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Amazon E-commerce

Tesco can’t out-Amazon Amazon

One of the fundamental reasons for Amazon’s success is its unwavering commitment to a vision laid out two decades ago: to relentlessly innovate in a bid to create long-term value for customers. Amazon’s USP is disruption and they continue to finetune it. Every action is guided by a vision that hasn’t changed since Amazon’s inception.

Most publicly traded retailers aren’t afforded the luxury of such long-term thinking, and turnover at the top often brings a change in strategic direction. However, retailers can compete with Amazon by honing in on their own strengths and streamlining anything that does not add value to their core proposition. In this climate, it’s differentiate or die. Being ‘all things to all people’ is no longer an option.

The closure of Tesco Direct is an admission of defeat to Amazon: it was after all designed to compete with the behemoth head on by replicating their marketplace format, extending Tesco’s product range beyond the confines of their superstores. But if there is one rule in retail today, it’s this: you cannot out-Amazon Amazon.

Aside from racking up Clubcard points on big-ticket purchases, there was very little incentive for shoppers to choose Tesco Direct over Amazon. Tesco’s site in comparison was confusing and full of friction. Pricing was inconsistent, it lacked product recommendations and reviews, and the range was neither broad nor compelling enough to make it the go-to destination for general merchandise. Let’s not forget that many shoppers today begin their product search not with Google but with Amazon. Amazon has become the first port of call for even the most obscure products – from silicone wine glasses to cat scratch turntables – which when combined with Prime delivery becomes a very compelling proposition.

Tesco Direct was loss-making and contributed very little to the topline, which sparks a lesson to be learned from Amazon: admitting failure and swiftly moving on. Offering 94 types of treadmills online won’t help Tesco to retain its title as the country’s largest food retailer. There’s no time for costly distractions when Amazon is on your doorstep. Tesco will be far better off to merge grocery and non-food onto one platform, as some competitors did several years ago, and then focus on logical category extensions to mirror what shoppers would find instore.

There is a renewed sense of urgency to strengthen these core non-food categories and it actually has nothing to do with Amazon. A combined Asda-Sainsburys-Argos will create a retailing powerhouse in toys, baby, clothing and home. Tesco needs to up its game fast in these categories and leave everything else to the specialists.

The Direct business joins a growing graveyard of Tesco brands including Giraffe, Euphorium, Harris + Hoole, Nutricentre, Hudl, Blinkbox, Dobbies. What was once considered business-critical diversification is now seen as a pricey distraction. Tesco Direct won’t be the last of Dave Lewis’ and Charles Wilson’s strategic cull as they continue to tighten Tesco’s focus on food by offloading non-core assets. There is, after all, only room for one everything store.

Article originally featured in The Grocer

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E-commerce M&A Store of the future

Sainsburys-Asda: dare we say #amazoneffect?

‘The Amazon Effect’ is one of the most widely used phrases in retail today. High street shops closing? It’s the Amazon Effect. Retailers investing online? The Amazon Effect. Acquisitions, CVAs, redundancies… These days, we can find a way to link, however tenuously, most retail developments to the Seattle-based behemoth.

And for good reason. Amazon continues to spread its tentacles, diversifying into new categories and even sectors. It has its sights set on food and fashion, but also entertainment, shipping, healthcare and banking. It doesn’t just go after share of wallet. It goes after share of life.

This is why the Sainsbury’s-Asda merger is happening now. It’s a pre-emptive move against Amazon. It’s about generating scale and ultimately ensuring survival before Amazon gets serious about UK grocery. Today, despite the acquisition of Whole Foods Market and supply agreements with Morrisons and Booths, Amazon still isn’t a food destination. The infrastructure is in place, but it lacks a compelling range. That will change. It will differentiate in grocery just as it does in non-food: through product choice and convenience. Despite its negligible share of the UK grocery market, Amazon has already been a phenomenal catalyst for change in areas like delivery speed, voice technology and checkout. Its relentless dissatisfaction with the status quo is leading supermarkets to raise their game, all to the benefit of the consumer.

Amazon will revolutionise the way we shop for groceries. Within the next five years, it will have acquired a UK retailer (we can now rule out two) and considerably enhanced the in-store experience.  I believe entire product categories will be removed as Amazon looks to make auto-replenishment a reality. If shoppers run out of bleach or toilet paper, they can press a Dash button or ask Alexa. In the future, this will go even further by being automatically replenished. This will test brand loyalty in a way we’ve never seen before, while also freeing up space to focus on what can’t be done online – fresh food halls, cookery classes, cafés and restaurants. The experience will be highly personalised and utterly frictionless.

The move into grocery is of huge strategic importance to Amazon. If it can convince UK shoppers it’s a credible alternative to the supermarkets, it will have cleared the final hurdle to becoming the ‘everything store’. Capturing that high frequency purchase makes it easier to cross-sell and bait shoppers into its ecosystem. And that is when things get ugly, not just for the supermarkets but all of retail: Amazon shoppers tend to be loyal, lifelong customers.

Joining forces won’t help Sainsbury’s and Asda solve the Amazon problem overnight, but it will certainly lead to better terms with suppliers and consequently lower prices for customers. Also, not to be overlooked in this deal is Argos. An unexpected gem, Argos can now deliver to 90% of the UK population in just four hours. Argos concessions will be rolled out across Asda stores, and possibly internationally through Walmart, giving the retailer an edge over supermarket rivals and more importantly an answer to the mighty Amazon.

Article originally featured in The Grocer