We continue to see signals for the adoption of autonomous vehicles that will disrupt existing business models, which in our view raises more questions about not only retail store fronts, but those companies that invest in commercial real estate. We’ve long thought the brick & mortar pain would expand to include grocery and banks, and Kroger’s (KR) move to partner with Nuro is a clear signal they share our concern.
For more on the autonomous vehicle market and its potential for disruption, listen to episode 35 of the Cocktial Investing podcast where we talk with Brad Stertz, Director of Government Affairs at Audi.
Nuro, an autonomous vehicle startup focused on local deliveries, has partnered with 135-year-old grocery retailer Kroger to offer same-day deliveries. The two have yet to announce which market this will be live in, but the plan is to launch the several-month-long pilot this fall.
Nuro’s intent is to use its self-driving technology in the last mile for the delivery of local goods and services. That could be things like groceries, dry cleaning, an item you left at a friend’s house or really anything within city limits that can fit inside one of Nuro’s vehicles. Nuro has two compartments that can fit up to six grocery bags each.
After Amazon acquired Whole Foods, it seems that many forgot about its prior effort to disrupt the grocery industry with Amazon Go. Now the company has shared that it is close to bringing this worker-less concept that relies on its mobile app and a litany of sensors to allow shoppers to do their thing all without standing in line to pay. That sounds like a nice combination of our Connected Society, Disruptive Technologies, and Cashless Consumption investing themes. Certainly not welcome news to those grocery companies like Kroger (KR), Sprouts Farmers Market (SAFM) and a number of others look to contend with Amazon-Whole Foods.
For the past year, Amazon employees have been test driving Amazon Go, an experimental convenience store in downtown Seattle. The idea is to let consumers walk in, pick up items and then pay for them without ever standing in line at a cashier. Amazon is vague on the mechanics, but the store relies on a mobile app and some of the same sensing technology that powers self-driving cars to figure out who is buying what.
Amazon Go represents Amazon.com Inc.’s most ambitious effort yet to transform the brick-and-mortar shopping experience by eliminating the checkout line, saving customers time and furthering the company’s reputation for convenience.
On Wednesday, Whole Foods began offering deep discounts on Thanksgiving merchandise, including antibiotic-free turkeys, and signaled that the markdowns will get more aggressive as it adopts Amazon’s Prime subscription service. Shares at Kroger and Sprouts tumbled after the announcement.
We have seen the creative destruction that Amazon has unleashed on the world of retail and now we are seeing it occur in food & grocery, and soon apparel. Even as Amazon expands its footprint in these markets, it is laying the groundwork for another move into pharmaceuticals. We see Amazon’s underlying logistics business that offers same-day, next day or two-day delivery as a compelling alternative to picking subscriptions up from CVS Health, Rite-Aid, Walgreens, Walmart, the local grocery store, such as Kroger and Albertsons, or even from other online vendors.
In 2015, pharmacy and drug store sales amounted to approximately $263.47 billion with CVS Health was the second leading drug store chain in the United States, generating about 153.3 billion U.S. dollars as a corporation; about 52.5 billion U.S. dollars of that total was generated solely by Rx sales.
Should Amazon continue down this path, it will be interesting to see how CVS Health, Walgreens, Costco Wholesale, Sam’s Club and other companies that sell pharmaceuticals respond. Odds are it will be a painful battle that leads to market share loss, and pressure on sales, profits, and EPS as the reach of the Connected Society expands one step further.
The St. Louis Post-Dispatch reports that Amazon has become a licensed pharmaceutical wholesaler in 12 states, with a pending application in a thirteenth. To ship drugs directly to consumers, competing with large pharmacy benefit managers and mail-order pharmacies like Caremark or Express Scripts, Amazon would also need to be licensed as a pharmacy in each state to which it shipped drugs.The facilities listed on the applications are distribution centers in Indiana. One industry analyst observed to the Post-Dispatch that Amazon may be building its own pharmacy capabilities, or could acquire an existing pharmacy, as it did when it acquired Whole Foods to bolster the grocery business that it had been building for years.The Post-Dispatch was able to confirm through public records that Amazon has been approved as a pharmaceutical wholesaler in the states of Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, Nevada, New Hampshire, New Jersey, North Dakota, Oregon, and Tennessee. An application in Maine is still pending.