By now, most of you have probably heard about Amazon Go – Amazon’s sans-checkout grocery stores. Through a combination of computer vision, sensor fusion, and machine learning1, Amazon allows customers to shop without checking out. There are plenty of articles explaining how the technology works,2 so this blog post will focus on the operational process improvements to Amazon and its customers.
The Shopping Process
Traditionally, customers enter a grocery store, put items into a cart as they shop, and visit a cashier before leaving. Since shopping patterns are variable, there is often a line of customers waiting for a cashier or a plethora of cashiers waiting for customers. This leads to unhappy customers and lower labor utilization. This problem isn’t new: over the years, companies have introduced “10 items or less” lines and self-checkout stations to try and alleviate it.
At Amazon Go, a customer must create an Amazon account and download their app before visiting the store. To enter, the customer scans her smartphone into a subway-like turnstile and begins shopping. Instead of putting items into a cart, the customer puts items directly into a bag. Once the customer is finished, she simply scans her phone at a turnstile on the way out. Within a few minutes, she will receive an email with a detailed receipt of the items she purchased.
In a survey of 1,000 US consumers, 75% said they would be “extremely likely” or “very likely” to shop at an Amazon Go if a store opened nearby. Additionally, 25% of the respondents said they would pay higher prices to avoid waiting in a checkout line.3 While I believe these results are overall positive, I note that only 30% baby boomers were open to shopping at an Amazon Go.
Increased customer demand allows grocery stores to spread out labor costs and fixed costs over a larger denominator, holding labor constant. However, Amazon Go will be able to employ fewer people, as they will no longer need to employ cashiers and baggers in their stores. A survey of six managers of major Midwest retail and grocery stores, five believed that these entry level jobs would be eliminated. Furthermore, all six thought the technology would make inventory management more efficient and reduce price/coupon errors.4 Overall, it appears there will be significant cost savings for grocery stores.
The Future of Amazon Go
Amazon has been slowly expanding the number of their stores. As of November 2018, there were three stores in Seattle, two stores in Chicago, and one store in San Francisco, with three more in the works.5 I expect Amazon to continue to slowly roll out stores in the next one to two years as they perfect their technology and wait for sensors and computing power to get cheaper.
In the long-term, it is hard to ignore their acquisition of Whole Foods and wonder whether Amazon plans to use their technology in all 400+ Whole Foods locations. It will not be a trivial task to scale the technology to the size of a Whole Foods store. Current Amazon Go stores have a relatively small footprint with a limited product offering. As you increase the footprint of a store, you will need to add cameras and sensor-enabled shelves throughout the store. Additionally, you will need to add granularity to the technology to be able to track more customers throughout a larger space and to be able to differentiate between a larger number of products. The data Amazon is collecting in their six existing locations will be critical to this effort.
In the current format, customers must scan their smartphones to enter and exit stores. As more people begin to shop in these locations, I could imagine a queue of people waiting to enter and exit these turnstiles. Instead of saving customers time, Amazon may have just shifted the bottleneck from the checkout counters to the entry/exit points. Amazon would still have the cost savings associated with decreased labor costs but they may not have as many customers itching to shop with them. Going forward, I think Amazon could improve this technology to make entering and exiting the grocery stores more fluid. They could, for example, install sensors throughout the entrance of the store trying to catch a customer’s unique QR code as they enter a store. They could have one employee by the entrance who could greet customers and manually scan in any customer who the sensors didn’t catch.
The technology Amazon is developing is going to have major effects on grocery stores going forward. But how generalizable will this technology be? Will it change how we dine out? How we check into our flights? How we buy clothes? (784 words)
1 https://www.amazon.com/b?node=16008589011, accessed November 3, 2018.
2 https://www.geekwire.com/2016/amazon-go-works-technology-behind-online-retailers-groundbreaking-new-grocery-store/, accessed November 3, 2018.
3 Redman, R. (2018). Amazon Go seen as welcome grocery option. Nation’s Restaurant News, July.
4 Polacco, A. & Backes, K. (2018). The Amazon Go concept: Implications, applications, and sustainability. Journal of Business and Management, 24 (1), March, 79-92.
5 https://www.amazon.com/b?node=16008589011, accessed November 3, 2018.