There’s one thing that every grocery store has to have in stock if it’s going to make customers happy: convenience.

If, as has been suggested, Amazon.com Inc. is going to make a major move into the bricks-and-mortar supermarket space, convenience and time savings are where it has to differentiate itself.

But there are questions about whether its apparently favored format, which includes many robots and few human workers, will satisfy grocery shoppers. “It seems really hard to imagine a day where the retail experience becomes a bunch of robots,” said James Lamberti, chief marketing officer of Quri, a retail intelligence and analytics company. “Robotics and tech will be behind the scenes, with more people servicing out front.”

Lamberti thinks there are different reasons, or “occasions,” when people go to a grocery retailer, he said, whether it’s the quick in-and-out of grabbing lunch, or the meandering trip where shoppers wander the aisles. Changing those shopping behaviors will be difficult, but Morgan Stanley, in a note published Tuesday, noted that Amazon has done it before.

“In our view, behavior modification is Amazon’s core business model — bringing consumers to the site, converting them to Prime and (through leading selection, clean interface, powerful suggestion engine, and low-friction shopping/checkout) driving them to spend more across categories,” wrote the Morgan Stanley analysts.

Those analysts estimate that the grocery business is a $770 billion segment of annual U.S. consumer expenditures. The next frontier for advancement in the grocery-store space is saving time in the shopping process, experts say.

“A lot of the focus on saving time is in the kitchen,” said Darren Seifer, NPD Group’s food and beverage analyst, referring to factors like cook time. “Now there’s a shift going on because more consumers are using fresh food, which requires a little more prep. The notion of saving the consumer time while getting their groceries is how they have to think. There’s no one specific way to do it.”

Wal-Mart Stores Inc. has talked up its curbside grocery pickup service as an option for busy families looking for a way to save time on what otherwise might be an hours-long supermarket trip.

According to the New York Post, Amazon is looking into a 10,000-plus-square-foot automated grocery store.

Amazon Chief Executive Jeff Bezos has taken to Twitter to rebut that report.

Even if Amazon isn’t planning stores like this right now, the existence of the Amazon Fresh offering and the Amazon Go convenience store show that the company has an interest in getting deeper into groceries.

“While Amazon’s business has momentum — making up [about 5%] of its total addressable U.S. consumer expenditure market, driving [approximately] 50% of U.S. expenditure growth — grocery remains one of the greener fields, with only [about] 2% estimated online industry penetration,” Morgan Stanley wrote. “At some point over the next few years, Amazon may need grocery to maintain its same-store sales and strong overall gross merchandise value growth.”

In the longer term, a study from the Food Marketing Institute and Nielsen found that online grocery spending could capture 20% of all grocery shopping by 2025, totaling about $100 billion in sales annually.

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“Traditional bricks-and-mortar stores have to think now about how they can get creative with tech-savvy consumers,” said Seifer.

As Rupesh Pareskh, senior analyst for food, grocery and consumer products at Oppenheimer & Co., said he sees it, the equation for being a threat to Wal-Mart, Kroger Co. and any of the other players in the industry is good experience plus lower prices. “Grocery has razor-thin margins,” he said. “If they can do something to take the cost out of the grocery store, that could be viewed as a negative for other stores.”

Morgan Stanley analysts estimate that the per-store build cost for an Amazon bricks-and-mortar location is in the range of $6 million to $10 million.

For now, online grocery would be the next step in digitizing grocery shopping, and consumers have not been quick to adopt it. The latest survey data from Morgan Stanley shows that the top reason people don’t shop online is they like to select fresh produce for themselves.

Where Quri’s Lamberti sees e-commerce already cutting into the grocery business are for items that are commoditized and have long shelf lives, like cleaning products and paper goods.

“It’s hard not to see Amazon cutting into that in a major way, but there are lots of occasions that aren’t about robots,” he said.

Even if change is slow, it’s happening, and grocers have to be ready. The NPD Group says 52 million U.S. consumers are currently grocery shopping online, with 20 million planning to increase their online grocery-shopping activity in the next six months. Younger generations, like millennials, are among those favoring the online option.

Amazon shares closed Wednesday up nearly 1% and are up 68% for the past year. The S&P 500 index is up 23.8% for the last 12 months.

Source: MarketWatch