How Amazon Fresh could change the game with click & collect

Amazon is reported to be developing a new drive-up store concept in Silicon Valley that will allow customers to order their groceries and other retail items online and pick them up at a dedicated facility. The first such "click and collect" site is believed to be located at Sunnyvale, California. According to documents submitted for planning permission it will offer "a blended customer shopping experience, as it leverages both an online shopping platform and the traditional brick and mortar experience." 

As usual with Amazon, reports of what it is about to do or launch next should be treated with caution, even if the original article (published in the Silicon Valley Business Journal on July 23) does seem particularly well informed. That said, it is much easier to see how Amazon could potentially disrupt grocery industry pricing with such a click and collect model than with home delivery, which has failed to make much of an impact so far. 

With the deployment of Kiva, the robotic picking system that Amazon bought in March 2012, the cost of picking orders at a large central facility, sending them to a network of relatively small drive-up store locations, and retrieving them (again using Kiva robots) for collection could be significantly less than what it costs to operate traditional brick and mortar supermarkets today, especially if one factors in the double-running costs associated with layering online fulfilment on top of legacy assets. This cost advantage, together with the elimination of the delivery subsidy, could allow Amazon to undercut regular supermarkets sufficiently on price to trigger a meaningful change in shopping habits. Or looked at another way, if it turns out that the price premium for home delivery to break even is too high to drive sufficient volume to make the model work, click and collect could offer an alternative model for Amazon Fresh to go mainstream. 

So, if Amazon does indeed open a pick-up facility at Sunnyvale as reported, it's a test that will be worth watching closely.