining cameras using computer vision with data fused from a variety of sensors located throughout the store. Once a customer enters the store using the app, the system detects items removed from the shelves (or returned), and it tracks the user throughout the store while tallying a virtual register tape. Once the customer leaves the store, their Amazon account is charged for the purchase and a digital receipt is provided.
The company has opened two dozen locations across the U.S. in a variety of smaller formats, with most not much bigger than the average convenience store. Now, Amazon is opening its most ambitious Go store yet -- a 10,400-square-foot grocery store.
Image source: Amazon.com.
Go big or go home
The latest physical store opened in Seattle on Tuesday, confirming reports that surfaced late last year that it was coming. It is the biggest Go store by far, at nearly five times the size of its largest existing Go location. The new store will feature more than 5,000 products, including dairy, packaged seafood, fresh produce, and meat. It will also stock baked goods, household products, and a wide array of beer, wine, and liquor.
By contrast, the previous Amazon Go locations were more akin to convenience stores, with a variety of grab-and-go items like drinks, snacks, and sandwiches.
The technology that eliminates the checkout line -- including better cameras and smarter algorithms -- has improved in the years since it debuted and can now accommodate larger stores. Future locations could be bigger still, according to Dilip Kumar, vice president of Amazon Go:
"We've learned a lot. There's no real upper bound. It could be five times as big. It could be 10 times as big."
This may be the first of more than 3,000 grocery stores Amazon is reportedly planning to open over the next few years.
There's no money in grocery stores
This latest move comes as Amazon continues its battle against traditional retail, while gradually getting a foot in the door of the $678 billion U.S. grocery industry. With its historically razor-thin margins, Amazon is probably not getting into the grocery business intending to make a great deal of money. The e-commerce giant is more likely intent on collecting as much data as possible about individual users' shopping habits, because, as Amazon has shown time and time again, data is power.
Image source: Amazon.com.
The company also has a history of developing technology that it uses internally before rolling it out to the public and making it a profit driver -- like cloud computing. This store could act as a showcase and strategic proving ground, making the larger Amazon Go store more of a proof of concept. This will effectively get the word out to merchants before eventually licensing the technology to supermarkets and potentially other retailers. According to The Wall Street Journal, Amazon has considered a number of ways to generate revenue, including charging a flat licensing fee or using a revenue-sharing arrangement.
For fiscal 2019, Amazon's physical stores (including its Whole Foods grocery chain) generated just over $17 billion, just 6% of the company's total net sales. Even more telling, sales from its brick-and-mortar endeavors were flat year over year compared to 2018 -- a sign that profit isn't currently the segment's primary motivation.
Amazon is making big moves into the physical retail space, but it's taking a slow, measured approach to ensure that it's successful. Whatever its ultimate goal, after three years of testing out its technology in smaller stores, Amazon is ready to Go big.
