The Wall Street Journal reported today that Amazon is planning to get into the convenience store game. More specifically, The Journal cites sources whom say that Amazon “aims to build small brick-and-mortar stores that would sell produce, milk, meats and other perishable items that customers can take home.” The Seattle behemoth wants to sell food, but it can’t sling apples from a warehouse. Is this a good idea? Here’s some reasons why Amazon may be doing this, and then I’ll give you some reasons to be skeptical.
-As authors Greg Bensinger and Laura Stevens note, groceries are something that Americans replenish every week. Amazon makes it easy to buy sunglasses if you break a pair, but you probably don’t break sunglasses every week. You do need groceries every week, and if you go to Amazon to get your groceries, that’s a chance for Amazon to “sell more profitable items alongside orange juice.”
-These convenience stores could also help Amazon move closer to achieving omnipresent status in people’s consuming habits. Per the Journal, the stores will only be open to subscribers of Amazon’s Fresh subscription service. Fresh is only $15 dollars a month — if you are a Prime ($99/year) member. So, while you’re ordering that orange juice on your way home from work on the Prime app, why don’t you just buy those shoes you were looking at the other day? It’s just one click, after all. Boom, Amazon owns your brain now. Or at least some of it, and definitely a lot of your paycheck.
-This move may also be a response to Wal-Mart’s $3.3 billion acquisition of e-commerce company Jet.com. The Journal article quotes Marc Lore, its head of Wal-Mart’s e-commerce, in saying that “(Wal-Mart) is going to be really focused on winning in fresh and consumables over the next couple years.” Un-coincidentally, Lore was the founder of Jet.com. It’s evident that Wal-Mart is very serious about marking its territory in this realm, and Amazon doesn’t want to get left out.
Of course, you gotta hear both sides. Here’s some potential pitfalls:
-The grocery game is pretty saturated already, and not all that profitable, as Amazon has found out. Its Fresh service has been around since 2013, and its market share is just over 1%. Bensinger and Stevens write that the company has had to deal with growing problems such as realizing that “the handling of perishable items, such as ice cream in the summer heat, is tricky, and the business is costly, requiring expensive refrigerated storage that thins profit margins.”
-History is against Amazon, too. One of the biggest dot-com bursts was Webvan Group, Inc, which tried to do a similar thing to what Amazon is planning on. It lost over $800 million in three years, and some of Webvan’s former executives work at Amazon. That may help Amazon avoid the mines that Webvan stepped on, but maybe not. As Ivan Hofmann, former FedEx executive quoted in The Journal, said, “There’s just so much variability in the grocery delivery model, that it’s always going to be a more costly delivery, and it doesn’t lend itself as easily to economies of scale as packages do.”
-Amazon’s brand is not that of a brick-and-mortar food store, either. The company recently opened its first bookstore last year, too, and while the success of that is to be determined, I already get books from Amazon, so that kind of brick-and-mortar model is not too much of a stretch. Groceries? That’s kind of a stretch, but Amazon has already made my life convenient in other ways, so maybe this is just another one.