Is Checkout-free a 'Go' for Amazon? PG Experts Weigh In

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Is Checkout-free a 'Go' for Amazon? PG Experts Weigh In

By Randy Hofbauer, EnsembleIQ - 12/05/2016

It had been a long time coming, but a change truly did come: e-commerce behemoth Amazon.com finally announced its entrance into brick-and-mortar grocery retailing via its new Amazon Go format, bringing about both excitement and skepticism from industry experts.

The first Amazon Go store, located in Seattle, eliminates checkout stands, allowing patrons to check in via a mobile app, grab the products they want, and walk out the store while paying for their purchase via the app.

Some lauded the move as being the right idea at the right time, in the right place. Gary Hawkins, CEO of the Los Angeles-based Center for Advancing Retail & Technology, notes that relevance and convenience increasingly are driving the world of retail today, and Amazon's ability to leverage the latest technological capabilities into providing new innovations such as Amazon Go plays into this.

“Is there any shopper who enjoys standing in line at checkout?” he asks.

While some may be skeptical that Americans are ready to accept this new grab-and-go concept, younger consumers, in particular, should be quick to adopt the technology, with people of all ages following as the technology and operations prove out.

However, other experts raise questions about the current store test. David Diamond of New York-based consultancy David Diamond Associates, says an environment where all “shoppers” are employees and immediate Amazon loyalists hardly constitutes a neutral pilot test environment. Therefore, Amazon might not learn much about how to execute what truly is a big idea, potentially paving the way for missteps – especially considering Diamond’s view that self-checkout is a difficult concept that’s yet been successfully pulled off in the supermarket business.

“Amazon tends to promote things long before they happen – that’s part of its corporate DNA,” he says, noting that it promoted itself as the “world's largest bookstore” very early on, as well as delivery-by-drone capability three years ago, which has yet to hit its mainstream operations.

“My cynical point of view is that they continually need to do this sort of thing to remind their shareholders that they are still inventing the future, so profitability will continue to wait.” Accordingly, he adds, “This feels more like investor relations than anything else to me.”

To that end, Diamond believes Amazon Go will have no immediate effect on the marketplace, given that it’s a “long-term test.” However, whether or not it will have future success depends on the nuts and bolts of the offering, as it remains unclear where the format sits between a convenience store and a cashless employee cafeteria.

Hawkins, however, believes if Amazon Go can successfully make large cost eliminations by removing store-level employees and complex, expensive point-of-sale systems, then it could be a real game-changer and disrupt the traditional food retailing model.

“I'll bet Amazon is already looking into how to use the robots in their distribution centers to restock the shelves,” he says.

Eyes on the Horizon

While grocers might not have to worry about being replaced by such a format – which Hawkins sees as being more of a stop for quick-fill trips – they should keep watch. If successful, Amazon Go still will likely steal sales away from – and deal a blow to – the traditional grocery sector.

“Competing retailers will be forced to pursue similar application of technology in either existing stores or new formats,” he says. “Imagine a large traditional supermarket creating a Go-type offering within a section of the larger store,” where shoppers would only be able to access it via the retailer's app.

In particular, brands and food retailers need to focus on three key areas that will be affected: merchandising, supply chain and product innovation around the store perimeter, says Justin Behar, CEO of San Francisco-based retail intelligence and analytics company Quri.

For the near term, efforts to modernize merchandising will accelerate rapidly among both food retailers and brands. Even as e-commerce and home delivery emerged in the late '90s to present a new shopper expectation of instant gratification, the approaches to merchandising in physical retail have not fundamentally changed in 100-plus years.

“What Amazon Go's announcement articulates is a future of physical retail merchandising where shoppers do not tolerate out-of-stocks, spoilage or inefficient trade spend to sustain sales and share for CPG brands,” Behar says. “The data and technology to solve these fundamental problems exists – it's not a race for adoption.”

For the mid-term, supply-chain transformation will be required to support this “near-future in-store state.” Amazon's announcement does not contemplate the Herculean effort required to bring a product from production and packaging to delivery. The final state of a product at the shelf is the “tip of the iceberg” – the result of an effort increasingly dependent on detailed, timely and perfect information accompanied by a highly efficient process to act on it.

In this area, Behar believes Amazon's latest development “will further increase Wall Street and activist investor pressure on Fortune 500 brands, retailers and third parties supporting retail merchandising to modernize or die, now that they have a clear and obvious future to point to.”

Looking ahead, the trend toward an Amazon Go future will further exaggerate existing shopper trends away from center store toward variety, fresh, healthful and organic products. For Fortune 500 brands, the result likely will be continued acceleration of mergers and acquisitions of smaller, more innovative brands that grow the portfolio of major brands. Additionally, shoppers will expect well-trained, knowledgeable and courteous staffers that distinguish brick-and-mortar stores from digital ones. This is contrary to the assumption that automation will only kill jobs.

“While this will transform the nature of the retail workforce, it will not outright eliminate it,” Behar says.