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Amazon Goes After Grocery Business

Thursday, December 08, 2016

By HFF Public Relations Coordinator Kimberly Steele

“What would shopping look like if you could walk into a store, grab what you want, and just go?” That’s what Amazon asked itself four years ago, according to the introduction video for the e-commerce juggernaut’s brick-and-mortar grocery shopping concept, Amazon Go.

In early 2017, Seattle residents will be able to enter the 1,200-square-foot Amazon Go location at 2131 7th Avenue; open their Amazon Go app; choose from a selection of ready-to-eat and bakery items, grocery staples and meal kits; and then…exit. The app tracks items through a web of sensors and artificial intelligence and then checks the shopper out automatically with a tap on turnstile-like structures at the entrances and exits.


Amazon refers to their technology as “Just Walk Out” technology. Though Amazon did not release specific details, Wired reports that, “retail tech specialists and computer vision experts agree that Amazon’s advertised system is entirely plausible given the state of artificial intelligence, RFID, sensor and machine learning technologies today.”

The store is in beta testing, now only available to the Seattle-based company’s employees. The Wall Street Journal reports that Amazon, if the Seattle store is successful, wants to expand to more than 2,000 Amazon grocery stores. For comparison, that is more stores than Publix and Whole Foods.

Number of US grocery stores by brand

Sources: Corporate websites for Albertsons, Kroger, Publix, Target, Walmart, Whole Foods

"Amazon just put the grocery industry on notice with the announcement of its Amazon Go test store opening in Seattle,” said HFF Director Nick Kassab in HFF’s Portland office. “With aggressive expansion plans and creative technology, look for Amazon to become a major player in this space over the coming decade and reshape the industry."

In 2015, the number of supermarkets (brick and mortar) making $2 million or more a year in annual sales was more than 38,000, according to Food Marketing Institute, and it is understandable that Amazon wants to be a major player in the $649 billion grocery market. Amazon is no stranger to the grocery business; in 2013, the site launched AmazonFresh grocery delivery business, where customers in approximately 10 U.S. cities and London can place an order in the morning for same-day delivery or an order at night for next-morning delivery. Bloomberg reports that Amazon had 22 percent of the online grocery market in 2015, and that is expected to grow to 26 percent by the end of 2016.

Amazon BooksAmazon Go is part of Amazon’s overall plan to expand its physical presence into brick and mortar stores. Amazon Books opened its first brick and mortar store in November 2015 in University Village in Seattle. Since then, two more stores have opened, one in San Diego and one in Portland’s Washington Square, and stores in Chicago and the Boston area are opening soon. Currently, two brick and mortar drive through grocery stores are under construction in the San Francisco Bay Area communities of Sunnyvale and San Carlos, and there are rumors a third (known as “Project X”) is being constructed in Seattle. Driving through provides shoppers the best of both worlds: the convenience that shopping online provides combined with being at a store. City planning documents describe the process as:

“When placing an online order, customers will schedule a specific 15-minute to two-hour pick up window. Peak time slots will sell out, which will help manage traffic flow within the customer parking adjacent to the building. When picking up purchased items, customers can either drive into a designated parking area with eight parking stalls where the purchased items will be delivered to their cars or they can walk into the retail area to pick up their items. Customers will also be able to walk into the retail room to place orders on a tablet. Walk in customers will have their products delivered to them in the retail room.”

Amazon Go fulfills a different demand, one that satisfies convenience for a busy population. In July, the Economic Research Service released their U.S. Households’ Demand for Convenience Foods report, which shows Americans have increased the amount of money they spend on ready-to-cook and ready-to-eat meals between 1999 and 2010, with the climb beginning in 2007 across all part so the U.S. The study authors found this was due to several factors, including increased demands from work and fallen prices of these types of prepared food. Amazon Go’s main product at launch will be prepared foods – ready-to-eat breakfasts, lunches, dinners and snacks – in addition to meal kits for two people. Take away the frustration and time of standing in line, and you’ve got the ultimate convenience experience for food shopping.

“Amazon has built its reputation disrupting the retail industry by creating demand for services the customer didn’t yet know they wanted,” said HFF Managing Director of Research Jimmy Hinton. “Much like Apple and Tesla, ingenuity and speed of concept delivery to the market place could forever change the customer’s perspective on one of the stickiest segments for retail landlords.”

About HFF's Retail Group

Holliday Fenoglio Fowler, L.P. (HFF) is one of the top producing capital markets intermediaries in the country for retail assets having closed more than $77 billion in over 4,000 transactions since 1998. We have 139 retail specialists who are experts in investment sales, providing construction, interim and permanent debt alternatives, structured finance options including joint ventures, participating debt and mezzanine financing structures, and ground-up development capitalization. Learn more about HFF's Retail Group here.





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