Amazon Go: Implications For Retail and CPG Companies
Last week, Amazon announced the opening of its new grocery store in its Seattle hometown. Called Amazon Go, it looks (at least in pictures) a lot like a pleasant urban grocery store, with shelves of everyday items like bread and fruit as well as pre-made meals. So what makes this “concept store” different?
True to its experimentation mindset and culture, Amazon is testing what happens when it removes the check-out from the equation. There are no cashiers, indeed no point-of-sale at all. Customers simply fill their carts with what they want and leave. The payment for the purchase is based on what Amazon calls its “Just Walk Out” technology that detects when items leave the shelves and automatically charges the customer to their Amazon account.
It’s no surprise that Amazon’s view of the “grocery store of the future” means making a purchase more streamlined and automated. Anyone who has waited in a line to pay for a pint of milk behind the guy with the full cart that he wants to pay for with a mixture of credit cards, dollar bills, and coupons will find this aspect of Amazon Go very appealing. In the Amazon world, no inefficient things like physical money get in the way of you getting what you want and getting out of there.
The end of merchandising?
This is cause for concern for consumer package goods (CPG) companies. These companies have long depended on carving out a portion of their annual revenues – Nielsen estimates as much as 20%, which for multi-billion dollar companies adds up to a large pile of cash – for trade promotions to get in front of consumers when they are on the grocery shop floor. These trade promotions, like displays, demonstrations, special pricing, or rebates, are a key part of CPG marketing strategy.
Yet in the Amazon Go environment, it is unclear how CPG brands will be able to maintain visibility to consumers. Amazon will be tracking purchases of every single item, and its modus operandi (honed after years of disintermediating book publishers), will undoubtedly be to keep all detailed sales and customer data to itself. Amazon may in fact not buy into the trade promotion model, but instead could decide to charge CPG companies premiums for the most coveted shelf space and the most effective promotion types, once it figures out through its own usual experiments what those are. It could even decide to launch its own-branded products that compete directly with established CPG brands: after all, it has already done so with clothing.
What’s more, the Amazon Go concept, should it be successful, potentially upsets the current retail merchandising model. In this model, merchandizing employees such as category managers and product assortment specialists are responsible for determining how to position and group together products to maximize sales. It is unclear where these professionals would fit into the data-driven, convenience formula model, where Amazon will be able to automate and test product combinations to determine which ones sell best in what combinations.
Take advantage of the Amazon Go experiment
All that being said, it’s important to keep in mind that Amazon Go is an experiment. It’s unlikely that this time next year, there will be hundreds of Amazon Go outposts across America’s urban centers. In the meantime, CPG companies, retailers, and the technology vendors that sell to them should take this opportunity to learn from Amazon’s efforts. How much do people really value eliminating cashiers and payments? How is the company handling the management of the “Just Walk Out” technology behind the scenes: does it require paying for maintenance and support fees to keep it going? What are customers saying on social media about their Amazon Go experiences?
These learnings should all figure into the strategy discussions of any retail or CPG executive team, and not just in the grocery sphere. The risks of not following how Amazon Go develops are not insubstantial: just ask any manager who once selected titles for their local Borders franchise.