Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Will Amazon Go Kill Supermarkets, Costco, and Walmart?

The Amazon Go automated convenience store has opened to the public; and predictably, the hysteria mongers in the media are predicting it will kill every other retailer and zillions of jobs. That nightmare scenario is a paranoid fantasy, but Amazon’s (NASDAQ: AMZN) brick and mortar experiment has the potential to severely disrupt retail as we know it.

Amazon Go is not as disruptive as you think because it simply deploys existing technologies; smartphones, digital wallets, sensors, etc. in a new way. There’s nothing proprietary here, so anybody will be able to copy it. Many retailers will undoubtedly be tempted to copy Go because of reduced labor costs and the potential to increase foot traffic.

At least one unicorn Aitheon is already promoting a variation of Amazon Go. Aitheon plans to unveil a sort of Amazon Go for mom and pop merchants in Spring 2018, Aitheon Chief Strategy Officer Ryan Burleson said. Expect many other companies to follow Aitheon’s lead and offer something like Amazon Go.

Is Amazon Go a Threat to Big Retail?

My take is that Amazon Go is no threat to retail giants like Walmart (NYSE: WMT), Kroger (NYSE: KR), and Costco Wholesale (NASDAQ: COST). These companies are in an excellent position to clone Amazon Go, or simply add its technology to their existing stores.

Kroger and Walmart have had self-service cash registers in many of their stores for a long time. Kroger is also testing a “scan, bag, and Go,” service in 400 stores, Business Insider reported. The service lets shoppers scan items while shopping and pay at the self-service checkout.

Walmart is offering a “Scan & Go” service that works much the same way in more than a dozen stores, Business Insider reported. Scan & Go has also been deployed at some locations of Walmart’s Sam’s warehouse clubs, The News-Press reported.

It looks as if both Walmart and Kroger are ahead of Amazon Go in rolling out automated store technology. Amazon has one automated store in Seattle, Kroger and Walmart already have hundreds of partially-automated stores in operation and they are upgrading their technology.

Those who should be worried are companies like Walgreen (NASDAQ: WBA) and Target (NYSE: TGT) which may have missed the automation boat. Expect many more retailers to jump on the cashier-less bandwagon.

Amazon Go is not as big a Job Killer as you think

Amazon Go will not be as big a job killer as many people think. Yes automating check out will kill some jobs, but there will still be plenty of need for humans in the store of tomorrow.

Somebody will still have to stock the shelves, throw outdated food away, empty the trash cans, mop the floors, clean up the mess in aisle six, tell customers where to find the tacos, carry the old lady’s bags to her car, catch shoplifters, and throw disruptive teenagers out of the store. Beyond that human beings will have to step in and take charge whenever the technology fouls up.

Sensors are very unreliable devices that can create all sorts of problems. Back when I worked with copying machines, they were always shutting down because of “ghost jams” nonexistent mechanical faults detected by defective sensors. I imagine Amazon’s sensors will create lots of similar problems.

Many retail workers will like Amazon Go better than a traditional store because it lets them do something besides sitting behind the cash register all day. Levels of customer service might go up because the employees will have more time to help the customers.

One obvious job at Amazon Go will be that of the greeter. The greeter is that nice old gentleman who stands at the door at Walmart and says hello. The greeter’s main job is to look and see that customers leaving the store have actually paid for the merchandise.

An intriguing possibility is that automated stores might be more competitive because they will offer a higher level of customer service. By freeing the cashiers up to help customers, many grocery stores might be able to offer a Nordstrom (NYSE: JWN) level of customer service at Walmart price. That will be the real game changer.

Does the Automat’s fate tell us Amazon Go is Doomed?

Retail history shows us that the future offered by Amazon Go is not inevitable. Amazon Go has some eerie similarities to a historical oddity called the Automat.

Automats were restaurants in which food was served by vending machines instead of waiters. The first automat opened in Berlin way back in 1895 and the concept was tried in a number of countries and cities at various times but never came into widespread use.

The most famous automats were those in New York City; which were featured in many movies and TV shows, particularly in the 1950s and 1960s.  Doris Day and Cary Grant ate at one in the silly 1962 movie That Touch of Mink, and so did Fred and Barney in an episode of The Flintstones. Even some celebrities like Neil Simon, Walter Winchell, and Irving Berlin sang the praises of the automat.

Despite that, automats never became the eatery of the future. They were superseded by fast-food joints where patrons paid for their meals at a plain old-fashioned cash register.  In the 1970s, many of New York’s automats were actually converted to Burger Kings.

Fast-food superseded the automat because; counterintuitively, its’ business model was cheaper, faster, and more efficient than machine vending. The automats featured rows of vending machines that had to be kept stocked by employees.

They also wasted a lot of food because dishes had to be cooked and sat in the machines. Much the food at the automat – like a lot of the food in a modern supermarket – ended up in the trash because it was never sold.

Having a fry crook make food to order was cheaper, faster, and more efficient because only the food actually sold was prepared. Taking all orders through a cash register was more efficient and faster than servicing dozens of machines.

Semi-Automation, not Amazon Go is the Future

If history is anything to go by, Amazon Go is likely to be superseded by semi-automated stores. Nor is Amazon necessarily the company to take automated stores mainstream. The modern supermarket was invented by a New York grocer called King Kullen.

Today, King Kullen is a regional supermarket in one borough of New York City (Queens) and parts of Long Island. Deep-pocketed competitors like Safeway and Kroger stole King Kullen’s business model and took it national.

A likely scenario is that Kroger, Walmart, and other big retailers will simply copy Amazon Go and install its technology in their existing stores. This will make those brands more profitable because they will be able to offer a higher level of customer service at a lower cost.