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Amazon to Establish Bricks-and-Mortar Grocery Business

Amazon is descending from the cloud to enter the fiercely competitive retail grocery segment—a $795 billion industry. The Internet giant will open its first location in Seattle in the first half of 2017 and hopes to have approximately 2,000 locations nationwide over the next decade. To put this in perspective, Albertsons is one of the largest supermarket chains in the country with 2,400 stores.

The Technology

Why enter this highly competitive arena? Amazon will do what it does best: compete by leveraging technology. These Amazon Go stores will utilize “Just Walk Out Technology” that offers no lines, no checkouts, and no registers. How is this food shopping Nirvana possible? According to Amazon, on your way into the store you would open and scan the Amazon Go app. When you take an item from a shelf, technology detects what’s been taken and its price. If you change your mind, you can put the item back and Amazon will remove it from your virtual shopping cart. When finished, simply leave and your credit card will be charged. Somewhat similar to the self-driving car, the system uses sophisticated technology. It employs a network of sensors, machine learning, RFID, computer vision and artificial intelligence.

The Footprint

Initially, Amazon Go will have modest, 1,800 square-foot locations that offer convenience-store-type prepared foods, staples and Amazon Meal Kits (competing with the likes of Blue Apron). Locations may eventually reach the 35,000 square-foot range of a fully stocked grocery store.

You may recall that Amazon has touted package delivery via drone. However, the online food delivery sector has shown mixed results. Studies show that when people shop for groceries, they prefer the in-store experience and to inspect the food. Amazon Go can appeal to both tech-savvy Millennials as well as older shoppers partial to the in-store experience.

The Challenges

The employee-less environment does pose a few potential obstacles. What about food, such as produce, that is priced according to weight? What happens if someone puts something back in the wrong place, as often happens? Will this decrease or increase the opportunity for mistakes or theft?

The Impact

If this proves successful, it could have wide-ranging implications with respect to retail business models, shopping patterns, currency use and more. For instance, according to the Bureau of Labor Statistics, there are more than 850,000 grocery store cashiers in the U.S. Are they destined for, as taxi drivers might be due to self-driving cars, the unemployment line due to automation?

Natasha Roman is a Consulting Services Group Manager experienced in financial statement audits, SSAE 16 compliance audits, tax preparation, reviews and compilations, and payroll audits.

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