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Amazon's grab-and-go stores to pressure grocers to step-up 'smart store' efforts

Amazon Go's new smart convenience store format designed to eliminate checkout lines is catching the attention of big supermarket chains and could pressure them to redouble in-store innovation efforts.

"I think it's definitely going to make other retailers stand up and take notice," said Patricia Orsini, an analyst at eMarketer. "It's addressing a lot of the pain points that people have in terms of shopping — the amount of time spent and standing in line and that sort of thing."

Kroger and Wal-Mart Stores, the nation's two largest supermarket operators, have been devoting more resources in the past few years to e-commerce and digital initiatives. However, analysts say Amazon's new store format appears to raise the bar in terms of automated technology by offering a grab-and-go solution that could some day be scaled to larger supermarkets.

There's only one Amazon Go location at present and it's in a private beta test currently with only Amazon employees and located around the corner from the company's Seattle headquarters. The company plans to open the store to the public in early 2017.

"The technology has a lot of potential to really be game changing in the way people shop," said Joseph Feldman, a retail analyst at Telsey Advisory Group.

Amazon Go's brick-and-mortar convenience store utilizes a smartphone app when the shopper enters the location and can detect when they pick up or return items to the store's shelves. It keeps track of purchases using a virtual cart, and when the shopping experience is complete the customer leaves without waiting in checkout lines and gets sent a receipt.

"I don't think there's a huge barrier toward a Kroger to set something like that up," said Zachary Fadem, a retail analyst at Wells Fargo. "Kroger is already far along on kind of the brick-and-mortar technology initiatives."

Lessons from self-checkout

Mike Schlotman, Kroger's CFO, was asked about the Amazon Go news on Wednesday at a Barclay's investor conference and appeared to downplay the rival firm's news.

"It's another competitor out there and we've certainly done things inside our stores," Schlotman said, according to a transcript of the event. "Our average wait time before you start checking out at a Kroger store is almost three-and-a-half minutes lower than it was a few years ago by a one-time investment in technology."

Kroger declined comment for this story.

Amazon Go's automated checkout technology can also reduce the need for cashiers and lower the overall labor costs for retailers.

Still, analysts say shrinkage via theft might be a concern with a format such as Amazon Go once it opens to the general public. They point out that self-checkout programs historically produce a greater theft issue for retailers.

Indeed, some grocery chains such as Albertson's began eliminating self-checkout lanes in stores several years ago due to theft concerns.

Amazon.com opened its first 'brick and mortar' retail bookstore as viewed on November 5, 2015, in Seattle, Washington.
George Rose | Getty Images
Amazon.com opened its first 'brick and mortar' retail bookstore as viewed on November 5, 2015, in Seattle, Washington.

The e-commerce giant started working on the Amazon Go concept about four years ago. It follows Amazon's tests of a drive-thru grocery format and a brick-and-mortar bookstore in Seattle. The company also has taken the step of registering the Amazon Go trademark in Britain, according to the Guardian.

The Amazon Go store is about 1,800 square feet in size, or roughly the equivalent of an average GameStop store.

Amazon already is a major player in the roughly $800 billion annual revenue grocery space through several e-grocery delivery services, including its Amazon Fresh and a faster service known as Prime Now.

"They are serious about grocery," said John Blackledge, an industry analyst at Cowen who covers Amazon. "[Amazon] Go seems like an incredible step up from any kind of convenience store that I've ever seen."

The Wall Street Journal has reported that Amazon could eventually want to have more than 2,000 brick-and-mortar stores but the e-commerce company has insisted that's not the case.

"We have no plans to open 2,000 of anything." Amazon said in a statement. Not even close. We are still learning."

Yet an industry source not affiliated with Amazon said they've become aware the company met with real estate professionals and is eyeing thousands of sites nationally.

"They're interested in seeing what's available," the source said. "Whether they act on it or not is a different story."

Separately, The Wall Street Journal said, "We are confident in our sources and stand by our original reporting."

Kroger testing 'Scan-Bag-Go'

According to Amazon's website, the new smart store offers a "just walk out shopping experience" and uses "the same type of technologies used in self-driving cars: computer vision, sensor fusion and deep learning."

"I'm sure Kroger will look at it," said William Kirk, an industry analyst at RBC Capital.

Cincinnati-based Kroger has conducted tests of a so-called Scan-Bag-Go technology at 15 stores in its hometown and also has curbside pickup available at certain locations in the U.S.

Meantime, Wal-Mart has expanded its test of online grocery ordering and store pickup services to include around 600 locations in over 100 markets. Orders are filled from local superstores and use the Arkansas-based retailer's smartphone app and geo-fencing technology that can recognize when customers are arriving to pick up orders.

Even the membership stores are introducing out solutions to eliminate the hassle of long checkout lines.

Wal-Mart's Sam's Club membership-store chain recently started using a smartphone-based technology known as Scan & Go that allows customers to scan items and leave the club store without waiting in the regular checkout lines. Attendants at the door use a bar code on the member's smartphone app that brings up a digital receipt that is cross checked when the shopper leaves the store.