Will Amazon's Future Grocery Stores Affect Restaurant Operators?

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Anyone who doesn’t believe that Amazon.com is one of the biggest innovators in e-commerce and a leader in delivering the ultimate user experience is swimming in de’ Nile. From its early days in 1994, when it began as an online bookstore before diversifying to DVDs, CDS, software, apparel, furniture, and more, to now providing consumer electronics and cloud infrastructure services like tablets, e-readers, and Fire TV, this brand has been a giant stomping all over the retail market.

AmazonFresh, a subsidiary effort that launched in 2007 to bring consumers fresh produce and groceries to their door, proves this company is on a mission to cross multiple verticals, and recent news show that Amazon is disrupting industries yet again.

According to Business Insider, Amazon is aiming to open 20 brick-and-mortar grocery stores in the next two years, with up to 2,000 projected AmazonFresh-branded grocery stores over the next decade. Its pilot program will hit major cities, including Amazon’s home base, Seattle, Las Vegas, New York, Miami, and the Bay area, by 2018.

This isn’t the first time this online retailer has gone from digital to doorway, with a few physical bookstores and pop-up stores in malls, but with its more aggressive push into the $800 billion grocery market, how will this next level of consumer convenience affect restaurant operators in the face of a restaurant recession and the increasing grocery-restaurant price gap?

Amazon Going Grocery: Good or Bad for Restaurant Operators?

Amazon's first office building. Photo Credit: Amazon.com

Amazon's first office building. Photo Credit: Amazon.com

No doubt that this latest business ambition will be expensive and Amazon will be going head-to-head with more established brands such as Walmart. But if these brick-and-mortars successfully become paradise for cart-pushers, what will this mean for the restaurant industry?

“First and foremost, what a great wakeup call for our industry. If anyone in our industry is taking anything for granted, what a gift Amazon is providing us...Amazon knows how to deliver experience,” restaurateur and brand coach, Rudy Miick, CMC, MA, said. “There’s brand promise and brand experience. Amazon is the essence of brand experience. Anyone who thinks Amazon won’t deliver on this par is likely naïve.”

Miick cited EatZi’s, a market, restaurant, and bakery that also offers gourmet takeout meals, as an example of an eatery ahead of its time. Whole Foods built on this concept, and Eataly — the largest Italian marketplace comprised of restaurants and retail sections — elevated it to the next generation.

“Eataly is the essence of an idea that hits it...when well-executed,” he said. “And my bet is that Amazon will be even more!”

Donald Burns, The Restaurant Coach™, agreed, but he also had a few words of comfort for restaurateurs.

“Amazon is smart to transcend into the arena of physical grocery stores. If Amazon is going to make an impact on the grocery business, it’s going to have to do something aggressive to penetrate the market owned by Walmart,” Burns said. “I don’t think restaurants need to worry as much as Walmart does. Restaurants still have the advantage because a lot of people don’t cook at home.”

And it’s true. The USDA reported that in 1970, only 25.9 percent of all food spending went to meals away from the home. In 2012, that share rose to 43.1 percent. Due to major social changes, restaurant spending topped grocery spending for the first time in 2015, with nearly a third of the U.S. food dollar being spent on dine-out services.

Amazon also made strides ahead of Walmart that same year, when it beat out the 54-year-old company as the most valuable retailer in the United States by market capitalization. As of Q3 this year, Amazon is the fourth most valuable public company. What will restaurant operators look forward to if this company continues on with its impressive history?

“I think this will have a positive impact on food costs for restaurants and allow restaurants to find another option to source specials or another alternative to food vendors,” Andrew Carlson, consultant and author of Customer Service is the Bottom Line, said. “The issue with the restaurant industry is that food costs fluctuate, and with Amazon’s grocery [stores], chefs and restaurateurs could have another way to source local, fresh ingredients.”

The Challenges and Rewards: Will Amazon Be Successful? And How Can Operators Work This to Their Advantage?

Costs will always be a big challenge, especially when attempting to enter the brick-and-mortar grocery store business. Discovering a unique selling point to stand out from the competition is another. With other retailers already offering convenience and better prices, can Amazon successfully lead the pack? Will convenience stores and curbside pickup locations be enough? And how can operators adjust their game plans to maximize their own successes?

“Personally, I think Amazon is pushing a little too far outside the brand. AmazonFresh launched back in 2007 and has not really exploded into the marketplace as many had expected. This can be a struggle to manage the expense of a physical location. Many food trucks have experienced the same struggles when they go from mobile locations to a brick-and-mortar one,” Burns said.

“In today’s market, people like convenience. Just like any business that offers a competitive product, there will be some loss of market share to restaurants. However, this is a great opportunity to model the process and fit it to your concept,” he added.

Just like the constant rivalry between Apple and Microsoft, Amazon and Walmart could head down the same path. Operators should evaluate the development of these brands, study the competition, improve upon the process, take the market share away from them, and then make their big move, Burns said.

“Smart restaurant operators can take advantage of this trend by offering curbside pickup and increasing their use of technology to make the ordering process for guests mobile and easy to pay. Steakhouses can offer fresh, hand-cut steaks for pickup that day. Delis and sandwich shops can offer package picnic baskets ready-to-go and customized from an online order.”

Still, Amazon has solid financial backing, not to mention immense brand loyalty and brand trust, all potential factors that could fuel its brick-and-mortar ambitions. As Miick puts it, Amazon is committed to a business culture that delivers to its team and guests, not customers — its mentality is already like that of a restaurant, in which superior service comes before all else.

Amazon could be successful. It wouldn’t be a surprise, but Amazon’s success doesn’t have to mean restaurant failure. What should operators keep in mind as Amazon-branded grocery stores come to fruition?

“Restaurant owners need to know their numbers, first and foremost. The best thing that could happen is that Amazon offers lower pricing and could allow restaurants to purchase food through their delivery service,” Carlson said.

He also suggests owners consider their daily customer experience at their establishments. Grocery costs have been lowering, and with Amazon hopping onto the bandwagon, the grocery-restaurant price gap will also increase. Dine-out customer service will have be highlighted and exceptional to compete with these economical changes.

“Focus on the experience that you provide and give them an experience and a menu they will never have at home,” he said. “Always be a step ahead and your restaurant will be able to stand through the test of time.”