retail news in context, analysis with attitude

As Amazon announced that it was largely getting out of the Dash replenishment button business, the Wall Street Journal broke the story on Friday that Amazon “is planning to open dozens of grocery stores in several major U.S. cities … as the retail giant looks to broaden its reach in the food business and touch more aspects of consumers’ lives.”

While Amazon has not yet officially commented on the report, which is based on Journal interviews with “people familiar with the matter,” those sources suggest that the initiative is far along - the first store could open in Los Angeles before the end of the year, with at least two more leases already signed for locations that could open early next year. Markets that could see the new stores include San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia, and the story also suggests that Amazon could jumpstart its push into the grocery business by acquiring regional chains of roughly a dozen stores.

The new Amazon supermarkets may or may not carry the company’s name, the story says. Company leadership is said to be intent on differentiating the new stores from its Whole Foods business by offering a different and more mainstream product mix, as well as lower prices.

It is unclear, the story says, whether Amazon could use the checkout-free technology it pioneered in its Amazon Go stores in the new chain; it has been reported that it has been testing the technology in mockups of larger stores than the c-store-sized Go format. “Amazon is also looking to have some control over the attached parking lot to speed shoppers’ ability to get groceries, the Journal reports.

The Journal writes that “for its new stores, Amazon is targeting new developments and occupied stores with leases ending soon. It could, for instance, consider a portion of a vacated Kmart, a person familiar with the matter said. Stores in the new grocery brand could be in strip centers as well as open-air shopping centers, the people said, and will be about 35,000 square feet, smaller than the typical 60,000-square-foot supermarket.

“Amazon doesn’t want restrictions on the type of goods it may sell at its stores and wants the ability to change the store and sell health and beauty products for instance, the people familiar said. Leases in shopping centers often include limitations so that businesses complement rather than cannibalize each other.”

It is, the Journal suggests, the company’s “latest move far beyond its origins selling books and music on the web. Over the years it has become a cloud-computing giant, a major player in Hollywood entertainment and a burgeoning provider of logistics services. More recently it has emerged as a major competitor in digital advertising and launched forays in finance and health care.”

However, the Journal also cautions that this concept may not happen, that “retailers sign contracts and then pull out or delay store openings if certain conditions aren’t met.”

Meanwhile, CNet reports that Amazon has decided to stop selling the Dash buttons that it introduced back in 2015 as a way to facilitate replenishment of items that people already had bought from Amazon. The buttons, which carried the brand logos of participating companies, allowed customers to place them in relevant and convenient places (like a Tide button on the washing machine) ands then simply press them when they wanted to reorder that item. The buttons cost $5 apiece, but that was reimbursed to customers by taking that amount off their first orders.

Dash buttons were seen by Amazon “as a speedy jury-rig to add a bit of internet connectivity to an appliance that didn't have it.” But now, the story says, the button “isn't nearly as necessary as it used to be. Today, plenty more appliances connect to the internet. Amazon also integrated its Dash Replenishment Service into hundreds of products from major manufacturers like Whirlpool and Samsung worldwide. DRS lets appliances automatically reorder the stuff they need, like a printer purchasing new ink. No need to even push a button.”

In addition, the company has enabled voice shopping through its Alexa-powered voice assistant system, which it expects to grow exponentially in coming years.

People who use Dash buttons, however, won't be cut off: “Amazon plans to continue supporting new orders through existing Dash buttons so long as the public keeps using them,” CNet writes.
KC's View:
I am intrigued by both decisions, but, to be honest, not entirely on board with either one. (Not that Amazon needs or wants my approval. I’m just saying…)

First, let’s work on the assumption that the Journal is being given accurate information, and this isn’t just a trial balloon to see what the response would be. (One response was that traditional retailers’ stocks took a hit on Friday, just as they did when Amazon bought Whole Foods. My feeling is that this may say more about the stock market than it does about Amazon or these other competitors.)

For me, the only way this makes sense is if Amazon brings something really unique to the bricks-and-mortar party, as it did with the Amazon Go format, or even the Amazon Books or Amazon Four-Star concepts. Each of these represented some sort of fundamental rethinking of a specific kind of retailing or some sort of original application of data that Amazon had gathered through online interactions with shoppers. Each of these worked in some ways and probably didn’t work in others, but they illustrated how Amazon was willing to challenge conventional thinking and risk failure in its efforts to disrupt and innovate.

I think that if Amazon has the same thing in mind for this supermarket format - that it has identified some way in which it can serve shopper needs that couldn’t really be accomplished at Whole Foods, and that will try to change the game in some sort of radical and yet foundational way - then I’m all for it. But I just cannot imagine that it makes any sort of sense for Amazon to open stores under its own name that have a traditional shop-by-aisle-after-aisle-after aisle experience, followed by some sort of traditional checkout system. I cannot imagine that it thinks that just offering curbside pickup at these stores would be a differentiator, since pretty much any retailer of any size and/or ambition already is doing it. There’s got to be something else…

I don’t care how low the prices are … you can always be undercut on price. This would be the wrong battlefield on which Amazon should engage its competitors. In fact, that’s probably exactly what its competitors would want … it is what they’ve always wanted, for Amazon to come to them, instead of forcing them to play on Amazon’s turf.

My friend Eric Claus’s son Christopher posed the question this way over the weekend: “Tech guys think being smart and good at one thing means they'll be good at anything, but that's usually not the case. Grocery strikes me as one of those areas where decades of experience in the industry trumps any great intellect Amazon brings to the table. Give me experience over intelligence any day of the week.”

Christopher may be right. Though it also is possible that the reports are incomplete, and that rather than looking to engage its competition in a game of checkers, Amazon actually is thinking in terms of three-dimensional chess, and we have no idea what its leadership really is thinking. At the very least, they have to have figured out a way to deploy their data - which is the company’s most potent advantage - as a weapon of considerable power in a bricks-and-mortar format.

Now, if they have figured out a way to reconfigure the physical store business model in a way that drives down costs, and gives brands a stronger connection to the shopper … maybe even engineering something that in its own way disintermediates traditional retailers from the existing brand-retail-customer continuum and creates a more frictionless physical and digital experience … well, that might be kind of interesting. And worthy of being an Amazon initiative.

If they have figured out a way to use Prime membership information to streamline and accelerate the replenishment process on everyday products, building Subscribe & Save into an ever bigger powerhouse than it already is … well, that might be kind of interesting. And worthy of being an Amazon initiative.

So on the subject of Amazon opening grocery stores around the country, mark me down as undecided, though willing to be persuaded by a big hairy audacious insight and idea.

As for the Dash buttons … well, there’s absolutely nothing wrong with stepping away from a business model that, even though you’ve pretty much created it, has grown to be pretty much obsolete. In fact, that willingness to kill its young is an Amazon hallmark - it doesn’t allow itself to become so emotionally connected to anything that it cannot walk away at the right time.

Which by itself is a pretty good business lesson.