Wharton's Barbara Kahn and Columbia's Mark Cohen analyze Amazon's plans to open supermarkets in major U.S. cities.
Amazon’s plans to launch physical grocery stores this year is just the latest affirmation that, ironically, bricks-and-mortar stores are crucial to the e-commerce giant’s future growth. Amazon may launch as many as 2,000 supermarkets in major U.S. cities, according to a recent report in The Wall Street Journal. It will be Amazon’s sixth physical retail format after Whole Foods, Amazon Books, Amazon Go, Amazon 4-Star and Amazon Pop-Up.
Amazon’s plans are likely to rattle major grocery purveyors such as Kroger’s and Walmart, whose shares fell on the news. But the expectation is that Amazon will introduce a different business model — one that merges bricks-and-mortar and online experiences, then powering it with data analytics, according to experts at Wharton and Columbia University who spoke about Amazon’s grocery-store strategy on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)
“It was a natural next step,” said Wharton marketing professor Barbara Kahn. Opening supermarkets makes sense for Amazon because its business model is to offer low prices and convenience, which is what shoppers look for when getting groceries. “If you look at their bookstores or Amazon Go (fully automated convenience stores), they’re fine stores, but they’re not beautiful stores. They’re the kind of stores where you can get what you want at a cheap price, fast and convenient,” she said.
Amazon’s expansion of its grocery business — it already has Prime Pantry, AmazonFresh and Whole Foods — also lets it collect consumer data more frequently since people shop for food regularly and prefer to do it in person. “Their game is data and they need to have frequency. What’s really attractive about grocery is not really the margin; it’s the traffic,” Kahn said. “When you go into an Amazon store, you have to log in with your app and everything you do in that store is then connected with everything online.”
The Journal said Amazon’s supermarkets will take up about 35,000 square feet compared to 60,000 square feet for a typical grocery. Talks reportedly are underway to open stores in Seattle, Philadelphia, San Francisco, Chicago and Washington, D.C.
It’s About Data
Whatever retail store format Amazon uses, it “would be built upon this tremendous capacity they have to gather, analyze, understand and use what customers are saying to them every day,” said Mark Cohen, director of retail studies at Columbia University who had been CEO of Sears Canada. “Amazon is proof-positive of the value of big data and the way in which you collect it and the way in which you examine it and use it.”...MUCH MORE
