In 2018, Amazon announced plans to enter (and therefore dominate) the convenience store market with its “Go” concept stores. However, the firm’s rollout of its new initiative hasn’t gone as planned. Indeed, the corporation intended to have 56 Go locations open by the end of this year. Currently, there are only 15 Amazon Go shops open to the public.
So, why is America’s largest e-commerce company struggling to break into the corner grocery space?
Layout and Design Problems
According to a new report by The Information, Amazon hasn’t met its convenience store goals for a few different reasons.
For one, the corporation has lofty expectations for its latest pilot program. The website notes that Amazon initially projected gross revenues of $2 million from each location. Accordingly, the company hired designers to create storefronts that maximize profitability.
Amazon set out to make each of its stores 1,440 square feet to keep overhead costs at a minimum. Notably, that’s less than half the size of the average 3,200 square foot traditional convenience store. As such, the company needed to ensure that each Go shop stocks products that consumers actually want to buy. Initially, the firm miscalculated and loaded its locations with meal prep kits when customers really just wanted ready-to-eat meals and snacks.
Amazon also experimented with installing soda fountains in its convenience stores. The company’s executives reasoned that they’d be more space-efficient than large refrigerators. However, the firm’s leadership abandoned the idea as the fountains frequently created customer logjams.
Because of those growing pains, The Information reports that Amazon’s Go stores haven’t met the firm’s financial expectations.
Meanwhile, the company also fitted its shops with a host of cameras, sensors, and an artificial intelligence program that charges customers via their Amazon account instead of a standard checkout system. It reasoned that going the cashless route would result in fast checkouts and low labor costs. However, Go stores began accepting additional payment methods after several municipalities outlawed cashless businesses.
Furthermore, Amazon has slowed the expansion of its convenience stores because it is struggling to find suitable locations for them. The project’s enormous cost is also likely giving Bezos and company a reason to rethink things.
Logistics and Cost Outlay Issues
In the corner grocery sector, walkup business is essential to a store’s success. However, as Amazon discovered, even major cities with densely packed populations aren’t ideal locations for convenience stores.
For instance, Chicago, New York, San Francisco, and Seattle all have sizable pedestrian populations. Accordingly, Amazon was able to launch its Go stores in those cities successfully. The firm also plans on launching new shops in Denver, Los Angeles, and Philadelphia because those cities meet its needs. However, the corporation has halted plans to open retail locations in Houston and Phoenix.
Despite being densely populated and affordable, Amazon’s executives worry that Houston’s driver culture will hinder a Go store’s success. Similarly, the firm held off on opening a Phoenix shop because its nearest fulfillment facility is 700 miles away. Consequently, the Arizona location wouldn’t be able to stock fresh foods.
It is also worth noting that Amazon’s Go program has proven to be incredibly expensive. The Information states that the corporation intended to spend $224 million to launch 56 Amazon Go stores this year. It also planned to spend $474 million in 2020 to bring its retail store count up to 156. Amazon justified that massive cost outlay by forecasting that its convenience store revenue would jump from $28 million in 2018 to $639 million by 2020.
Since its existing stores have underperformed, Amazon likely had to significantly lower its corner grocery earnings estimates.
Nevertheless, the corporation intends to press on with the experiment. In fact, it plans on opening a 10,000 square foot concept grocery store in Seattle next year. However, Amazon’s ambition to open 3,000 Go stores by 2021 seems exceedingly improbable.