Once considered the preserve of the local mom and pop store, grocery delivery by Internet firms is becoming increasingly popular in recent times. There are several startups in the US trying their hand at grocery delivery such as Instacart, Din, and PlateJoy, and we have startups such as Big Basket and Grofers trying the same in India. Most of these startups are running in losses and only time will tell if they will be able to turn profitable. However, it is not just the startups that are eyeing the grocery delivery pie – even big companies have their eyes on it. Two of the most notable being Google and Amazon.
But the levels of intensity of the duo are markedly different. Let’s start with Google. Earlier this year (in February to exact), the company expanded its Google Express service to parts of San Francisco and Los Angeles. The search giant also has plans to deliver items through drones, under its Project Wing. Project Wing is yet to make any commercial advancement because of strict drone delivery rules in the US that require a human operator to control the drone in the line of sight. The result? Google Express is a fringe player in the grocery market of US. In comparison, Amazon, an old e-commerce hand, has made more serious advances in this segment. In fact, if one observes carefully, a lot of moves Amazon has made recently are all aimed at achieving a monopoly in the grocery market.
Need to shop? Don’t dash out, hit the Dash Button!
In order to evaluate Amazon’s entry into grocery market, let’s start with Dash Buttons. Launched around March 2015, the purpose of these buttons was to make ordering everyday grocery items really easy – instead of going to the nearby grocery store or department store every time they run out of everyday kitchen needs, consumers could just press the Dash button. Running out of detergent? Just press the Tide button and get it replenished. Running out of Coca Cola? Just press the Coca-Cola button and get it replenished. Yep, that simple!
Of course, this was not free. Amazon charges $5 for every dash button, but that $5 is credited back to the customer’s account when they make their first purchase using the facility. And if data from Seeking Alpha is to be believed, then Dash buttons have made significant progress in groceries. The chart below gives the share of Dash Buttons amongst various companies and almost all the top companies are what you would expect to be present in the grocery market.
Considering that Amazon sells the Dash button at $5 which it refunds to customers, most would expect Amazon to be making a loss on Dash buttons, but according to Seeking Alpha, not only is Amazon able to increase the frequency with which groceries are ordered, but even manages to sell the Dash Button at a gross profit. Apparently, every company that ties up with Amazon for Dash button pays Amazon $15 for every Dash Button sold and Amazon also commands extra margin over every purchase made through the Dash Button.
Speak, shop – the Amazon Echo effect!
Then there is the little – actually not so little – matter of Amazon Echo. After its failure in the smartphone market with the Fire Phone, Amazon Echo has been a surprise hit and Amazon has been firing all cylinders to make sure the Echo dominates the conversational computing platform. Amazon Echo is powered by an AI assistant, Alexa, and Echo acts as a speaker that can understand your queries and respond to them. Echo can understand a whole host of questions and performs various tasks such as playing music, hailing cabs, etc., it can also – surprise, surprise – help you order from Amazon!
Again, ordering grocery items is seamless and intuitive. Technically, one could order anything from Echo, but the probability of a person ordering grocery items from it is much higher than any other category. You are less likely to order a 60-inch TV or a microwave oven on Echo – for such large purchases, one would want to first check pictures, read user reviews and then make a decision.
Groceries, on the other hand, are the perfect use case for Echo. Check the scenario. When you are in the kitchen, your hands are probably dirty and you wouldn’t like to make your shiny smartphone all oily and smudgy. Also, most of your grocery items in the kitchen can be ordered without a second thought. Does anyone really have to read reviews before ordering a pack of soda that they have been drinking all their lives? I don’t think so. And the same applies to items like milk, eggs, cereal, etc. The potential of Amazon Echo can be vast as more and more Alexa skills get added to it, but in the near term, grocery items seem like the perfect way for Amazon to benefit from Echo.
Drone-ing on about shopping
Time for the ‘D’ word – let’s move on to drones. There have been reports that Amazon has been investing in drones since 2013 and it makes total sense for the company. Drones are one of the fastest ways for Amazon to automate the last mile and make deliveries even faster. Amazon has already been testing drone delivery in the US and has started the same in the UK as well. As we pointed out earlier, current drone laws in America are quite restrictive which make commercial deployment unattractive. After all, If Amazon needs to have a human operator control the drone and make the delivery within his line of sight, then how is it more efficient than just walking up to the door and delivering it? The time it takes to walk up to a door front would be far less than loading a package on the drone, landing it at the house and then bringing the drone back when the range is restricted to a few meters. However, as technology makes advancements and drones get safer, I am sure autonomous drones would soon be allowed in the US.
When autonomous drones are allowed, Google and Amazon would be two companies that would be ready to make use of it. In the case of Amazon, groceries would once again be the perfect use case for drones. It would be difficult to deliver TVs or ovens on drones, but delivering soda, milk, eggs, bread, cereals and other grocery items would be the perfect use case for drones. Not only groceries, but Amazon could also deliver a whole range of electronics via drones such as smartphones, tablets, and the like (just for the record, Amazon just made its first ever drone delivery a few days ago).
Shopping Offline? Ready, set… Amazon Go!
While drones, Echo and Dash Buttons could allow people to order groceries right from their homes, there are still certain grocery items that people would like to physically see and touch before purchasing. For example, many people would prefer having a look at how fresh their fruits or vegetables are before they make a purchase. There are many other grocery items where the physical touch/seeing matters a lot. And looking to serve them is Amazon’s latest initiative – Amazon Go.
Launched earlier this month, Amazon Go, as the video demo shows, would be a cashier-less grocery store where people could just walk in, purchase items that they like, have them added/removed to a virtual cart and pay for them using their Amazon account. The demo showed a very futuristic store and while Amazon is opening just one store now, much more could be opened in the future.
Combine Dash Buttons, Echo, Drones and Amazon Go, and it starts to become clear how Amazon could eventually come to dominate the grocery market. They might seem like entirely different initiatives and none of them might seem to have groceries specifically in mind, but as things stand, all of them are tailor-made for groceries. And if Amazon is able to leverage and even work out synergies between them, that would be one massive shopping coup for The Everything Store.