The new Amazon Go Grocery storeprovides another piece of the puzzle that will eventually reveal the bigpicture of Amazon’s role in grocery. One clue to where it may fit is thatAmazon 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 needstates (i.e., shopping occasions).

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

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

Here’s how that can work.

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

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

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

If Amazon followsthis strategy, it will be well-positioned to serve all the in-store and online groceryshopping needs of virtually all of its customers living in a larger marketarea. It can do this by leveraging efficient online order fulfillment viaautomation in the largest stores, plus delivery and pickup options across all of the stores.

Don't miss the bigger issue

Whether or notthe execution and of the cashier-less technology in Amazon Go Grocery provessuccessful, the bigger issue for the industry is how a multi-format strategylike the one described above enables Amazon to saturate selected market areaswithout over-investing in its store network.

We believe Amazon’s ultimate goal for grocery isto 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 thisstrategy succeeds, Amazon will be able to fully leverage its base of Primemembers 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

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Brick Meets Click is a strategic advisory firm focused on how digital technology and new competitors are changing food marketing and sales. Our guidance helps retailers, manufacturers, and suppliers adapt and find new sources of growth by better understanding the shifts in the marketplace and where to concentrate efforts to improve business results. Learn more about our services .