How Amazon and Walmart going ‘small’ can affect drug store retailers

SEATTLE and BENTONVILLE, Ark. — The state of brick-and-mortar retail appears poised to change significantly in the near future with Amazon and Walmart introducing smaller grocery and convenience locations in early December.

Amazon introduced its first Amazon Go small-format location, spanning 1,800 square feet in downtown Seattle, a step beyond its current Amazon Fresh online ordering service. The store is currently open as a beta version to employees only and is expected to open to the general public in early 2017.

The store is clearly different from its competition, considering the store features no checkouts, cash registers or perhaps more importantly, dreaded lines. Instead, customers simply scan their smartphone at a kiosk when they arrive at the Amazon Go location, remove items they wish to purchase from the shelves, and as they exit the store, Amazon charges the customer for goods purchased and sends a receipt.

Among the products offered are ready-to-eat breakfast, lunch, dinner, and snack options made fresh every day by on-site chefs and local kitchens and bakeries.

“Four years ago we asked ourselves: what if we could create a shopping experience with no lines and no checkout? Could we push the boundaries of computer vision and machine learning to create a store where customers could simply take what they want and go? Our answer to those questions is Amazon Go and ‘Just Walk Out Shopping,’” Amazon stated.

“They’re calling it the ‘world’s most advanced shopping technology,’” the Seattle-based company added in a 60-second commercial introducing Amazon Go.

Media reports peg as many as 2,000 more Amazon Go locations could open in the next decade, which certainly will be a major disruptive force for grocery store operators. In the least, the way consumers shop for groceries in the future is highly likely to change.

But considering Amazon Go is not attacking the pharmacy market at this time, will it also be a major disruptive force for drug store retailers? It’s still too early to tell, but the answer could be “yes,” although it may not be the threat grocery stores and convenience stores face.

“Amazon Go’s approach appears most suited to convenience items that require little or no interaction with store staff, so drug will have some insulation from the Amazon Go approach due to their product mix, security issues, and legal issues all leading to a greater need for human interaction,” Justin Behar, co-founder and CEO of retail intelligence platform Quri, told Drug Store News. “That said, there are many convenience items serviced by drug [stores] today that are suited to the Amazon Go model, so no retailer or channel is immune to the reality of this future state exemplified by the Amazon Go announcement.”

Amazon can especially look to take aim at drug store retailers via health and beauty care products and nonedible grocery, which “present an opportunity for Amazon as part of the broader consumables basket," according to a new report released by Kantar Retail. “With only 3% of all Amazon shoppers in 2015 citing Amazon as the retailer where they spent the most on nonedible grocery, the retailer is ramping up efforts to capture a larger share of shoppers’ consumables spending,” read the report. “To address this growth area, Amazon is taking into account two different types of shopping occasions — immediate need and routine purchases — and reinventing the way shoppers can buy consumables.”

Amazon is definitely no slouch regarding execution, the Kantar Retail report continued. “Ultimately, Amazon is focused on providing experiences that expand the baskets of loyal members and capture new shoppers. By rolling out novel services that vary in the degree of content, convenience, and accessibility they offer, Amazon is able to shift shopper expectations and, in the process, position itself to further drive basket reach.”

Conversely, Walmart recently opened a 4,000-square-foot store in Thornton, Colo., that offers pickup of online grocery orders and a convenience store that also sells snacks, beverages and more, as well as serving as a gas station. It’s the second location for this concept, referred to as a pickup-and-fuel store, with the retailer opening its first such station in April in Huntsville, Ala.

The new stores offer grab-and-go items, including hot sandwiches, healthy snacks, drinks, and a coffee bar, as well as milk, eggs, and bread. For a wide variety of options, customers can also order groceries online for in-store pickup. Orders placed before 1 p.m. can be picked up the same day after 5 p.m.

 "The concept was born because at Walmart we are constantly looking for ways to add convenience. Customers are changing the way they shop and we want to make sure we are changing too," Gina Kretoski, Walmart eCommerce market coach, said during a customer meet-and-greet at the Thornton location, reported the Denver Business Journal.

“The Walmart c-store format is intended to improve Walmart’s overall market position as it faces increasing competition from ecommerce, home delivery services, and try to better compete with pick-up services like Amazon,” said Quri’s Behar. “The Walmart initiative is really a reaction to a general market trend that continues to emerge and impacts incumbent players including drug retailers. In reality, the broader trend of omnichannel commerce and pickup is impacting drug retailers along with every other player in the industry including the drug channel.”

Responding to new formats such as Amazon Go, Costco said during its Dec. 8 earnings conference call that it’s had scan-and-go technology in the past. It appears the club chain is taking a wait-and-see approach.

"We want to make sure we understand what all of these people are doing," Costco CFO Richard Galanti said on the earnings call. "We do — and not just from a competitive price shop, and whether it's them or someone else — recognize convenience is a value. But there's also some things that we can and can't do. So I think that we're looking at these things offensively, not defensively at this point.

Other Amazon and Walmart competitors have taken different approaches. Target has also considered a test program to deliver its own groceries, but reportedly hit the “pause button” on this project.  Meanwhile, Kroger is among the grocery retailers to offer online grocery pickup at many of its stores.