Why is Amazon Creating a New Grocery Store Concept? Follow the Data

When you work for Amazon.com, you rely on two decision-making maxims for everything you do:

• First, you must test and gather data.
• Second, you must make decisions based on that data.

With the recent announcement that Amazon will create a new grocery concept, the retailer's leadership followed this model to a tee.

This is a decision based on what the data was telling people at Amazon. What was the data saying? Quite simply, the combination of predictive analytics and artificial intelligence (AI) that Amazon uses in its other commerce platforms could be leveraged to sell a whole host of other grocery items. This is a great example of how data and AI are coming together to create a solution that benefits so many stakeholders.

To be sure, there was more to this decision than the data. Remember when Amazon announced plans to open more Whole Foods locations? By having more physical stores, the thought was that Amazon would entrench more locations for Prime Now customers to get products delivered when and where they want it. With a whole other grocery concept, Amazon has yet another vehicle to create a link between customers and data. But this is just the tip of the iceberg lettuce.

Amazon is using data to solve for supply chain efficiencies on the back end through its confidence in its data. The level of efficiency that Amazon is creating on a cost and logistical level indicates that it's paving the way for next-level ordering utilizing predictive analytics. Amazon is going to focus on efficiencies and create an unmatched customer fulfillment model, which in turn will provide savings and convenience to customers never before seen in the grocery category.

Walking the aisles of this new store will be very similar to a regular grocery shopping experience. We bet you will see the same items as any other store you frequent. The difference lies in the data that Amazon knows about you — or will know about you. Following the basics of its recommendation algorithm, these new stores will have products that the local community says it wants. That sort of data translates into product turnover, which translates into more frequent sales.

If nothing else, this announcement should serve as a wake-up call to the rest of the grocery industry. The largest grocery retailers that we all know by name have struggled to make e-commerce a sizable portion of their revenues. As a result, they're dipping their toes into other pools to secure more market share, such as purchasing home meal replacement companies or creating buy online, pick up in-store (BOPIS) models to push the convenience buttons that shoppers look for. However, no company has won digital commerce like Amazon. If grocery companies cannot tap what’s good about Amazon, then Amazon will tap what’s good about the grocery industry.

What’s more, this “clean-up in Aisle 7” is a signal that something bigger could be in store, using the one asset that at present is most appealing to Amazon: empty physical real estate spaces in prime shopping locations. And when Amazon smells an opportunity, it knows how to pounce with the best of them.

For years, Amazon has been relegated to being a digital commerce platform. While it will continue to fortify those roots, it realizes that the competition is fierce in digital shopping. This new shopping concept that Amazon is rolling out could very well define the future of how we shop in physical spaces, thereby making Amazon the king of omnichannel commerce.

Rami Odeh is vice president of digital commerce at VELOCITY COMMERCE GROUP, a TPN consultancy - solutions to power digital commerce.