Retail workers who are pushing for higher wages better take notice: Amazon is preparing to put their bosses out of business.
Roughly nine months after opening its first Amazon Go store in Seattle, Amazon announced on Wednesday that it is planning a massive expansion of the franchise. The company has been notoriously tight-lipped about Amazon Go since it first started offering tours of its prototype Seattle location to select journalists back in 2017. After opening its third cashierless Amazon Go location in Chicago earlier this year, and is planning to open six more locations by the end of this year, before eventually scaling up to 3,000 locations by the end of 2021. If Amazon succeeds, Go will become the largest convenience store chain in the US, per Bloomberg.
So far, most of the extant Amazon Go locations offer only a small selection comprising mostly salads, sandwiches and snacks.
An Amazon spokeswoman declined to comment. The company unveiled its first cashierless store near its headquarters in Seattle in 2016 and has since announced two additional sites in Seattle and one in Chicago. Two of the new stores offer only a limited selection of salads, sandwiches and snacks, showing that Amazon is experimenting with the concept simply as a meal-on-the-run option. Two other stores, including the original AmazonGo, also have a small selection of groceries, making it more akin to a convenience store.
But as the company ramps up the logistical back-bone necessary to support the chain, it ultimately hopes to conquer the fast-casual market in dense urban areas where wealthy professionals who might be willing to spend a little more on a salad or a sandwich typically proliferate. Ultimately, the company hopes to compete by eliminate meal-time congestion with its grab-and-go automation. The initial market reaction to the news was muted, though shareholders probably aren’t thrilled about the massive capital investment that will eat away at operating profits.
Chief Executive Officer Jeff Bezos sees eliminating meal-time logjams in busy cities as the best way for Amazon to reinvent the brick-and-mortar shopping experience, where most spending still occurs. But he’s still experimenting with the best format: a convenience store that sells fresh prepared foods as well as a limited grocery selection similar to 7-Eleven franchises, or a place to simply pick up a quick bite to eat for people in a rush, similar to the U.K.-based chain Pret a Manger, one of the people said.
Shoppers use a smartphone app to enter the store. Once they scan their phones at a turnstile, they can grab what they want from a range of salads, sandwiches, drinks and snacks — and then walk out without stopping at a cash register. Sensors and computer-vision technology detect what shoppers take and bills them automatically, eliminating checkout lines.
One potential obstacle to expanding the chain is the high cost of opening each location due to the sensors and AI technology necessary to support its automatic-checkout system. The company’s other physical stores include about 20 bookstores and Whole Foods, which it bought last year.
The challenge to Amazon’s plan is the high cost of opening each location. The original AmazonGo in downtown Seattle required more than $1 million in hardware alone, according to a person familiar with the matter. Narrowing the focus to prepared food-to-go would reduce the upfront cost of opening each store, because it would require fewer cameras and sensors. Prepared foods also have wider profit margins than groceries, which would help decrease the time it takes for the stores to become profitable.
Amazon no doubt sees an opportunity to profit by grabbing a slice of the $233 billion convenience store market. After eating the initial capital expenditure, Amazon will easily be able to compete on operating costs. But to thrive in such a competitive market, location will be key, according to several analysts.
AmazonGo will be more of a threat to fast-casual restaurants if it is targeting cities, said Jeff, vice president of NACS. Shoppers rate location and a lack of lines as the most important factors when shopping for convenience, he said.
“AmazonGo already has no lines,” Lenard said. “The key to success will be convenient locations. If it’s a quarter mile from where people are walking and biking, the novelty of the technology won’t matter. It’s too far away.”
One unintended consequence of Amazon’s expansion could be a worsening row with President Trump, as Amazon Go could eliminate some of the food-service and retail jobs that have been among the fastest-growing sub-sectors of the US labor market. This could threaten the robust employment gains that President Trump has cited as evidence of his presidency’s success. And Trump has lashed out at Amazon in the past for being a job-killer. And the FTC has been quietly hiring staffers who are looking into how the agency can bring an anti-trust case against tech giants like Amazon.
Going forward, we imagine investors will be on the lookout for signs that this expansion could be the final antagonism that finally provokes the government to take action against Bezos before Amazon truly does become “the Everything Store”.
Though there is one potential upside for all those displaced low-wage workers: The format will make looting during natural disasters that much easier.