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Amazon Briefing: Why Amazon’s smart cart pitch to grocers may be a ‘tough pill to swallow’

This is the latest installment of the Amazon Briefing, a weekly Modern Retail+ column about the ever-changing Amazon ecosystem. More from the series →

When Amazon unveiled its smart shopping carts in 2020, the self-checkout machines on wheels were just a smaller component of the e-commerce behemoth’s ambition to eradicate in-store checkout lines using its cashierless technology Just Walk Out. 

Four years later, Amazon’s smart carts — called Dash Carts — have emerged as the new face of the company’s retooled physical retail strategy. Earlier this month, Amazon said it would scale back Just Walk Out and replace it with more Dash Carts at new Amazon Fresh stores. What’s more, the tech giant will begin selling its Dash Carts to other retailers — a move that takes a page out of rival Instacart’s playbook. 

All told, Amazon’s Dash Carts aren’t so much the pièce de résistance of its grocery store strategy but rather the company’s latest effort to crack the code of brick-and-mortar retail and prove its pricey investment in artificial intelligence-powered grocery tech has been worth it.

It’s no secret that Amazon has long harbored ambitions to become a brick-and-mortar juggernaut. Its first foray into physical retail began with Amazon Books in 2015. Despite shuttering 24 Amazon Books locations in 2022, the company has remained bullish on grocery stores over the years, testing out various formats, including Go and Fresh since 2018. In 2017, Amazon acquired high-end grocery chain Whole Foods for $13.7 billion, further cementing the tech company’s interest in taking away market share from the likes of Walmart and Kroger.

Even as Amazon rethinks its Just Walk Out technology, it’s clear the company isn’t giving up on physical stores yet. Instead, it’s pinning its hopes of infiltrating grocers with its cutting-edge grocery tech on high-tech shopping carts.

The challenge for Amazon and its rivals peddling similar smart-cart technology is proving to grocers that the carts aren’t just glorified phone apps, but the future of grocery shopping. They also have to get shoppers on board to use them. But that may be easier said than done, according to analysts. 

“Groceries are a really margins-thin business,” said eMarketer analyst Sarah Marzano. “It’s a huge undertaking upfront, and that’s a really tough pill to swallow.”

While smart carts might be more manageable for an industry giant like Walmart to adopt — the grocery chain reported $611 billion in revenue in 2023 — smaller players such as local chains and independent stores may find it more challenging to invest in such technology. By contrast, regional supermarket chain Meijer saw nearly $20 billion of revenue in 2023.

Smart carts — which often use cameras and sensors to let shoppers scan products right into their cart, allowing them to skip the checkout line — have become a small but growing fixture of modern supermarkets. In 2021, San Francisco-based Instacart bought smart cart startup Caper AI for $350 million and has since introduced the carts at a variety of retail locations, including Kroger, Fairway Market, Geissler’s, ShopRite and Schnucks, with thousands expected to be deployed by the end of 2024. Supermarket chain Albertson’s has piloted smart carts made by Veeve, a startup founded by two former Amazon engineers. Last year, Morton Williams ordered 100 carts from Israel-based A2Z Smart Technologies, while Wegmans started testing smart carts at two stores.  

Smart carts have relatively low adoption among grocers, with only 6% of supermarkets having smart carts currently implemented in stores, according to Progressive Grocer. The testing pool of third-party retailers trying out Amazon’s Dash Carts is small, with just five Price Chopper and McKeever’s Market stores located in Kansas and Missouri currently piloting the technology, according to Amazon’s website. That said, some research suggests smart carts would be popular among consumers. Data from consumer research platform Attest found that 41% of 2,000 Americans surveyed said they would use smart carts that automatically detect items added, while only 21% said they wouldn’t want to use a smart cart.

Part of the problem is the expense. Smart carts can reportedly cost anywhere between $5,000 and $10,000 each. That price is bound to give most grocers sticker shock given that standard carts only cost around $100 a pop, said Bryan Gildenberg, founder and CEO of Confluencer Commerce. In the low-margin business of selling produce and dry goods, the cost of futuristic carts decked out with sensors and cameras may be out of reach for many grocers. 

Instacart has attempted to mitigate this dilemma by showing advertisements on the AI-powered shopping carts it sells to supermarkets and sharing revenue from its high-margin ads business with retailers. The grocery tech company’s ads business raked in $871 million in 2023, nearly 30% of its overall revenue. An Instacart spokesperson declined to disclose specific terms of its retail partnerships, including what percentage of its revenue derived from smart cart ads is shared with participating stores.

