Here's What's Behind Amazon's New Cashierless Grocery Store

Amazon's cashierless grocery play is likely more about getting data and licensing technology to other retailers than just direct sales.
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Amazon is going big with its cashierless shopping concept. 

The commerce giant opened its first full-size cashierless grocery store this week in Seattle, a long-term project that began with a limited number of Amazon Go convenience shops across U.S cities. Now the new Seattle location is selling more traditional grocery fare -- including fresh produce, bakery items, meat and alcohol -- all without cashiers. Amazon  (AMZN) - Get Report shares were down 1.56% on Tuesday to $1,977.98.

In lieu of cashiers, Amazon Go shoppers scan a QR code upon entering, select items that are tallied automatically through a sensor system and just walk out. Amazon workers re-stock the inventory.

At about 10,000 square feet, Amazon’s cashierless grocery store is still much smaller than a typical full-size grocery, but stocks around 5,000 items. And Amazon Go is “not trying to be Whole Foods,” Cameron Janes, VP of Amazon’s physical retail unit, told CNBC. There are currently 25 Amazon Go stores located in Seattle, Chicago, San Francisco and New York City.

So what’s behind Amazon’s grocery play? Hint: It’s data.

“Cashierless checkout provides more opportunity for Amazon to track its customers’ purchases. Consumers are required to use the Amazon app, which means Amazon has insight into how people buy FMCG [fast-moving consumer goods] products -- an advantage not all retailers have,” explained Marcel Hollerbach of Productsup, a data management firm specializing in ecommerce. “Cashierless checkout opens an entirely new view of shopping patterns."

There's already evidence that Amazon Go stores out-sell similarly sized convenience stores. Last year, analysts at RBC Capital Markets estimated that a typical Amazon Go store brings in $1.5 million in revenue per year, 50% higher than the average convenience store. 

As noted, Amazon says that its plan for Amazon Go isn't to displace Whole Foods, which has a focus on organic produce and brands. And it may be less about direct consumer sales and more about selling technology to other retailers.

According to the WSJ, Amazon hopes that the Seattle store will serve to showcase the Amazon Go technology, which relies on a network of sensors, cameras and software to automate the experience. The company has reportedly weighed several possible business models, including licensing fees, revenue share contracts and charging to install equipment.

“"It’s a myth that sales are going completely online, but retailers need to be present for customers online first so that in-person experiences are smart and easy,” Hollerbach said. “Amazon is nailing this concept and considering they’re in talks with other retailers to offer similar technology, they won’t be the last."

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