Oh, the Places Amazon'll Go!...

Oh, the Places Amazon'll Go!...

and they are headed for Groceryville Success.

In his letter to shareholders last week, Mr. Bezos quoted the great Dr Seuss.  

"When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you." Theodor Seuss Geisel

Bezos was referring to the crisis and how will civilization choose to come out of this, and I thought this quote resonates for the grocery industry as well for the unexpected challenges brought on by this crisis. 

Walmart has been making incredible move after incredible move to strengthen their position as leader in grocery. However, this post was stimulated by an unexpected move made by Amazon last week that many thought was showing a weakness in the retailer during this crisis, and possibly in their grocery strategy overall. Clearly, no one predicted this onslaught of online orders and in-store restrictions, and Amazon was no exception, so they made the bold move to stop accepting new customers for their Fresh business.  I may be in the minority here, but I thought this was a brilliant move. Amazon prides itself on customer obsession, and this move only demonstrated their incredible commitment to their customers. 

In this crazy new normal, customers are consistently experiencing the lack of product inventory or available delivery window at their favorite grocery retailer.  Adding more volume to an overrun model is not allowing for time to adjust and evolve.  Amazon made the gutsy decision to pause and continue to be great to their current loyal customer base before taking on more expansion.

The big topic of conversation in the grocery channel is what happens after this pandemic?  

How will it define, destroy or strengthen each and every grocery retailer? Will customers stay loyal to the store that had nothing they wanted when they needed it most? Or to the retailer who obsessed on being loyal back to them? Amazon pausing on adding new grocery delivery customers was simply the right move.

This isn’t meant to be a pro-Amazon but rather a review of what a major player is doing and how they can seriously disrupt the industry. You didn’t have to be fan of Michael Jordan, but if you are a NBA fan you sure had to admire and respect his game. I am a grocery fan and I have been paying close attention to what Amazon is doing. 

Amazon knows innovation better than most. They have been making very savvy moves in developing their long term future in grocery, and have been building the pieces that will have them leading the next grocery evolution. Here is a list of what they have developed to date, and it appears to be a clear blueprint for success in challenging Walmart for the top spot.

CUSTOMER OBSESSION 

It all starts with their focus. This is their number one leadership principle, and the mindset behind everything they do, which includes stopping new customers from joining Fresh, or focusing on essentials only during the crisis.

Amazon firmly believes in the ability to get the products customers are used to getting replenished as fast as possible. The approach is simple: Amazon doesn’t sell things, they makes things EASY for the customer to BUY.  Customer obsession is why all things listed below have come to fruition.

PHYSICAL STORES

Amazon shook the grocery world when acquired Whole Foods to show everyone physical stores are important in their plans. They answered two perceived major weaknesses with this acquisition: 1) going from 0 to 500+ stores, and 2) gaining the best produce in the business, which was their top weakness in their Fresh delivery business. 

We all know this wont be their last hurrah in the physical space, and Whole Foods will far exceed their 1.3 share of grocery.

GO TECHNOLOGY

Well that didn’t take long for them to add more stores after Whole Foods. Amazon announced last year their plans to rollout 3,000 small format stores. Not only that but they added GO technology that feels like something from Epcot. If you haven’t been into one yet, YES, it is that cool. 

Amazon also just opened a Trader Joe sized GO store 30 minutes from my home in LA, so medium size format seems to be on the horizon as well. Calling this technology the store of the future is a severe understatement. It is already proving to be the store for our new normal. GO can control flow of customers into store, requires no physical interaction, and provides flawless contactless payment. I believe it can also be the answer for the massive challenge of pick n pack in the delivery model. Micro-fulfillment is going to be a great solution, but this is next level Disney Imagineering stuff.

I hear naysayers claiming this technology cannot work in large format. What a bad idea it is to suggest to Amazon they will fail. Back to my Jordan reference, when did criticizing him ever work well for the critic, because he then drops 60 on you. Amazon is going to make sure this technology delivers a big win.

AMAZON FRESH

From my past experience in the delivery space, I can honestly say Amazon Fresh was the best in class service (minus their produce). With that said, Amazon decided to turn it off to retool and make it better. As a customer I was depressed. As a current customer and Fresh back up, I can tell you it still is, especially with the only free delivery service in the market. They now have stores to deliver from instead of warehouses. 

Amazon is not yet fully national with their delivery service, but when they enter each new market, what will their share of the volume be? And has everyone planned or prepared for this?

