For decades, drive-thrus have served up everything from coffee to prescriptions to dry cleaning — not to mention burgers and fries. Now Amazon.com Inc. wants to add another item to the list: Your groceries.
The e-commerce giant is developing a new drive-up store concept in Silicon Valley that will allow consumers to order grocery items online, then schedule a pickup at a dedicated facility, according to industry sources familiar with Amazon’s plans. If confirmed, the project could signal a new distribution strategy for Amazon, the world’s biggest online retailer, while adding an additional threat to a grocery industry already in the throes of change.
“We are seeing the emergence of the next generation of the food distribution system,” said Bill Bishop, chief architect at Brick Meets Click, a retail and e-commerce consultancy.
Amazon’s first location appears to be Sunnyvale, where a real estate developer has submitted plans for a new 11,600-square-foot building and grocery pickup area at 777 Sunnyvale Saratoga Road. Amazon itself is not named in planning documents, but real estate sources familiar with Amazon’s concept said Amazon is the likely tenant.
Amazon didn’t return a message, and the third-party developer, Oppidan Investment Co., declined to talk about the project. City officials likewise said they were not able to confirm a tenant's identity. But my sources said Amazon is planning a rollout of the concept that could eventually encompass multiple sites in Silicon Valley.
For Amazon, a standalone drive-up store would signal a new phase in the company’s evolving grocery ambitions. AmazonFresh, Amazon’s same- and next-day grocery delivery service, has been expanding into major metropolitan areas in recent years. A physical pickup spot could help solve the “last mile” problem of getting perishable goods to consumers by having consumers come to Amazon.
“Strategically, this gives them a way to avoid the cost and complexity of going to individual households, though that’s probably still on the docket,” Bishop said after I described the concept to him this week.
The drive-up model could also be seen as part of Amazon’s larger obsession with getting products into the hands of consumers on their own terms, whenever and wherever they want them, said Nicole Santosuosso, an analyst with Kantar Retail.
“Amazon’s entire value proposition is based on this idea of immediacy, and getting items to the shopper as quickly as possible,” said Santosuosso, who follows Amazon. “I could see something like this being tied into that overall value proposition.”
The grocery push, which has gained steam in recent years, would help achieve Amazon’s goal of meeting all of consumers’ shopping needs, whether it’s diapers or bananas. “Their play is for the grocery basket,” Santosuosso said. “It’s important to look at it more broadly. They’re trying to win that consumables trip.”
The move comes as retailers and startups add new options for ordering and obtaining food and other goods with one overarching objective: Customer convenience. It’s a trend spurred on by our increasingly hectic lifestyles, so it’s probably no surprise that workaholic Silicon Valley would be a hotbed of such experimentation.
Palo Alto-based Curbside brings customers’ orders straight to their cars at stores like Target. Amazon and Google both deliver groceries and other items to shoppers’ homes and businesses in select markets, including the Bay Area. Walmart — which bases its e-commerce operations in Sunnyvale — has also expanded a curbside pickup program, and this year started testing a new drive-up grocery concept in Arkansas. Established grocers like Safeway also operate delivery services. Then there's Peapod, which has long delivered goods on the East Coast and Midwest from Giant Foods and Stop & Shop stores.
But Amazon may be uniquely suited to this undertaking because of its vast know-how in logistics and order-selection, experts said. At Amazon’s automated fulfillment centers, Amazon’s Kiva robots fill in minutes orders that would take a human being hours. “You have to have an efficient selection process,” Bishop said.
Amazon has already been experimenting with physical pickup spots, such as the Amazon Locker program where goods can be delivered to an unmanned drop-box at retail partners like 7-Eleven. But the grocery concept would mark a ratcheting up of these efforts and a major new investment.
Much remains sketchy about the possible Amazon project, including how wide its inventory selection would be, how the business model is structured and when it could open. As always with corporate plans before they are announced, it's possible Amazon won't follow through on the latest concept.
In documents submitted to the city of Sunnyvale, Oppidan called the operation “a blended customer shopping experience, as it leverages both an online shopping platform and the traditional brick-and-mortar retail experience.” Customers will pre-order their “grocery and other retail items,” then choose a specific 15-minute to two-hour pickup window, a planning application states. The building would be mostly warehouse with a designated eight-stall car pickup area. It would not replace the current Orchard Supply Center, but rather be built next door.
Consumers can also “arrive on foot or bicycle and pick up their groceries and other retail items in the store,” it states. The project was approved earlier this month.
Amazon could presumably leverage its mammoth distribution center in Newark — leased last year — to supply the relatively small facility. Amazon has also recently leased relatively small industrial buildings in Sunnyvale and San Jose, though it’s unclear if those deals are related.
Based in Seattle, Amazon has long had a major Silicon Valley research and development presence. Its Lab126 skunkworks is based in Sunnyvale, while the A9 search and advertising unit is in downtown Palo Alto.
Will customers bite?
Experts cautioned that Internet-enabled grocery shopping is not a sure bet, largely because of the particular nature of shopping for consumables. After all, many people still prefer to inspect their chicken thighs personally. “At the end of the day, the biggest question is will the customers respond positively,” Bishop said.
Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University's Leavey School of Business, has followed the online grocery business since the days of Webvan — the online delivery grocer that went bust, spectacularly, in 2001. He says it’s a much different world today.
“People were not quite ready yet — they needed quite a bit of time to get used to the idea of buying things online,” he said of those early days. Now, “people have gotten more accustomed to online shopping, and many of the hurdles have been removed.”
But for online grocery shopping to truly catch on, e-commerce players need to move beyond delivery-only order fulfillment. That’s where order-ahead pickup could come in, because it gives the consumer more control over the timing of the transaction. The option is important for some consumers who don’t want to leave perishables sitting on the porch all day.
“I don’t think there’s one modality for grocery shopping,” Kalyanam said. “Some customers are going to order online and are happy to have it delivered to the house. Some want to order online and pick it up on the way home. Even the same consumer has different shopping-delivery needs on different occasions.
“One thing we know is: The more options a company gives consumers from a retail shopping point of view, the better the chance of success.”
If the drive-up concept caught on, it could pose a threat to traditional grocers who are already struggling to fend off new competitors — from Internet startups to Walmart and Target’s growing food offerings. A broad weakening of the brick-and-mortar grocery industry could have important ramifications for retail real estate, where grocers play a huge role in anchoring neighborhood shopping centers that have already seen a decline in non-restaurant businesses thanks to online shopping.
“If a retail store of the traditional type loses 5 or 10 percent of sales, many of them will enter marginal profitability,” Bishop said.
Grocers could respond by ramping up their online services. But Bishop noted that dedicated online players like Amazon, whose sole mission is efficient fulfillment, would have a huge advantage over services that layer order selection on top of existing stores, which have to satisfy traditional shoppers’ needs as well.
Because change is happening so rapidly, it’s still unclear what the industry will look like in the next few years. In some ways, the latest concepts simply represent the extension of the last 50 years of industry evolution, during which thousands of small mom-and-pop shops — where clerks selected orders — gave way to the self-serve supermarket.
“It would put more competition on (traditional grocers) because now we have a new format,” Kalyanam said. “Where the rubber is going to hit the road is: Can these new locations be more convenient to customers than a Safeway?”
If the answer is yes, “There will be some restructuring in the grocery industry,” he said. “Demand will shift away from people buying traditionally, to people buying in this kind of way.”