Amazon's "Just Walk Out" Is Here to Kill Your Local Grocery Store
The Newsletter of Newsletters, volume 11.
Every week I highlight three newsletters that are worth your time.
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1. Full Stack Economics
It’s a promising new operation from Timothy Lee and Alan Cole. So far, I’ve loved every issue. Starting with this one about Amazon’s push into grocery:
The DC store is notable because it’s one of the first Amazon Fresh stores to feature Amazon’s Just Walk Out technology. Cameras, weight sensors, and sophisticated software enable customers to grab the items they want and leave, skipping the checkout process entirely. Amazon debuted the technology for smaller Amazon Go convenience stores a few years ago, and is now starting to use it for larger stores.
For this story I visited two Amazon fresh stores—the DC store with Just Walk Out technology and a second store in the Virginia suburbs. The Virginia store uses a different checkout technology called a Dash Cart. . . .
I visited the Washington DC Amazon Fresh store on Monday, August 2 with a shopping list of about a dozen items. You use the Amazon app to bring up a QR code and scan this code at the entrance. Then you put away your phone and start shopping. When you’re done, you “just walk out” and Amazon emails you a receipt.
At 7,300 square feet, the DC store is larger than most convenience stores (including Amazon’s own Go convenience stores that use the same technology) but much smaller than a full-sized grocery store. Amazon’s store was missing buttermilk and Wheaties, and it didn’t have non-food items like dental floss. But it had all the other items I wanted, including a good selection of fruit and meat. . . .
Amazon’s no-checkout technology helps in several ways here. Obviously, buying groceries is more convenient if you don’t have to wait in a checkout line. Equally obvious, Amazon can pass along the money it saves by not having checkout clerks.
More subtly, removing checkout counters allows the stores to be smaller—not only because you don’t need the physical space for the checkout lanes, but also because you don’t need a large volume of business to recoup the fixed cost of running the checkout lanes. So instead of having a single big store, Amazon could profitably build several small stores to serve the same area. That would mean more customers living within easy walking distance of an Amazon Fresh store—customers who might get in the habit of stopping by Amazon Fresh stores every day or two for fruit, milk, and other perishables. . . .
The DC region’s other Amazon Fresh location is in Franconia, Virginia, about 30 minutes southwest of the nation’s capital. I visited it on Monday, August 9. In contrast to the DC location, this one is a full-sized suburban grocery store. And this store doesn’t have Just Walk Out technology. It uses a totally different checkout technology called the Dash Cart, a high-tech grocery cart with a digital screen and several inward-facing cameras. . . .
While I wasn’t a fan of the Dash Cart, I was impressed by the suburban store’s prices. As I did in DC, I compared the Franconia store’s prices to that of a nearby store—in this case a Giant supermarket. Amazon’s prices were dramatically lower. . . .
Another remarkable thing about the Virginia store: it was swarming with Amazon employees. During my visit on a Monday afternoon, I saw more Amazon workers than I did regular customers. Most of them were carrying around hand-held scanners and filling shopping carts full of groceries—in other words, they appeared to be pickers for Amazon’s grocery delivery service.
In short, the Franconia store is effectively a delivery warehouse that lets customers visit.
2. Foot Guns
This is a crypto newsletter—but not that kind of crypto newsletter. It’s not a tout sheet. Instead, Foot Guns is positioned as a finance-world look at crypto. Which I find valuable not because I dabble in crypto (I don’t) but because the subject is interesting. For instance, this post on bitcoin dominance is great:
Bitcoin Dominance is the measure of the percentage of money invested in Bitcoin compared to all other cryptocurrencies. This is simply the Bitcoin market capitalization as a percentage of the total crypto market cap.
The story doesn’t really start until July 30th, 2015 with the creation of Ethereum. It didn’t take long for wealthy individuals to be influenced by voices in (a lot from silicon valley) the software industry that Ethereum is going to be an important technology. Within two years of its creation the price of ETH was going parabolic. In the summer of 2017 ETH’s price rallied 1000% in just 3 months. This sent the total crypto market cap soaring and brought Bitcoin dominance down below 50%.
Some combination of profit taking and the rise of US retail buyers through Coinbase pushed Bitcoin dominance back up to nearly 75%. This was in the second half of the 2017 Bitcoin bull run where Bitcoin went parabolic. History shows that most bull runs have the majority of their upward price movement in the second half.
