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Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week's topic: Amazon Go, the company's new 1,800 square foot convenience store format, scheduled to open in Seattle early next year, which will allow consumers to enter the store using a mobile application, choose the items they want, and then leave - without having to go through a checkout lane. can read MNB's initial coverage of Amazon Go, and see a video about the store, here.

And now, the Conversation continues...

KC: I guess my first question is whether there was anything in the announcement or video that surprised you.  I know that one thing that I found a little jarring was when they showed a guy making sandwiches, assumedly in the back room or some central facility. That suggested an approach to foodservice and fresh foods that I might not have expected from Amazon.

Tom Furphy:
That’s funny. That’s exactly the same thing that stuck out to me. We’ve often said in this column that Amazon doesn’t like to rely on humans because, as Jeff Bezos says, “They are variable”. I was surprised to see the chef preparing food right there, on site, in the store. To have that type of expertise in a large number of locations across the country and the world would certainly be a departure from traditional Amazon strategy. However, I wouldn’t put it past them. They likely have figured out how to standardize the roles and then replicate the role at scale. Or at least they’re on that path.

KC: Amazon has not really spoken about how the Go stores might be integrated with Prime membership.  If it were you making the decisions, how would approach this issue?  And what might be the lessons for traditional retailers?

I would have no problem enabling exclusive benefits and experiences for Prime members over non-Prime customers. It is consistent with the treatment of Prime customers through the rest of the Amazon ecosystem, such as allowing preferred access to content, special shipping terms, and access to Echo. I would have no problem giving Prime members access to exclusive deals or products. And I would support offering better pricing for Prime members. All in, the Go stores can be a great benefit for Prime members and a powerful marketing tool to recruit new Prime members.

Traditional retailers are already giving basic benefits to their “loyal” customers by giving them access to specials by virtue of scanning or swiping their shopper card. Why not add additional services? Maybe give loyalty cardholders lower shipping/delivery thresholds for e-commerce. Perhaps they can have first access to new private brand products or free entry to exclusive cooking classes with company or high-profile chefs.

KC: I’ve been interested in how many emails I’ve gotten from folks suggesting that this concept is problematic because shoplifting is going to eat them alive.  But I have to believe that a) Amazon has figured out what it believes is a solution to this problem, b) that it may be a solution that nobody else has thought of, and c) that it represents the kind of old-world, we-have-to-do-things-the-way-they’ve-been-done-because-that’s-how-we’ve-always-done-them thinking that in the end is a far bigger problem for the food retailing business than Amazon is.  Thoughts?

I think the solution to thwart shoplifting is the very technology that enables the experience to work in the first place. Upon entry, the shopper scans their phone and is recognized and tracked by cameras throughout the store. If a customer enters without scanning they will likely be tagged as a “non-scanned customer” and tracked anyway by the cameras from the time they walk in. So their location and merchandise can still be tracked throughout their visit.

Because the technology is used to charge them for their basket, it should be very powerful and accurate at tagging items to shoppers. If a shopper attempts to leave the store with products without paying for them, they will be flagged real time. I’m sure an alarm or alert could be set off to notify store personnel to intervene and “assist” the shopper with their purchase. To me this seems incredibly basic and fundamental to the offering. And it has the capability to be much more secure than traditional loss prevention measures.

KC: When you look at the Go concept, what kind of rollout potential do you think it has?  And might it be integrate-able into the click-and-collect model that Amazon also seems intent on testing?

The ultimate rollout potential of any of Amazon’s concepts comes down to demographics, population density and synergy with other Amazon offerings. The Go concept as outlined in the video looks spot on to serve millennials and upscale customers in dense urban markets. As such, I’d think there is easily potential for hundreds of these units nationally, thousands globally.

But we know that Amazon will also be testing other formats. The drive-up and drive-through models should work in a number of markets. Couple those with various sized walk-in options using the Go technology, PrimePanty, Dash and Subscribe-and-Save and they have the ability to serve a number of consumable purchase occasions across a number of geographies and a range of shopper demographics. They are much better suited to serve the evolving shopper than any traditional format.

The lead that Amazon has in this area is substantial, and the gap is widening. Retailers that are not actively innovating to compete with this should be very worried. At a minimum, they should be testing new formats, providing new utilities such as replenishment to lock in the center-store trip and experimenting with delivery or pick up. They need to be doing this aggressively and they need to be doing this now.

KC: Agreed. There's no time like the present.

The Innovation Conversation will continue in 2017...

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