The new Amazon Go Grocery store provides another piece of the puzzle that will eventually reveal the big picture of Amazon’s role in grocery. One clue to where it may fit is that Amazon says it’s a separate store format – not just a bigger version of Amazon Go.That means it’s designed and located to serve a different set of customer need states (i.e., shopping occasions).

Setting aside the existing Whole Foods stores, Amazon is now test-driving three physical stores that serve a range of customer needs for food, beverages, and household goods: Amazon Go, Amazon GoGrocery, and a yet-to-be-named grocery store chain that opens later this year in Southern California (with another larger store in the works in a vacant Dominick's store in Naperville, IL).

Until recently, it was difficult to visualize how the puzzle of Amazon’s path to physical grocery retail was coming together, but now that’s much clearer. With these three store formats in its arsenal, Amazon can now cost-effectively almost completely satisfy the food and beverage needs of everyone living in an entire geographic market area.

Here’s how that can work.

We know from supermarket site selection studies that every store has a trade area that serves customers living and/or working near the store. We also know thatretailers don’t want these trade areas to overlap, because when that happens, retailers are competing with themselves for the same customers.

Amazon can use its three-store format to solve this problem by:

• Deploying their largest stores – probably stores that are part of their new grocery chain – strategically across the market area in the best available locations.
• Positioning the medium-size stores – Amazon GoGrocery – to take care of customers in underserved areas between the chain's largest stores.
• Strategically locating the smallest stores – AmazonGo – to fill small gaps in the rest of the market and to provide greater convenience in more densely populated areas.

If Amazon follows this strategy, it will be well-positioned to serve all the in-store and online grocery shopping needs of virtually all of its customers living in a larger market area. It can do this by leveraging efficient online order fulfillment via automation in the largest stores, plus delivery and pickup options across all of  the stores.

Don't miss the bigger issue

Whether or not the execution and of the cashier-less technology in Amazon Go Grocery proves successful, the bigger issue for the industry is how a multi-format strategy like the one described above enables Amazon to saturate selected market areas without over-investing in its store network.

We believe Amazon’s ultimate goal for grocery is to be the dominant provider in many of the most affluent market areas and now know that they have signed dozens of leases to secure future store locations.

If this strategy succeeds, Amazon will be able to fully leverage its base of Prime members to expand its presence in the market, and the only thing the competitionwill be able to do is adjust to that new reality.

Image source: kiro7.com