Amazon's (Nasdaq: Amzn) Bold New Plan to Disrupt the Traditional Grocery Market

Earlier this week, I had an argument with my girlfriend about groceries (yes, groceries). You probably don’t want to hear about it, but I’m going to be a pain and make you suffer through it anyway. I promise, though, it’s relevant.

You see, we’ve planned on going skiing this weekend with my family in upstate New York (we’re probably on the mountain as you read this), and she wanted to figure out the food situation, which we had yet to discuss. 

The idea, at first, was to bring lasagna for the house we’re renting, but we found out last minute that at least one other member of our group isn’t eating carbs (you try telling an Italian woman she can’t use pasta or bread and see what happens).

Long story short, the conversation we had on the phone while she was shopping ended with her saying, “I’m not getting anything then,” and me hanging up in sheer frustration.

It was all pretty pathetic, and we know it, especially because we’ve been here before.

You see, as much as I love my significant other, I probably hate grocery shopping (or having anything to do with it) to almost the same degree. I can’t cook much of anything well, aside from a good cut of steak, so if you ask me to help you pick out ingredients for a meal, I’m not going to be much help at all. Combine this with a woman who likes to plan everything down to the T (while also needing your input on every detail), and you occasionally end up with chaos.

Now, I’d have never thought this relevant to my weekly Wealth Daily editorial, but by coincidence, this morning I came across an interesting piece of news regarding the future of grocery shopping. It’s a development in technology that I’m hoping will help with my personal grocery woes and (more importantly) one that highlights a compelling emerging opportunity for investors.

Grocery Shopping, Simplified

Last week, a photo was leaked from the inside of one of Amazon’s newly planned, mysterious grocery stores expected to soon open in the Los Angeles region. A few media outlets picked up the leak, immediately expressing their disappointment at what appeared to be a lack of an innovative concept. 

From what everyone could tell from the photo, this looked like it was just going to be any old grocery store with the Amazon brand slapped on. After a bit of investigative journalism by a blogger by the name of Matt Newberg, though, it’s looking like Amazon (not too surprisingly) is planning something much bigger than that.

As Newberg reports in a Medium post:

Based on floorplans obtained from the City of Los Angeles that were provided by Amazon Retail LLC…  the company has built a small-scale, robot-powered version of its retail store that surrounds a hidden perimeter of the store. The permits state hours of operation from 6am until 2am, which would imply on-demand delivery, enabling Amazon to leverage its best in class data about what consumers crave to deliver it with unprecedented speed and efficiency.

Newberg goes on to explain in more detail exactly what this means but it all boils down to an emerging trend in retail technology I’ve already been talking about for years known as micro-fulfillment. That is, the ability to efficiently store and retrieve goods for online orders using technology located on site. 

Amazon, of course, is well known for its massive fulfillment centers (warehouses) that allow it to get packages to your doorstep in two days or less. In order to accomplish this, the company relies heavily on its Kiva robots, which automatically retrieve shelving units for item picking. 

But these fulfillment centers and Kiva robots are strictly designed for delivery, not customer pickup. In short, Amazon still needs to localize and tighten the net if it wants to expand its footprint into perishable goods.

So the company is planning to do it all again, except this time it’s focused on groceries and a different form of automation. Instead of using massive warehouses with robots riding around on the floor, Amazon will use micro-fulfillment systems hidden in the walls of its local grocery stores.

Decide what items you want to order online, and this system will automatically retrieve them for packing in a matter of minutes. The general concept of online grocery orders is nothing new, of course, but until now it has required “personal shoppers” to do all that labor, which takes both time and money.

For perspective, my local Harris Teeter requires a four-hour heads-up for an order (and a considerable fee), while micro-fulfillment systems can enable cost-effective, 60-item grocery orders in as little as five minutes.

FMI and Nielsen project the micro-fulfillment market to explode from ~$26 billion today to $113 billion in the next two years, roughly a four-fold increase. Retailers, including Walmart, Albertsons, and Kroger, have all been partnering with different logistics firms to make this a reality.

As Tom Ward, senior vice president of central operations for Walmart, recently said of the company’s online grocery business, “Systems like [this] allow us to scale enormously.”

For those of us who hate picking out groceries, let alone waiting in line to pay for them, micro-fulfillment offers the promise of a much more convenient future. For those of us who love investing in growth stocks and technology, it also offers the promise of a compelling money-making opportunity.

Back in 2012, Amazon purchased Kiva Systems for a whopping $775 million in order to get a stranglehold on the most efficient fulfillment technology at the time. It’s safe to assume it’s planning to do the same this time around with its new technology partner, provided its new grocery stores are a success.

I have already pinned down the stock for this, but I’ve yet to dive too deep into it just yet. If you’re interested in this potential Amazon buyout target, let us know and I’ll follow up with more details in the near future.

Until next time,

Jason Stutman

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