The reason Amazon won’t kill the mom-and-pop convenience store

WP Logo

(This post originally appeared on The Washington Post)

A block from where I live is a popular grocery store. It’s not big enough to be considered a supermarket, but it has more than just the basics. I shop there a few days a week, buying everything from milk and produce to frozen food and meats. According to data from the National Association of Convenience Stores, there are more than 154,000 such places across the country. Almost two-thirds of them are owned by single-store operators and 81 percent also sell gas. It’s an enormous industry made up mostly of small business owners. And it’s about to undergo a huge change that will challenge their survival.

Just last month, Amazon announced that it would be soon opening a first of its kind, fully automated grocery store called Amazon Go. (Amazon.com chief executive Jeffrey P. Bezos owns The Washington Post). Using radio frequency powered sensors, beacons and other mobile and Internet of Things technologies, items pulled from a shelf will be automatically detected, tracked and paid for without a shopper having to stand in line or deal with another human being. Amazon’s not alone. Come this February, certain Lawson stores in Japan will be testing new machines from Panasonic that can automatically scan multiple items placed in a basket so shoppers can exit a store quickly. We’re just getting started.

Self-service automation is quickly becoming the status quo for the grocery and convenience store industry. East Coast chains like Wawa and Sheetz have been using automated kiosks for years that accept orders for their takeaway sandwich counters. Food stores have installed un-manned stations socustomers can scan and pay for their own items without human interaction. Automated restaurants, like the one I wrote about a few weeks ago, are popping up in cities.

Convenience and grocery stores operate on very thin margins. According to data provided to me by the research firm SageWorks, the typical convenience store averages a net profit of just two-percent on its sales. Compounding this problem is the demand by many customers, armed with smartphones and mobile payment services, for a quicker and better customer experience as well as the challenges posed by CVS, Rite Aid, Walmart and other big-box operators who are selling food and similar items in direct competition.

Many believe that self-service technology will go a long way towards helping this industry cope with these changes while remaining profitable in the years to come. It will make things faster and more fun while lowering operating costs. “Technology will be redefining convenience,” says Jeff Lenard, a vice-president at the convenience store association.

The problem, of course, is cost. Sure, it’s easy for bigger companies like Amazon, Wawa and Walmart to invest in this technology. But how does a mom-and-pop store like my corner grocer, already struggling, make this kind of investment? Could this be the end of these stores as we know it? I don’t believe so and for one reason: it has to be done. And the good news is that it’s been done before. In the same industry.

Think back, if you can, to the 1960’s and early 1970’s. During that time in America, most gas stations were small businesses just like today’s convenience store industry. Like today, many also sold food and grocery items. But in those days, buying gas was a manual process where a full-service attendant washed your windows, checked your oil and either took cash or ran your credit card through one of those manual shuck-shuck things that required your signature and left you with a paper receipt.

But then oil prices rose, along with inflation. Consumers became even more cost-conscious. Operating a gas station became more challenging. Around that same time saw the introduction of the self-service payment systems that enabled customers to fill their own tanks and pay for the gas in return for a lower price. The investment was significant, particularly for small operators. But they did it because they had to.

Just like today, those same business owners needed to meet their customer demands and also do something to reduce their overhead and remain profitable. Many then were worried that filling and buying at the pump would reduce their inside store sales. But the opposite happened: more people paid at the pump which meant there were shorter lines for those that went in the stores and hence: more convenience. Store operators were able to expand their selections, their volume and their margins. The acceptance of self-service technology at a place that we all visited once or twice a week gave rise to this same technology in other parts of our lives, from airline tickets to taxi cabs to anything we now buy online from our homes.

We’re about to see the same disruption once again over the next few years in the grocery and convenience store industry. Employees won’t be entirely eliminated because experienced managers understand that human interaction is always important and (until Silicon Valley figures it out) they’ll be needed if at least for age-verification when customers purchase tobacco, alcohol or a lottery ticket. And let’s face it – the minute something doesn’t work customers demand immediate attention and will punish those stores who don’t respond with a bad Yelp review.

“Convenience stores have thrived because they meet the demand for immediate consumption with the average experience at your typical store being about three minutes.” Says Lenard. “But I would think that anybody competing with Amazon better be paying attention.”

Like it did in the early 1970’s, new technology will transform this industry. The smart business owners in this space are already making their conversion plans. They will finance these investments with loans and savings. Increased profits over the past few years due to lower gas costs should help. Regardless, these owners will do this because they will have to. Like most business owners who are forced unwillingly to spend money, they will grumble and complain that they have to make the investment. But in the long run, I expect they’ll look back and be happy that they made this choice. Why?

As Lenard puts it: “the “inconvenience” store industry is a bad place to be.

Advertisements

Tags: , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: