What Amazon Go Means for the Future of Retail & CPG Brands
And what they can do in response to stay competitive
On Monday, Amazon’s checkout-free convenience store, Amazon Go, officially opened its doors to the general public. The grand opening came over a year since the store was initially announced in December 2016, after a few false starts due to technical issues. Located on the first floor of Amazon’s headquarters in downtown Seattle, the concept store, a first of its kind, employs computer vision and machine learning to let shoppers skip the checkout line and literally just “grab and go,” which separate Go from the many other stores with self-checkout services.
Here is how it works: After downloading the Amazon Go app on their phones, shoppers scan the app at the turnstiles upon entering the store. From that point on, a bevy of cameras and sensors outfitted throughout the store track the whereabouts of each shopper, recognize what items they took off the shelves and put in their shopping carts, and charges their linked Amazon account for the selections that they walk out with. This Recode article has some great pictures if you want to see what the store looks like.
What Amazon Go Means For Retail
The opening of Amazon Go points to an interesting path for the future of retail where automation starts to replace (a portion of) the human staff and create a more convenient and frictionless shopping experience in the process. Although Amazon Go is far from being human-less at the moment — there is still about a dozen of staff members on site working as greeters, stockers, ID-checkers, and food preparers — the way it is set up makes it abundantly clear that utmost convenience with a flexible amount of human interaction is the key to the kind of shopping experience that Amazon is aiming for.
As analyst Ben Thompson pointed out in his well-argued post on Stratechery, Amazon Go is another manifestation of the ecommerce giant’s overarching strategy of investing massively in software R&D and logistics to build a differentiated service that can scale indefinitely at no additional cost. Past examples of this strategy include Amazon’s ecommerce platform as well as its cloud service AWS. However, unlike its SaaS approach to AWS, which makes it possible for all companies, even competitors, to host their cloud-based services on Amazon servers, there are enough reasons to assume that Amazon will not be so inclined to license the technologies that power Go stores to other retailers. To ensure its success in entering the brick-and-mortar space, Amazon has a strong imperative to preserve the moat that no retailer or software-based competitor can match while allowing the Go stores to function as a physical version of the Amazon Marketplace for third-party vendors to play in.
Other retailers, of course, are not taking this lying down. Already, fellow retail giant Walmart has announced its plan to test a similar high-tech store concept that eliminates human cashiers and checkout lines. Whether Walmart’s technologies will be able to compete with that of Amazon remains to be seen. In China, dozens of startups have brought the cashier-less concept to reality over the last two years, thanks largely to the country’s mass adoption of mobile payments. At this year’s CES, Chinese retailer Suning also showcased their unmanned, automated ‘Biu’ store concept that combines RFID and facial recognition to power a gadget store.
However, the way that Amazon Go works distinguishes itself from the automated convenience stores that have been popping up in China over the past year. Although companies like BingoBox, F5 Future Store, and EasyGo may have beaten Amazon to the market in China, all of their stores function more like a glorified vending machines than an unmanned shop as they still require shoppers to manually check out each item they are purchasing themselves, usually by scanning the RFID tags or QR codes attached to each item with their phone, and pay with mobile payment before they can leave the enclosed store. It’s not exactly eliminating the check-out process like Amazon Go is capable of, although BingoBox is reportedly in the process of phasing out its RFID tag system and replacing them with one powered by computer vision instead. In the U.S., Apple Store has long enabled self-serve checkout via its mobile app, while Best Buy developed a robotic arm named Chloe at its NYC flagship store, which essentially functions like a supersized vending machine that stocks the shelves and retrieves requested items for customers.
The stores of the future will rely heavily on AI-powered automation software platform to drive the entire in-store operation.
Amazon Go, together with its less sophisticated cousins in China, signals that the stores of the future will rely heavily on the automation software platform that powers the entire in-store operation. Whereas Amazon chooses to prioritize convenience, which is a proven driver for consumer behavior change, other retailers may consider focusing on leveraging retail innovations to create unique, personalized in-store experiences to differentiate their retail stores and draw in shoppers.
What Amazon Go Means For CPG Brands
Beyond the realm of retail, automated stores like Amazon Go will also impact on CPG brands in terms of their in-store marketing. By eliminating the checkout lines, Amazon Go will also take away a primary window for making impulse purchases, which makes up a significant portion of sales for confectionery and beverage brands. The true “grab and go” model will also likely encourage customers to simply go with the brands that they are familiar with and therefore give less consideration to lesser-known products at shelf.
By eliminating the checkout lines, Amazon Go will also take away a primary window for making impulse purchases.
Plus, the opening of Go opens yet another channel for Amazon to get its own private label CPG products in front of shoppers. Amazon has been actively investing in creating its private label brands, including several snack brands, that Amazon pushes via its ecommerce channels, and after last year’s Whole Foods acquisition, it also now owns the 365 brand of CPG products. Similar to how voice shopping via Alexa operates, Amazon will start to make their private labeled products the default choice — and give them the premium shelf placements and end caps, unless a brand buys their way into being “Amazon’s choice.”
As grocery shopping starts to move online, branding becomes more important for established brands with strong name recognition, and some brands may be overestimating their true resonance with consumers. For example, new direct-to-consumer CPG brand Brandless is aiming to attract millennial households by de-emphasizing its branding while providing a wide selection of organic products at a competitive price. And when branding ceases to be a relevant differentiator, whoever controls the sales channel will get to feed products of its own choice to shoppers unless they request otherwise.
In the long run, given the threat of Amazon’s private label brands, smart CPG brands will need to seek greater control of the point of sales
Facing these mounting challenges, CPG brands need not panic yet. In the short run, Amazon Go will most likely still carry all the name brands so as to appeal to customers, and established CPG brands with capital to spend on marketing can stand out from competitors just as before. However, in the long run, given the threat of Amazon’s private label brands, smart CPG brands will need to seek greater control of the point of sales in order to keep in touch with their customers. Outside expanding owned online sales channels to directly engage with customers, there are two primary ways to archive that — one being teaming up with Amazon competitors to become a key supplier for their operations, and the other being opening up pop up shops or smaller, experiential-driven concept stores to engage with customers directly with unique services and experiences.
What Amazon Go Means For Other Brands And How It Could Further Evolve
Regardless of whether Amazon Go takes off, this is a watershed moment for the future of AI-powered automation, which will likely start to impact every major industry in the next five to ten years. Labor-intensive industries such as manufacture and mining have already witnessed the transformations that automation can bring. And if the enthusiasm surrounding the launch of Amazon Go is any indication, such AI-driven automated solutions could soon spread to many other industries. Already, restaurants are testing burger-flipping robots and hotels may be getting robot concierges soon, but automation doesn’t necessarily need to be in the form of robots. In most cases, it will be the AI-powered software solutions that eliminate the need for human interference without shifting the tasks back to the customers themselves under the disguise of some DIY, self-serve service.
Automation doesn’t necessarily need to be in the form of robots. In most cases, it will be the AI-powered software solutions that eliminate the need for human interference.
For example, the kind of self-serve kiosks that some hotels and airlines now offer may help speed up the check-in process, but it does not significantly enhance the traveler’s experience as it remains a nuisance — an extra step between arrival and getting to your room/terminal — to be dealt with. True AI-driven automation, in contrast, would be able to automatically check in a guest when they arrive at the hotel lobby or airport based on facial recognition and digital identity authentications, therefore eliminating the entire check-in process altogether. Similarly, the annoyingly cumbersome process of filling out patient forms before seeing a doctor could also be replaced by an integrated system that pulls your personal health profile, along with the relevant biometric and activity data as well as your insurance information, from your phone or wearable devices to auto-generate a patient profile for the clinic’s patient management system once you give your consent.
Looking further, the deployment of computer vision and AI-driven automation solutions that Amazon Go utilizes would be expanded to bring the same “just go and pay on your phone later” model to activities such as attending events, movie-going, and even dining out. When the software learns how to identify you and your purchases without you actively doing anything, and when payment is integrated into the automated process, the customer experience would become an entirely different beast than what they are today. This possibility is something all brands will need to start taking into account when future-proofing their business.
Moreover, the futuristic mobility concepts powered by autonomous vehicles that we saw at CES earlier this month provided yet an interesting perspective on how the application of automation would play out across industries. If realized, the mobility retail concepts envisioned by Toyota and Ford would enable a whole new distribution model for products and services. No longer would shoppers need to go to an Amazon Go store; instead, an Amazon Go on wheels would come to the customers, allowing them to simply meet it at the curbside, take what they need from the car and walk away.
Interestingly, if this scenario comes to be, other retailers may gain a somewhat leveled playing field with Amazon in terms of distribution and logistics, provided that their supply centers are up to the task, and that they use the same mobility platform, or an equally competent one, to manage those stores on wheels. (Amazon is teaming up with Toyota to test its mobility platform.) By then, the brand experience will be intensively data-driven and personalized, but also standardized and incredibly convenient, and whoever can deliver the most relevant, optimized experience in the most frictionless way will win the market.
