SEATTLE — Amazon is cracking further into the $800 billion U.S. grocery industry, keeping the likes of Walmart, Kroger, 7-Eleven and Instacart on their toes.
The online behemoth on Tuesday is opening its first, full-size, cashierless grocery store. Five years in the making, the Amazon Go Grocery is in the Capitol Hill neighborhood of Seattle, in the Amazon corporate headquarters’ backyard.
Amazon has been working on the space since 2015. At 10,400 square feet, the store at 610 E. Pike St. incorporates the same technology found in the two dozen or so Amazon Go locations. Shoppers can walk in, scan a QR code from their Amazon mobile app at a turnstile, carry or add whatever they want to their baskets throughout the store, and walk out when they are finished. Zero human interaction is required, though the store will staff a couple dozen people to help stock shelves and answer shoppers’ questions.
“You’re seeing a lot of big strides in [this] store,” Cameron Janes, vice president of Amazon’s physical retail division, told CNBC during a tour of the grocery store on Monday. “Produce is a big example of that.”
“We’re just getting started here,” he said, declining to comment on how many of these grocery stores Amazon may open. “I think what we’re trying to do here — and with all of our physical stores — is really work backwards from the customer, and deliver some differentiation.”
The space in Seattle is still smaller than a typical U.S. grocery store that’s about 40,000 square feet. Amazon Go Grocery is meant to stock shoppers’ kitchen cabinets, and help them with dinner, while Amazon Go stores are meant to serve bustling business districts during the breakfast and lunch hours, Janes said. He called Amazon Go Grocery a “neighborhood market” of sorts.
The new store is stocked with about 5,000 items, including fresh produce, dairy, packaged seafood, meats, bakery treats like doughnuts, household goods like paper towels plus meal kits and a full liquor selection with wines and beer.
Some items, mainly in the produce department, are sourced from Whole Foods’ providers. Items from national brands as well as a variety of Amazon’s private labels, such as Happy Belly, are also for sale. The store includes a self-service coffee bar.
Every item is priced individually, meaning no weighing required for produce, for example. Bananas are 19 cents each and avocados are 49 cents.
Making sure Amazon’s technology could track shoppers picking up and bagging their own produce in this store was the “biggest incremental challenge ... to enable customers just to shop and not have to worry about the technology,” Janes said.
The Amazon Go Grocery store is meant to complement the “natural and organic” brands that people can find at Whole Foods today, he said. “We’re not trying to be Whole Foods,” Janes said. “We’re not trying to replace them.”
Amazon’s first Go location, spanning about 1,800 square feet, finally opened to the public from the middle of Amazon’s Seattle campus in January 2018. The space — selling grab-and-go items such as sandwiches and snacks — was initially unveiled in late 2016. It was supposed to open to the public in early 2017. But it was stuck for much longer in beta mode only for Amazon employees as the company worked to get the complicated cashierless technology right.
Since Amazon has taken its time to get its own cashier-free technology up to speed, rivals have had more time to swoop in and mimic it, analysts have said.
Two tech start-ups, AiFi and Grabango, for example, are working on autonomous systems for big retailers competing with Amazon.
Earlier this month, 7-Eleven, which has more than 11,000 convenience stores in North America, opened a 700-square-foot cashierless store near its corporate headquarters in Irving, Texas. The space is a pilot test and only open to employees, the company said.
Walmart’s wholesale division has also been testing cashier-free technology at a store in Dallas, called Sam’s Club Now.
Still, Amazon’s efforts in grocery cannot be ignored. Its ambitions in the category were certainly amplified when it paid $13.7 billion in 2017 to buy the upscale grocery chain Whole Foods Market.
People still go to grocery stores, even with the rampant rise of online shopping, and Amazon knows that. Only about 3 percent of groceries are ordered on the internet today in the United States.
Because of its size and other business units, such as Amazon Web Services, analysts say Amazon is able to experiment more in retail than others without having to worry about profitability. Amazon has a market cap of more than $1 trillion. Its shares have rallied more than 20 percent in the past 12 months.
“Nobody in their right mind goes into grocery. ... It is low margins, with perishable food, and it’s challenging to scale,” said Brendan Witcher, a principal retail analyst with Forrester Research. “But there is nowhere we shop more than grocery stores. That is [Amazon’s] strategy. It doesn’t need to be a profit generator.”
Amazon, with its more than 150 million paid Prime members globally, wants to get in front of as many consumers as possible, he said. “Amazon’s primary mission is to get you to say ‘Amazon’ every day of your life. ... Amazon is the only one who can afford to make the entire grocery category a loss leader.”
Amazon reportedly had been forecasting annual revenue from all Amazon Go stores would skyrocket from $28 million in 2018 to upwards of $639 million in 2020, according to The Information. But Amazon hasn’t opened as many Go stores as it had initially anticipated, the report said. And operating losses from Go are still ballooning, it said.
Amazon declined to comment on these numbers.
“We believe we can be profitable,” Janes told CNBC about Amazon’s grocery business.
Amazon’s physical retail unit, which is primarily made up of Whole Foods locations, was the only Amazon division to report a sales slowdown during the fourth quarter. Revenue declined 1 percent year over year to $4.36 billion.
In addition to Whole Foods locations and its Go stores — which have been concentrated in major metros such as New York, Seattle, San Francisco and Chicago — Amazon has 21 book stores and 10 Amazon 4-Star locations, which sell a curated selection of goods that are trending online in those stores’ respective neighborhoods, according to Amazon’s website. It has many more locations listed as “Coming Soon,” including an Amazon 4-Star expected to open at the American Dream megamall in New Jersey later this year.
Amazon is also set to open a first-of-its-kind grocery store in the Woodland Hills neighborhood of Los Angeles, without its Go technology and not under the Whole Foods banner, at some point in 2020. Details about this new chain remain unclear, and Amazon’s Janes declined to comment further.
“Amazon is taking the long game here,” Witcher said. “I don’t know a single retailer that could work on something for five years without a single return on investment, and keep going.”
CNBC had also previously reported that Amazon could be looking to scale its cashier-free technology to other retailers and chains, such as movie theaters and airports.
“Today we’re super focused on getting this thing launched,” Janes said about the first Amazon Go Grocery location.