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New Amazon Go Grocery Store Has a Second Secret Weapon

By Daniel B. Kline – Feb 27, 2020 at 10:54AM

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The upstart brick-and-mortar chain is off to a fast start.

Amazon (AMZN -1.57%) wants a big piece of the traditional grocery market, but it's going after it in a non-traditional way. The company just opened its first full-sized Amazon Go grocery store in Seattle, and the location has one particular feature that has been well-publicized -- it has no cashiers.

People shop at the store by logging into the Amazon app when they enter, and the items they take are automatically tallied as they go. When they're done shopping, customers can simply walk out, and Amazon will charge them electronically for their purchases.

That's convenient. And when the system scales up, it should also be cheaper than paying people to work as checkout clerks. That may be key to the other second secret weapon of the planned chain -- low prices.

An original Amazon Go convenience store.

The Amazon Go concept started as small convenience stores. Image source: Amazon.

How low can Amazon go?

Amazon, it should be noted, already has enormous pricing power due to the volume of goods it buys. But while that gives it an advantage over smaller rivals, it's probably not a major factor when competing with big grocery store chains.

Cutting labor costs, however, should allow Amazon to meaningfully lower prices in its grocery stores, and a new study by Geekwire shows that it is doing so. The website compared grocery carts of 17 basic items at the new Amazon Go and a nearby Kroger-owned QFC. At Amazon Go, the cost for the shopping trip was $52.78 -- 5% less than the $55.70 a customer would spend on the same items at QFC while using the chain's loyalty club card. Without the card's discounts, shopping at Amazon Go was nearly 25% cheaper.

Amazon can squeeze its rivals

Amazon can afford to play a long game, operating its grocery stores at a break-even level -- or even at a small loss -- as it strives to build market share. That could be a real problem for the traditional brick-and-mortar grocery chains, and it's why Amazon may quickly become a major player in this space.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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