COVID-19 may be on the precipice of unleashing an 800-pound gorilla on the grocery and convenience store industries, the likes of which have never been seen before.
Since the pandemic began, third-party grocery and convenience delivery has exploded.
According to CNBC, DoorDash is now valued at $16.0 billion. Uber
And, it all makes sense.
Grocery, convenience stores, mass merchants — heck, darn near everybody — were unprepared for the immediate, same-day delivery demands of their customers amid the COVID-19 pandemic. As a result, many retailers looked to delivery services as short-term cures to their own illnesses, i.e. their ability to deliver goods quickly. Third-party deliveries were a way to stop the bleeding and to get products into the hands of consumers in a relatively asset-lite way.
However, what currently is the gauze pad for short-term financial gain, may soon be the knife that cuts an even deeper wound.
The flood of money getting funneled to companies like DoorDash, goPuff, Instacart, etc. is both prescient on the side of investors and dangerous on the side of retailers because it foreshadows a different future, one in which new operating models converge to make something better for both shoppers and for retail operators.
Enter the aforementioned 800-pound gorilla — aka the GoMart.
The GoMart is not real. At this point, it is only a fictional mashup. But, it is one to take seriously because it is one part Amazon Go and one part DoorDash’s online DashMart concept (more on that in a minute).
Or, said another way, GoMart is meant to denote a future where a checkout-free, shoppable warehouse is brought to life.
Much has been written over the past few years about the dangers of retailers partnering with third-party delivery services and giving over their valuable data. Some have even called them a “Trojan Horse,” where the idea is that third-party delivery services will soon understand all the products that sell within a given geographic area to such an extent and across multiple retailers that one day they will open up both physical and online stores to compete with their original customers.
The GoMart shoppable warehouse concept is a derivative of the same idea, only in this case the horse’s hind legs also happen to be injected with some seriously powerful technological steroids.
Here’s how a GoMart would work.
First, take a look at everything DoorDash has done this year. In April, DoorDash began selling convenience categories through its online platform by way of partnerships with 7-Eleven, Walgreens
Then, in that very same press release, DoorDash also announced the opening of what it calls “DashMart,” a self-described “new type of convenience store” that is “owned, operated, and curated” by DoorDash. According to a DoorDash spokesperson, there are currently 16 DashMarts in operation.
The way a DashMart works is that customers in markets, like Chicago, Minneapolis, etc., can go to an online DashMart storefront and purchase all the most-desired local convenience and restaurant items in a given area and then have those items delivered in 30 minutes or less by way of mirco-fulfillment warehouses, run by DoorDash.
So, DoorDash is, as of now, unabashedly operating as a full-fledged online retailer in many cities.
Second, and in a related vein, Amazon has been rolling out its checkout-free Amazon Go physical store concept at a pretty steady clip.
Within an Amazon Go store (as seen in the above video), Amazon customers simply scan their mobile phones to enter the store, walk in, take whatever they want off the shelves, and then walk out and pay like they would when exiting an Uber or a Lyft.
Underpinning the experience is the use of artificial intelligence and computer vision (AICV, for short), i.e. the same technologies that power autonomous vehicles. Only in this case the cameras are not in cars but in the ceilings of Amazon Go stores. Cameras within the stores’ ceilings track and identify products at all points in time, and, as a result, Amazon knows almost anything and everything that happens with its inventory inside of these stores.
Amazon has roughly 30 Amazon Go-style operations of various shapes and sizes throughout the country right now deploying this technology, and there are also numerous startups, all with cool sounding names, vying for supremacy in the space as well.
What is intriguing about Amazon Go and all the startups is that AICV solves one of the inherent problems with third-party delivery services and product picking — namely, inventory accuracy. Because an Amazon Go-style setup knows, with almost warehouse-like precision, what items are in a store at all times, orders can be both placed by customers and picked by third-party workers with greater efficiency.
In most run-of-the-mill retail operations, for example, such accuracy is almost a damn near impossibility. Products move from backrooms onto shelves, get placed in shoppers’ carts, taken through checklanes, misscanned, misplaced, etc. In fact, studies estimate that store inventory accuracy is no better than 70%, which is why the question, “Sorry your item was not available. Would you like to replace it with X, Y, or Z?” is such a commonplace part of the third-party delivery experience.
There’s a myriad of ways to experiment with this idea, too. Some enterprising third-party service could set up a small 1,500 to 3,000 square foot convenience style operation, let people shop it using checkout-free AICV tech, and brand it as both a physical and an online store, with oh, what? Maybe the name. . . DashMart?
Another path would be to separate the back-of-house from the front-of-house and to let customers shop from the front and let pickers pick from the back, but run both sides of the operation on a computer vision-based foundation. That way, in all instances, the item accuracy is there and the operation still gets the scale and efficiency of shopping and picking inventory from the same place.
Actual experimentation is even easier – build one, assess the demand and the impact on traffic flow and last-mile savings, and go from there. The whole experiment would cost probably no more than a few million dollars.
The detractors will say things like, “But, even that is too expensive” or “C’mon, the economics just flat out don’t make sense?” But, do either of these things matter right now? That’s not what venture capital investing is all about. It’s not about the game today.
It’s about the game tomorrow.
And, while a spokesperson for DashMart did confirm that DoorDash has no plans to open its DashMart warehouses to the public for in-store shopping at this time, one does have to wonder if any of the players mentioned above, even Amazon, could one day take the approach just outlined because the stakes are huge, like as in “T” huge, not “B.”
Combined, grocery and convenience stores represent a massive market — roughly $1.0 trillion, and that is just in the U.S. alone. Plus, don’t look now, but convenience delivery startup goPuff also just so happened to acquire BevMo for $350 million last week.
The money it would cost to build a GoMart is mere chump change against that backdrop.