What was surprising was after Bitcoin peaked in December 2017 is when altcoins (Ethereum and XRP in particular) had their moment. It was something like a death throw of the crypto bull market. Very little new money was coming into Bitcoin and instead people were giving one last punt to any altcoin they could get their hands on. At this time Bitcoin dominance crashed from 75% to 35% in almost a single month. Many were convinced that Bitcoin’s time was over and altcoins were the future. It took only about a year and 9 months for Bitcoin to reclaim its dominance and travel back up to 75% from 35%. Over the same time period many altcoins lost 99% of their value.
Okay, so this isn’t a newsletter. It’s a Medium publication that can come to you via email which is . . . close enough for our purposes?
Yes. Because it has TWO Cory Doctorow pieces absolutely slaughtering companies I hate.
Uber is a bezzle (“the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it”). Every bezzle ends.
Uber’s time is up.
Uber was never going to be profitable. Never. It lured drivers and riders into cars by subsidizing rides with billions and billions of dollars from the Saudi royal family, keeping up the con-artist’s ever-shifting patter about how all of this would some day stand on its own.
Like the pretense that self-driving cars would eliminate all their labor costs. They knew this would never happen. They spent billions on a doomed effort, then had to bribe another company with a $400m “investment” to take its window-dressing away.
Uber didn’t need self-driving cars — it needed us to think it would have self-driving cars. That way the company’s Saudi owners could raise investment capital from subsequent “investors” (AKA “suckers”) all the way up to the IPO, cash out, and walk away, whistling innocently.
That’s the bezzle at work — a dazzle op that keeps new money flowing in, convincing people that a pile of shit this big must have a pony beneath it. But as the years went by, the stories that Uber told us about its path to profitability got more and more fanciful.
Go read the whole thing because it is glorious.
But not as glorious as Doctorow’s takedown of Lowes:
Since the start of this century, small- and mid-sized towns have courted big box stores, using tax revenues to fund expensive road, sewer, and electric expansions to lure large corporate chains to town.
These companies promised jobs and tax revenues, and, technically speaking, they delivered both, but only if you do some very funny math. National chains pay little or no federal income tax, and often secure state tax abatements.
This gives them a 30–40% advantage over small, homegrown businesses operated by locals who can’t afford the huge sums needed to pay corrupt tax-experts to establish fictional headquarters on offshore financial secrecy haves.
Large national chains also have commanding bargaining power when they negotiate with suppliers, which means they pay less for their merchandise than locally owned businesses.
Given the tax and purchasing advantages, the arrival of a big box store doesn’t really create jobs. Sure, they hire locals to work in their stores, but at the cost of a boarded-up main street where the only businesses that survive are dollar stores.
When a local government spends public funds to lure in a big box store, they actually cost the town net jobs, and the funds they spend to kill those jobs come from the workers whose jobs were lost and the businesses that provided those jobs.
But at least big boxes pay local taxes, right?
What Lowes is doing is despicable and amazing and totally unsurprising:
In Michigan, Lowe’s pioneered an aggressive tactic of lowering its tax bills. It’s called the “dark store” gambit . . .
First, a big box store files an appeal on its tax assessment, arguing that the town or county has overvalued its property.
Instead of opting for the usual assessment formula (building costs minus depreciation), they demand assessment based on the sale price of “comparable” properties.
Then, they argue that the relevant “comparable” properties are shuttered, abandoned big box stores.
Big box stores are built to order, heavily customized to the retailer’s specific requirements. They are designed to be fast to erect and disposable, and when they are put up for sale, restrictive covenants are added to the deed to block a competitor from moving in.
These restrictions are incredibly specific (and restrictive), listing individual items that may never be sold by anyone who buys the property, for the rest of time.
Unsurprisingly, the resale value of a cheaply built, white-elephant structure that can’t be used to sell common items is very, very low. Lowe’s argues that the taxes on its property should reflect this incredibly low valuation.
That’s how the Lowe’s in Marquette, MI retroactively slashed the assessed value of the store it built for $10m from $5.2m to $2.4m (in 2010), $2m (in 2011), and $1.5m (in 2012).
Based on the new assessment, Marquette was on the hook to refund $755,828 to Lowe’s, a company with $50b in net annual sales.
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