SUBSCRIBE & SAVE 

This may appear to be an odd item for this list if you are not familiar with this program. No doubt every CPG manager knows exactly what I am talking about.  Subscribe & Save continues to prove to be the single most important promotional program in grocery for both product loyalty and customer retention. Remember the DASH button? Amazon is the only retailer mastering this tool and do $1B in S&S a month. That is $12B annually of just auto-replenishment orders. This program alone is a top 10 Grocer by revenue volume. 

The true value in this program is that Amazon has more than 50 million items locked into a customer’s basket for repeatable future orders. How many retailers can say that? Amazon is also locking up categories that customers no longer need to shop at their other favorite grocers. If a customer has their pet food, paper towels, bottled water, and Lysol automatically added and delivered by Amazon those aisles won’t be shopped at other retailers. 

In this current crisis, planning inventory is a clear and present challenge. Amazon is building additional data on predicting when and where a future order will be delivered. That sounds like the holy grail of data insights for this new normal.

ALEXA

The power of the Voice is now in the home and on your phone, and only one retailer owns their own device. Some retailers are not convinced voice will be big, but if it is and you didn’t plan for its eventual success, Amazon will have a commanding lead.  

Alexa continues to be innovative with cool features - When you get a package delivered to your home, have you ever noticed your Alexa device makes a noise and the top flashes green? Bezos thought to employ Pavlov’s theory with his Voice device. Alexa dings and you just instinctively start heading to your front door.  With Alexa Reorder imagine how Subscribe and Save reminders come to you in your kitchen as Amazon lets you know what is soon to be delivered…

“Hello, it is time to replenish your paper towels, soap and hand sanitizer, and 4 family sized packages of Double Stuff Oreos...... delivery is scheduled for tomorrow, would you like to add anything else?”

“Hey Alexa, yes please, some milk for my Oreos, Nonfat.”

AMG

Long ago Mr. Bezos decided to think more like a media company than a retailer, and he isn’t the only retailer thinking this way. 

With all of the data collected on the platform the Amazon Media Group was formed and will soon be one of the top media platforms for CPG spend .

In the world of grocery, Amazon doesn’t have to think in standard shopper marketing terms, they have adjusted their approach that evolved with the Zero Based Marketing strategy advertisers have embraced. There is roughly $200+ billion in digital ad spend and Amazon has flattened the marketing funnel to allow media spend to be measured down to the conversion. In today’s ad world If you want brands to spend with you show them the data. 

55% of people in US start their online shopping on Amazon.  Google and Facebook are now scrambling to meet Amazon’s lead by adding shoppable media to their platforms to form a greater connection for their customers and advertisers to point of sale. The top 2 apps are now chasing Amazon’s innovation for their precious ad dollars.

Currently, there are 3 major retailers that brands assign a dedicated media team for spend: Walmart, Target and Amazon. Can other retailers think this way? The answer is Yes.  Maybe the better question is can a retailer afford not to think this way? First things first, a retailer needs to own their data. Without it they are stalled in the water with no paddle.  

AMAZON APP & PRIME

Speaking of the connection to the customer, all of the above are connected to one of the most valuable loyalty apps in the world. They have made it one of the most valuable and functional apps. You can actually use the app to scan at turnstile to get into GO store, as if it was a Disney Passport.  

Amazon app ranks as the third most popular app accessed by over 85% of the US mobile audience.  Rated the top app millennials “can’t go without”.  110M Prime subscribers.  I love my Costco membership, but Prime is by far the most valuable app I own, and I actually shop a product based on whether it provides Prime delivery. I know I am not the only one who does that, then I place my order, and go back to couch to binge Season 3 of The Marvelous Mrs. Maisel.

LAST MILE LOGISTICS

The last thing on my list is fitting. Amazon Logistics officially makes Amazon retailers that owns their own full service last mile solution. Again, customer obsession plays again here. Amazon wants to control the experience all the way to the customer’s front door.

For those who may not have heard, they have built a Delivery Service Partner program that allows independent small business owners to take pride in delivering Amazon packages. This is similar to the FedEx model, and Amazon is catching up pretty quickly. Currently they only delivery 45% of all Amazon packages, but that is growing, and their first day delivery success rate this past holiday season was at 97% to FedEx 70%. 

Once again, in rides customer obsession, and it is being delivered in Blue vans to your doorstep.  How this will play into the grocery side will be fascinating to watch.

The big players are making great strides as we make progress to get through this crisis, and it is clear the grocery industry will be changed forever and may look very very different. What is clear is that both Walmart and Amazon have established themselves to be in a position of strength to lead this new evolution.  I am looking forward to what every other grocer, supplier, CPG and technology partner will do to embrace the new normal surrounding them.   Will they choose to allow it to define, destroy or strengthen their company. I am hopeful everyone will come out of this with a focus on strength.