Amazon Go expansion brings a new 'longer term' risk to Kroger Co.

'It's going to be at somebody else's expense'
Amazon Go expansion brings a new 'longer term' risk to Kroger Co.
Posted at 9:48 AM, Sep 21, 2018
and last updated 2018-09-21 13:51:29-04

CINCINNATI - It’s not an immediate threat to the Kroger Co., but experts say the latest new retail expansion for Amazon Inc. could chip away at Kroger’s ongoing quest for “stomach share.”

Amazon is said to be planning a 3,000-store expansion of its Amazon Go concept, putting its cashier-free convenience stores in more locations than Kroger has grocery stores.

Kroger and Amazon have not responded to WCPO's questions about this report.

But Kroger has long talked about increasing "stomach share" by offering meal kits and in-store dining options that compete against restaurants, bars and convenience stores. That's because the nation's $1.5 trillion food industry is nearly twice the size of the U.S. grocery industry.

Baird research analyst Colin Sebastian estimated Amazon could generate up to $6 billion annually from the expansion. But that's just a start.

"While the Go stores are clearly a step ahead of the 'traditional' retail experience in terms of convenience, we believe they are just as much a data initiative, as Amazon can capture valuable profile information about Prime members from these shopping visits," Sebastian wrote.

Morgan Stanley analysts opined this week that Amazon could spend up to $3 billion to expand Amazon Go, according to Bloomberg’s summary of the research. The analysts expect Amazon will target big cities with small stores catering to consumers who want to grab a quick lunch or dinner. The stores would feature salads and prepared foods along with minimal grocery items.

Chicago-based retail consultant Bill Bishop doesn’t think Amazon Go poses an immediate threat to Kroger because their stores target different customers.

“Longer term, however, Amazon is going to continue to bring innovation to food retailing and ultimately will be serving the same customer,” said Bishop, chef architect at Brick Meets Click. “That’s when the competitive impact will be felt.”

The threat is significant, said Terry Kelly, wealth advisor and principal for Bartlett Wealth Management Downtown.

“Any time Amazon takes that initiative, you know they’re coming into somebody else’s market and it’s going to be at somebody else’s expense,” he said. “The first threat is going to be to smaller companies that don’t have the scale to deliver like a Kroger.”

Kelly said Kroger has responded aggressively to the Amazon threat, just as it did when Walmart made its major expansion into the grocery industry 20 years ago.

“Our friends at Kroger are still standing mainly because they were aggressive and because they were innovative,” Kelly said. “They reacted appropriately to the changes in their industry.”