World’s Largest Online Retailer Thinks Grocery Needs Physical Stores

Amazon, the e-commerce company, is planning to set up a drive-up store concept. It would allow customers to order items online and then pick them up from a designated pick-up point at a scheduled time. This new line of business is not only a new distribution strategy for Amazon, but would also present a threat to the retailers in the grocery industry. Amazon has been known to do all kinds of crazy experiments in the past including foray into mobile phones, tablets, cloud infrastructure, streaming movies/content and more. Some of them have worked and some of them have failed. It will be interesting to see what happens when it comes to brick-and-mortar stores.

We are seeing the emergence of the next generation of the food distribution system, said Bill Bishop, Chief Architect at Brick Meets Click, a retail and e-commerce consultancy in a Silicon Valley business journal.

The first location for Amazon’s new project seems to be Sunnyvale, where a real estate developer has submitted plans for a new 11,600-square-foot building and grocery pickup area at 777 Sunnyvale Saratoga Road. The planning document doesn’t cite Amazon’s name, but sources familiar with Amazon’s project told the Journal that Amazon is the likely tenant.

AmazonFresh, Amazon’s same-day and next-day grocery delivery service, is already operational in the US. It has already operated the physical pickup spots called the Amazon Locker program where goods can be delivered to an unmanned drop box at retail partners, like 7-Eleven. A physical pickup point or mini-warehouse where shoppers can pick up their online order could help solve the last mile problem by getting consumers come to Amazon.

Strategically, this gives them a way to avoid the cost and complexity of going to individual households though that’s probably still on the docket, Bishop said in the journal.

The launch of a standalone drive-through store by leveraging Amazon’s logistics and distribution operation would signal a new phase in the company’s evolving retail ambitions.

The traditional grocers—who are already struggling to fend off new competitors from Internet startups to Walmart and Target’s growing food offerings—will need to face the consequences if Amazon’s drive-up concept catches on.

There is a lot of scope for disruption in the grocery aisle by e-commerce although online grocery purchasing has met with little success. According to a poll by Nielsen, while more than half of global consumers said they were willing to buy groceries online, online grocery sales in the US only capture about 1% of total spending.