TGIF – Here Comes Amazon, Again…

Remember back in the day when you drove to the grocery store, navigated the crowded aisles, had to wait in line to pay and sometimes even had to bag your own groceries? The concept will be a distant memory a couple of decades from now. My kids often join me every Sunday at the grocery store loading up for the week. The chances are very slim that their kids have the same experience. Grocery shopping will take place on the couch or in the kitchen, like a digital magic wand. Amazon is changing all of it. It will be great for consumers… well, sort of.

I spent the last 2 days in San Francisco meeting with industry leaders discussing present day issues and hypothesizing where things are headed. The topics ranged from Artificial Intelligence to driverless cars to digital currencies to geopolitics, and so much more. It was all in the context of innovation and investment. I plan to cover these fascinating topics over the coming weeks. I’ll start with the Amazon Effect.  I touched on it a few weeks back when news broke of the Whole Foods deal. This is a follow up with a fresh perspective as to where things might be headed as we see it.

The Amazon Grocery Store

Amazon will officially own Whole Foods on Monday and they have already announced major price cuts. Rival grocers are shaking in their boots, ill-prepared to compete head-to-head. Fresh is going on sale next week and Amazon Prime will become the Whole Foods customer rewards program. You just know it won’t stop with price reductions on bananas, avocados, meat and eggs. Amazon has over 60 Million Prime members and it is estimated that over 60% of Whole Foods customers are members of Amazon Prime. The synergy is already there. The door is wide open for more cross-selling for Amazon products.

The thing is, Amazon has been a brutal competitor in every aspect of their operation. Amazon notoriously sells items at break-even or even at a loss to gain market share in sectors it sees as a priority. That strategy will no doubt be utilized in groceries. Grocery stores are already low margin businesses. Amazon has the ability to squeeze margins even further as they look out longer-term. Most grocers don’t have that luxury.

Amazon now has a network of nearly 500 physical stores in some of the most desirable locations throughout the country. These retail stores could also become a distribution point, not only for grocery deliveries, but also for Whole Food’s prepared foods in an attempt to compete against startups like GrubHub and Foodler and crush other delivery providers like UberEats. Some of these stores will soon have Amazon’s in-store lockers for package pickups. The lockers could be a first step in reducing Amazon’s delivery costs by offering customers more pickup or delivery options. Those white vans that you’ve been seeing in your neighborhood with increasing frequency; it’s Amazon. We’ll be seeing them more and more in the coming months. But they won’t have human drivers forever. Self-Driving vehicles will be next as well as drone delivery. Oh yes, Amazon wants to send stuff out with drones. Amazon recently filed a patent application describing large, multi-story drone towers in urban centers. The hive-like towers will have loading docks and warehouses on the lower floors and bays for drones higher up. And the drones may be repaired and supplied by robots. This is just mind-blowing.

It’s All About Logistics

Amazon has been hyper-focused on its plans to create the world’s most efficient order-fulfillment system. That includes a network of warehouses and the means to deliver the goods efficiently and expeditiously. Last year, Amazon started a shipping subsidiary called Amazon Maritime to transport goods on cargo ships from China to the United States. Amazon has built out a robust digital storage operation over the years called Amazon Web Services with a who’s who customer list of Fortune 500 companies and small start-ups, including Netflix, NASA and the CIA. Amazon competes directly with IBM, Microsoft, Google among so many others. Amazon pretty much competes with everyone.

Amazon’s Magic Wand

You might have met Alexa, but have you seen Amazon’s Dash Wand? It’s a handheld device that comes equipped with a speaker, microphone and a barcode scanner. It is powered by Alexa, which has been a big success in the Artificial Intelligence arena, and is seemingly just getting started. The Dash Wand is battery operated and has a magnet that lets it stick on the refrigerator. It was primarily designed as a grocery scanner and is meant to hang around the kitchen. You can either tell the Dash Wand to order an item or scan a barcode to automatically add that item to your cart on Amazon. Prime Members will get their items at their door within 48 hours.

Things are coming full circle with home delivery. Remember the milkman coming to your house? Well, it’s making a comeback, and in a much different form. These are fascinating times in this digital age in which we live.  It’s all investable.

Have a nice weekend. We’ll be back, dark and early on Monday.


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