Likewise, Amazon has made a concerted effort to turn physical grocery stores into lucrative sources of advertising revenue as part of a broader push into retail media. In October, Business Insider reported that Amazon has plans to roll out personalized ads on its Dash Carts. Amazon posted advertising sales growth of 27% year-over-over in its most recent earnings.

“The thing is: you need a store that’s going to generate either enough volume to make that type of technological innovation worthwhile or enough traffic to make the advertising opportunity worthwhile,” said Gildenberg. “I’m just not 100% sure there are that many stores in the world where that’s actually going to work.”

Amazon’s gargantuan advertising business, built atop the first-party data it has amassed from its hundreds of millions of shoppers, has a lot to gain from selling smart carts to grocery stores, which are rife with customer data the company could leverage to bolster its advertising arm.

“[Brick-and-mortar retail] is really getting Amazon that data window into the last frontier that they haven’t been able to conquer yet,” said Sean Turner, co-founder and chief innovation officer of the grocery technology firm Swiftly. 

But it remains to be seen how many retailers will be willing to partner and potentially share crucial shopping data with Amazon, their biggest online competitor.

That wariness among retailers could give Instacart a competitive edge when it comes to wooing grocers, said Turner. But the grocery tech company still has its own trust-building to do with supermarkets that may view Instacart as a competitor rather than a retail partner. 

“It could be a little bit of a pick-your-poison situation,” said Turner. “If I’m a retailer who’s going to make an investment in one of these technologies, who do I think is the lesser of the evils in my market?”

If Amazon can’t persuade consumers to get on board with its smart carts, the technology could go the way of Amazon’s other investments in grocery tech, said Turner.

“Ultimately, you’re trying to change consumer behavior, and consumer behavior is very, very difficult to change,” he said. “That proved a big challenge for the Just Walk Out technology and Amazon Go, and I think they’re likely to encounter similar challenges in deploying the smart cart technology with consumers.”

Amazon claims that customers who use Dash Carts spend 10% more than non-Dash Cart users in Amazon Fresh stores, and more than 80% of daily Dash Cart transactions are from repeat users. 

“If it works out, that would mean Amazon can reap the benefits of its cashierless technology without going through the cumbersome or expensive task of opening hundreds of their own grocery stores to deploy it,” said Marzano.

Allison Smith

Amazon’s other grocery ambitions: delivery

Earlier this week, Amazon unveiled a new subscription service. Now, Prime members will have access to unlimited free delivery of grocery orders over $35 for $9.99 a month. But it’s not only for Prime members — low-income households that receive government food assistance benefits can also use the service for a reduced monthly fee of $4.99.

It’s another example of Amazon trying to find a way to grow its presence in mass grocery retail. And it shows Amazon realizing it needs to expand its base beyond more affluent customers.

“To win grocery, it definitely requires catering to that mass audience of mass grocery shoppers,” said Anna Brennan, senior analyst, retail insights at Kantar.

Currently, the program — which is open to people in 3,500 cities and towns — works with Whole Foods, Amazon Fresh as well as other partner retailers like Save Mart, Bartell Drugs, Rite Aid and Pet Food Express, according to Reuters.

In many ways, this service is aimed squarely at Walmart. “If you think about the low-income shopper and who does that really well, it’s Walmart,” said Brennan.

And, according to research from Kantar’s ShopperScape, many low-income shoppers already opt for online delivery options. Per the data, 21% of low-income shoppers (with a household income of less than $35,000) do “all or most of my grocery shopping online,” compared to 18% of all shoppers.

That being said, for Amazon to win it will likely all come down to assortment. And with Whole Foods being Amazon’s primary grocery engine, that could be a tough sell. “When you go to Whole Foods, you can’t get some of those brand names — you can’t get Oreos,” said Brennan. “I wonder how that’s going to work.”

Cale Guthrie Weissman

Amazon news to know

  • Advertisers told Business Insider that they’re seeing positive results from the TV ad buys.
  • U.K. antitrust regulators are opening up comments from third parties over Amazon’s partnership with AI startup Anthropic, per CNBC.
  • Speaking of antitrust, Italy has fined Amazon nearly $11 million over alleged “unfair commercial practices.”

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