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If Amazon is really opening brick-and-mortar grocery stores, it’s a big deal

Amazon boxes are seen stacked for delivery. (Reuters/Mike Segar)

Rumors have been brewing for about a year now that e-commerce titan wants to open grocery-centric brick-and-mortar locations. In Seattle and Sunnyvale, Calif., there have been reports that outposts are in the works allowing shoppers to drive up and retrieve grocery orders they place online. On Tuesday, the buzz grew louder when the Wall Street Journal reported many such locations are in the works, and they will not only include curbside pickup, but also walk-in convenience stores where you can purchase perishables.

The reports suggest Amazon wants to be a more serious player in the grocery business, and to achieve that, it believes it can’t rely on e-commerce alone. And that potentially sets up a kind of retailing showdown we haven’t quite seen before.

For so long, we’ve been watching traditional brick-and-mortar retailers try to notch a win on the digital playing field that is Amazon’s home turf. Now, it appears we’re poised to watch the online shopping pioneer try to march into an arena where the likes of Walmart, Kroger and Giant have distinct advantages. (Amazon’s chief executive, Jeffrey P. Bezos, owns The Washington Post.)

To understand what’s at stake for all of these players, let’s start with a lay of the land. Grocery is something of the final frontier of the online shopping revolution, with just 2 percent or less of sales happening online. There are a variety of reasons for that: Customers have been loathe to give up control of selecting their own produce and meat, and retailers have had a hard time figuring out a durable business model, since the grocery world already operates on razor-thin profit margins.

Also, about 80 percent of the U.S. population lives within 2.5 miles of a supermarket, according to Jim Hertel, senior vice president at grocery consultancy Willard Bishop. In other words, buying groceries in person simply isn’t that inconvenient, especially compared to the other types of purchases that have moved online in greater proportions. 

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That hasn’t stopped Amazon from trying to turn us into online grocery shoppers. For several years now, it has been experimenting with an offering called AmazonFresh, in which Prime members can pay a fee to be able to get fresh groceries brought to their doorsteps.

It’s not hard to see why Amazon would want to be the retailer you turn to when it’s time to restock your refrigerator and pantry. Grocery is a loyalty business, one built on frequent trips from repeat shoppers. This fits in well with what it has been trying to do with its Prime membership for years: Get people hooked on a bundle of shopping and services that mean they rarely have to leave the Amazon ecosystem.

Amazon declined to comment for this story.

If it now opens brick-and-mortar grocery locations, Amazon would appear to be acknowledging that some kinds of purchases just might not be well-suited for the doorstep-delivery model. The problem for Amazon, though, is that other big retailers have already had this revelation — and have assets that might better equip them to pull off curbside pickup models.

Take Walmart, for example. The nation’s largest grocer has been investing in expansion of its grocery pickup model, taking it from five markets to more than 80 in about year’s a time. The retailer expects to have this service in 600 individual stores by the end of this year and will add 500 more locations in the year ahead. For Walmart, going big with pickup involves relatively low risk: The big-box store simply has to add four to nine staffers per store and must reconfigure its parking lots.

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Kroger, Giant and other big supermarkets also have existing infrastructure to make pickup relatively easy to get off the ground. But for Amazon, the investment is riskier and more time-consuming: It has to build a real estate portfolio from scratch and must change up its supply chain to get goods to these facilities.

Still, brick-and-mortar grocery sellers are likely keeping a close eye on Amazon’s maneuvers in this space. The Seattle company has a track record of elbowing its way into new lines of business, and the Amazon brand is especially strong with U.S. consumers, according to research by YouGov. Other kinds of retailers, too, should be ready for a fight, as much of our grocery budgets these days are spent at convenience stores, drugstores and discounters.

And yet, while these moves by Amazon would likely be unsettling for direct competitors, it might bring a strange sense of relief to a wider slate of traditional retailers. For years, legacy players have been arguing that stores will continue to be relevant, with e-commerce and physical retailing helping feed one another. If Amazon — the ultimate in pure-play digital shopping — is pushed to open physical stores, it effectively suggests that this analysis was right. And actually, even if Amazon grocery outposts don’t materialize, Amazon has essentially already conceded that brick-and-mortar locations are valuable. The company has begun opening bookstores.