Amazon (NASDAQ:AMZN) opened its first cashier-less Amazon Go store in Seattle at the start of this year, and Amazon stock is up 71 basis points in early morning trading. The futuristic store that employs a huge array of cameras and sensors to track customer purchases seems like the future, but according to a new report, a not-too-distant future.
The report suggests AMZN plans to open 3,000 Amazon Go store within three years, blanketing major metropolitan centers with stores selling snacks and fresh, packaged food. The impact of that expansion would be felt by everyone from convenience stores to fast food restaurants and grocery stores. Still, Amazon faces myriad challenges with its planned expansion of its cashless stores.
Report: Amazon Plans Rapid Expansion of Amazon Go
The first Amazon Go was a test store located in an Amazon office building in Seattle. It operated exclusively for Amazon staff while the company tweaked the hardware needed to track purchases, before opening to the public in January.
With the success of the first store, clues were quickly unearthed pointing to expansion into other big cities. One of those cities was rumored to be Chicago, and this week an Amazon Go opened in Chicago. That’s now four locations up and running, and Amazon Go has officially expanded beyond Seattle.
According to a report in Bloomberg, that pace is about to accelerate dramatically.
Bloomberg’s sources say Amazon is planning to have as many as 10 locations open by the end of 2018. In 2019, it is targeting 50 locations. Then, the pace of store openings climbs dramatically with as many as 3,000 Amazon Go stores by 2021.
That would rapidly propel Amazon Go from a futuristic, high tech showcase to a big deal. Another big business helping to drive revenue and AMZN stock. And it would turn Amazon into a threat to many established companies in the fast food and convenience markets.
Amazon Still Faces Barriers
While the prospect of Amazon Go stores sounds terrifying to many businesses, expansion isn’t a slam dunk for AMZN. The company still faces challenges.
Among them are the cost (the hardware required is estimated to cost $1 million or more per store), although that could drop with scale. There is also the requirement that customers install the Amazon Go app on their smartphone, have an Amazon account and have it linked to a credit card. That’s not a big deal considering how many people already have Amazon accounts, but it does mean not just anyone can walk into a store and shop. There is also the issue of scaling up fresh food preparation as it expands nationally. Bloomberg points out that when the company opens multiple stores in a single city, centralizing packaged food preparation could actually make those clustered stores more cost-effective.
AMZN is also still experimenting with the product mix for its Amazon Go stores. Focus on packaged meals, snacks, or add some grocery items in the mix? For example, one Seattle location offers beer and wine, while the others don’t. Two offer grocery essentials, while the other two focus exclusively on prepared meals and snacks.
So there are challenges, but if AMZN can figure this out, many of those challenges can turn into advantages with scale.
The prospect of Amazon Go ramping up and exploding nationally is scaring some established companies. While it wouldn’t be a threat to suburban convenience stores (the company wouldn’t be selling gas and would likely stick to urban areas), businesses that sell fast and/or fresh food to downtown workers would face a dangerous new competitor.
The combination of Amazon’s ownership of Whole Foods, same-day delivery of household goods in major centers, and the added threat of Amazon Go selling fresh, packaged meals (a growing and profitable segment) is putting the scare into grocery stores as well. Kroger (NYSE:KR) slid 1.4% on the news.
Expansion Seem Inevitable, But What Form Will It Take?
Will AMZN follow through with the Amazon Go expansion? The company has shown that it is relentless when pursuing new markets, and has no qualms about spending to get there. With four Amazon Go locations now open just eight months after the first — and expansion outside of its home town of Seattle — Amazon is clearly ramping up.
The question is probably less around how big it will go, and more around what product mix it will settle on. In the meantime, fast food restaurants, grocery stores and convenience store are anxiously watching.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
