In the two months since Amazon.com Inc. (AMZN - Get Report) announced its jaw-dropping $13.7 billion deal to buy Whole Foods Market Inc. (WFM) , there's been plenty of speculation about what types of physical retailers besides grocery stores Amazon will target via bricks-and-mortar initiatives. Between what was announced today and last December's unveiling of the Amazon Go store concept, it's safe to say that convenience stores are high on Amazon's hit list.
As with grocery stores, Amazon is taking aim at an industry that to a large degree has been immune to e-commerce's multi-decade onslaught. And depending on how Amazon wants to proceed, Whole Foods could lend a helping hand.
Amazon just unveiled Instant Pickup, a service that it promises will let Prime members pick up "hundreds of need-it-now items like food, cold drinks, personal care items, technology essentials and Amazon devices" within two minutes of ordering them via the Amazon app. Upon receiving orders, workers at Instant Pickup locations load the items into lockers. Users then pick up the items by scanning a bar code shown on the app at a kiosk.
The first Instant Pickup locations are opening on college campuses in L.A., Berkeley, Atlanta, Columbus and College Park, MD. Additional spots will open by year's end in Chicago and elsewhere. With Amazon able to ship items in bulk to Instant Pickup spots, prices for some items will be lower than what's charged for Amazon orders delivered to homes.
As it is, Amazon has 22 more basic order-pickup locations on U.S. college campuses, as well as pickup lockers available at over 1,800 locations in North America and Europe. The company has also opened up a pair of drive-up grocery stores in Seattle that let Prime members pick up online orders. Users of the $15-per-month AmazonFresh grocery delivery service can get their orders within 15 minutes; other Prime shoppers have to wait at least two hours.
By offering a way to quickly pick up items that consumers want ASAP while providing the convenience of online ordering, Instant Pickup takes aim at convenience store chains that typically sell such items at decent markups. Convenience store chains such as Murphy USA Inc. (MUSA - Get Report) , Casey's General Stores Inc. (CASY - Get Report) and TravelCenters of America LLC (TA - Get Report) are down moderately today, but that might have more to do with a general selloff in retailers following a set of weak earnings reports (Amazon, of course, can still be seen as a culprit if that's the case) than this specific news.
With Instant Pickup, Amazon is also undoubtedly hoping to drive additional Prime sign-ups -- especially for its Prime Student service, which gives college kids a free six-moth trial of Prime and a 50% discount on membership fees afterwards. Jeff Bezos' firm, believed to have over 50 million U.S. Prime subs and tens of millions overseas, has already stepped up its efforts to grow Prime's U.S. base this year by offering discounts to consumers using food stamps or other government-assistance programs.
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One unanswered question so far is, to what degree will Amazon go after the convenience store space via its Go stores, versus Instant Pickup? Go stores, for those wondering, use cameras, sensors and software to let consumers buy snacks, "grocery essentials" and meal kits without ever standing in a checkout line.
But the launch of the first Go store (a Seattle venue) has been delayed as Amazon works out technical issues. Instant Pickup is technologically easier to implement and -- though not as useful for shopping for items that people want to see in person before buying -- provides the convenience of shopping/paying through an app and having orders assembled for pickup. It's worth keeping in mind that Amazon has stressed that it's still experimenting with a number of bricks-and-mortar concepts to figure out what works.
In time, Whole Foods' assets could be put to use by Instant Pickup. Amazon could both set up Instant Pickup spots within Whole Foods stores and make some high-volume Whole Foods items available through the service. With Whole Foods currently operating 460-plus stores and likely to build more after the Amazon deal closes, there's a lot of infrastructure to work with.
And in general, providing customers with more options for quickly picking up ordered items helps Amazon contend with a suddenly-aggressive Walmart Stores Inc. (WMT - Get Report) , which among other things has begun giving online shoppers discounts for picking up orders at its stores and is experimenting with automated pickup kiosks for $30-plus orders. The cost advantage that Walmart's stores -- thanks to their reliance on bulk shipping -- have relative to Amazon's traditional online shopping/delivery model for many consumer staples give Amazon an incentive to roll out pickup solutions that can neutralize much of Walmart's cost advantage.
If initiatives such as Instant Pickup, Go stores and drive-up grocery stores see strong uptake, one can trust to spend heavily to quickly grow their footprint. Amazon's Q2 report, in which the company disclosed its capital spending rose 46% annually to $2.5 billion and its fulfillment spending 33% to $5.2 billion, drive this home.
In the near-term, one shouldn't expect giant moves. Amazon has given every indication that it wants to move slowly with such efforts to gauge what does and doesn't make sense. But the company is strongly signaling that it's hungry to leverage its online shopping empire, and the infrastructure it has built up to support it, to take aim at bricks-and-mortar markets that it hasn't taken a big bite out of yet.
Editors' pick: Originally published Aug. 15.
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