What will Amazon do with 2,000 grocery stores?

Amazon.com(NASDAQ: AMZN) has plans to roll out 200 grocery stores a year until it reaches 2,000 location in the United States. These new retail outlets would be about 30,000 square feet, but the company will not be using a one-size-fits-every-market approach. Instead, Amazon has a number of different formats it's testing before it starts rolling out the new stores in serious numbers.

In this clip from Industry Focus: Consumer Goods host Vincent Shen is joined by Motley Fool contributor Daniel Kline discuss what these stores might look like. They also explain how having more locations lets the online retailer exploit the distribution it has already built.

The big questions, of course, are whether consumers want this and whether Amazon is entering an already too-crowded market.

A full transcript follows the video.


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Vincent Shen: Just to give everybody a little bit of details, you mentioned 2,000 locations -- based on the current planning, if the tests are successful, the company sees...

Dan Kline: And this is wildly speculative, in terms of where we are.

Shen: Yeah. The company sees a potential rollout of 200 store openings per year, eventually reaching that network of 2,000 locations that you mentioned. Again, you touched on this earlier: The idea is they get supply through some of the innovation they've seen in the distribution centers, the expansion of that network. The company is constantly perfecting that part of the logistics.

Kline: Everything they do makes the math better on their distribution network. So, they can use one warehouse to supply trucks, drones, grocery stores, blimps that throw fruit at you, whatever it is. Obviously, everything costs less.

​​​​​​​​​​​​RELATED: Avoid these grocery store traps during your next shopping trip:

10 supermarket traps
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10 supermarket traps

Large shopping carts

According to Martin Lindstrom, the larger the shopping cart, the more likely you are to spend. The marketing consultant told The Consumerist"We doubled their size as a test, and customers bought 19% more."

Pleasing aromas and colorful sights

Walking into a grocery store and smelling freshly baked goods and flowers, especially if you're in a good mood, is a surefire way to get you to throw a few unnecessary items into your cart as your begin shopping experience.

Fresh produce first​

After you've already been tricked into picking up a loaf of bread or some flowers, supermarkets also get you by placing the produce in the front of the store. By doing this, they fool you into believing you're being healthier by shopping for fruits and veggies first so you won't feel bad if you decide to stock up on a few unhealthier snacks along the way to checkout, too.

Mist on produce

You may think the mist on fresh fruits and veggies is helping the produce, but in all actuality, it makes them rot faster. Also, be sure to shake off the access water before purchasing your produce -- the mist tends to add additional weight, making the price go up.

Slow, boring music

Have you ever wondered why most grocery stores play some sort of elevator music? It's because they want you to take your time while shopping. Many stores play music slower than the average heartbeat, so pop your headphones in and play upbeat music to combat this trick.

10-for-$10 promotions

It's common to believe you're getting a great deal during a 10-for-$10 promotion, but say, if a can of beans was originally 87 cents, you're actually paying more versus buying 10 of the same cans when they aren't on "sale."

Dairy being in the back of the store

The reasoning behind the age-old trick of placing milk and other dairy products in the back of the store may surprise you. Although it forces you to walk through various aisles, the true reason is because trucks unload their shipments in the back of store, and since milk needs to be refrigerated immediately, the easiest place to keep it is in the back.

More expensive items at eye level

If you've ever wondered why all of the expensive items seem to be the most accessible, there's a reason behind that, too. Supermarkets place cheaper items on the lower and higher shelves and reserve the middle, or eyesight level, shelves for their most expensive products.

Buying premium deli products

Just because you are buying a seemingly fresh cut of meat or fish from the deli and paying a higher price, doesn't necessarily mean the product is of better quality. Often times, the meat was previously frozen meaning you may have to use it sooner than meat you would buy from the frozen section.

Changing the layout of the store... often

Don't get too comfortable with your local supermarket's layout. Markets believe that when a person remembers where there items they plan on buying are, they'll spend less time in the store and will ultimately spend less money.


Shen: The thing is, the size of the opportunity, if they were actually able to get it out to that kind of scale, thousands of locations, it is sizable in the fact that the grocery business makes up about 20% of consumer spending in this country. It's like an $800 billion industry -- pretty large. Right now, with their current Fresh model with the delivery, that's like a sliver, like 2% of that market.

Kline: Do you do the grocery shopping in your house?

Shen: My wife and I do it together.

Kline: Do you go to the grocery store?

Shen: Yes, we absolutely go to the grocery store, because we prefer that experience, being able to pick our produce and things like that.

Kline: My wife and I split the shopping, and we go to two different grocery stores: the one that's closest to our house, and the Whole Foods that's second closest. If an Amazon opened, even though I'm a devoted -- I buy from Amazon almost every day, I have an Echo, I use a Kindle, I have Fire TV -- if Amazon opens half a mile down the road from Whole Foods, I would go there twice a year as a novelty.

Shen: [laughs]

Kline: I think that's the model for grocery stores. Unless you can be an Aldi, or something that's a really different shopping experience, am I really going to drive farther?

Shen: Yeah, but isn't the potential there, if there's a company that can really gather the data on what people want, and potentially curate the product offerings so people are like, "This is really a place I want to go; it has everything I need."

Kline: Amazon does have patents on knowing what you're going to order before you've ordered it. You've already picked your Christmas gift -- I don't even have to order it.

Shen: I have an interesting excerpt, here. GeekWire managed to get ahold of planning documents. They describe how one of these new retail operations might operate. I think it's really interesting, I want to share it with the listeners.

It says, "When placing an online order, customers will schedule a specific 15-minute to two-hour pick up window. Peak time slots will sell out, which will help manage traffic flow within the customer parking adjacent to the building. When picking up purchased items, customers can either drive into a designated parking area with eight parking stalls where the purchased items will be delivered to their cars or they can walk into the retail area to pick up their items. Customers will also be able to walk into the retail room to place orders on a tablet. Walk in customers will have their products delivered to them in the retail room." So, a lot of different options there.

Kline: I mean, it's very smart, but there's a lot of customer education.

Shen: This kind of reminds me, frankly -- maybe not the pick-up aspect, but the tablet order, for example -- of the new small-format stores that Whole Foods have launched with their 365. They've integrated a lot of technology into those locations. In terms of the handful of locations that are currently open, it seems like early results are quite positive. So, maybe that is a proof of concept, to an extent, for what Amazon sees, here.

Kline: It is. And McDonald's has had great success in Europe moving to a tablet ordering model. It does take people out of the equation, so these become cheaper stores to run. If you can manage the parking lot, you don't need as big of a parking lot, so your rent becomes lower. So in theory, you start to have significantly less overhead, and maybe you can put that into pricing. But, once again, it's solving a problem that might not be there. It's not that hard to get groceries. Non-perishables, Amazon can deliver me. I don't know that I want to get my produce or my meat without touching it or looking at it. And we've seen a lot of rejection of that model. So, I get it, New York, Seattle, there are going to be markets where convenience is key. But in suburbia, where people are already driving to places, it just seems like a very niche focus. And a 30,000-square-foot store is not a small store. These are not 1,500 square foot hyper-focused warehouses. They're still pretty big footprints.

Shen: Yeah, that requires a lot of planning, in terms of finding the right locations. It's expensive to develop larger stores.

Kline: They have picked a good time to be in the real estate business. There are a lot of Sears that are now available. [laughs]

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