Fort Collins, CO, USA - March 31, 2020: Brown bags with groceries and fresh produce delivered to house from Whole Food Market and order through Amazon Prime. Online shopping during coronavirus pandemic concept.
What is the secret toAmazon’s success in a nutshell? A relentless dissatisfaction with the status quo. Love or loathe it, we have to credit Amazon for stamping out complacency in retail. Fast and free delivery, one-click shopping, user-generated reviews, checkout-free stores, voice shopping, the list goes on. If Amazon didn’t exist, shoppers today would be far more tolerant of mediocre retail experiences.
Covid-19has further fuelled its appetite for disruption. This week Amazon hit the nuclear button. By offering free delivery of groceries, Amazon is capitalising on a once-in-a-lifetime opportunity to acquire market share. This is the boldest move it has ever made on this side of the Atlantic, and the worst possible news for the supermarkets who were finally getting comfortable with online deliveries in the middle of a pandemic.
I had the pleasure of attending the annual Amazon UK analyst briefing this morning where we heard from senior executives across various parts of the business. The event kicked off with UK Country Manager Doug Gurr dismissing the broader doom and gloom. According to Gurr, the fundamental basics of retail – selection, price, convenience – haven’t changed. However, the future will be a more blended retail experience. “There’s still no substitute for touching, feeling, seeing the product. We’ll see more merging in the future,” he said.
There was lots to take in but here are my highlights:
Amazon is quietly ramping up its private label portfolio in the UK. The big difference at this event versus last year’s was the sheer amount of AmazonBasics signs plastered around the room. In FMCG, the retailer has brought its Mama Bear, Happy Belly and Wickedly Prime over from the US. In fashion, the well-publicized launch of Find last year has since been followed by Truth & Fable, Iris & Lilly and Meraki ranges. It’s worth pointing out here that Amazon just quietly added new FMCG lines to its US site – Solimo and Mountain Falls (the latter is exclusive rather than owned by Amazon) and I imagine these too will eventually come to the UK as Amazon builds out its global grocery offering. Why the big push into private label? It will help Amazon inch closer to sustained profitability. With its own brands, Amazon can widen margins without raising prices. It gives them greater leverage over suppliers and allows them to sweeten the deal for Prime members, as many own label items are sold exclusively to them. With the sheer amount of customer data Amazon holds, no one is better positioned to understand customer needs and then develop ranges specifically for them.
To disrupt fashion, Amazon must adapt. The big challenge in fashion, according to Head of Apparel, Nick Pope, is “balancing the discoverability and fun of fashion with the practical excellence that Amazon delivers”. For all its perks, Amazon is still a utilitarian shopping experience. Sure, they can shift a ton of socks and underwear (they’re expected to become the largest clothing retailer in the US by the end of this year) but, when it comes to customer perception, Amazon is simply not a fashion destination. Amazon is looking to change that by adding more brands to its site, ramping up private label, introducing a more visual layout, using its Shoreditch photo studio for consistency in imagery, and they’ve just begun integrating video on their UK site (piloted with the Truth & Fable range).
Higher-margin private label clothing allows Amazon to fill gaps in merchandising while simultaneously boosting the bottom line, which will become all the more important as they move further into groceries. At the same time, more fashion brands are succumbing to Amazon’s platform – they can no longer ignore Amazon’s incredible reach and many also want greater control over pricing and presentation (if their brands are already present on Amazon’s marketplace). In addition to signing on major global brands such as Calvin Klein and Tommy Hilfiger, Amazon is working with local brands in each market (ie Coast, LK Bennett in the UK). They’ve taken a similar approach in Italy, France, etc. There was no mention of initiatives like Prime Wardrobe or the Echo Look which are both currently available in the US, but these innovations will play a major role in Amazon’s plan to disrupt fashion so I’d be very surprised if these weren’t launched in the UK within the next 12 months.
Amazon is getting more comfortable with the exclusivity of Prime. At its 2005 launch, Jeff Bezos described Prime as “all-you-can-eat express shipping”. Today, it was referred to as the “gateway to the best of Amazon”. Lisa Leung, Director of Amazon Prime, said that there are now millions of UK Prime members and that the major difference with this year’s Prime Day (details of which I won’t go into here) is that Amazon “wanted to make the benefits come alive”. As such, they’ll host an entertainment extravaganza on 15 July, the evening before Prime Day, with events ranging from a family screening of Paddington 2 to an exclusive Take That gig. Whole Foods Market stores will also get involved in Prime Day this year with special discounts and free instore massages.
Prime Now serves three shopping missions particularly well: crisis, gifting, top-up grocery. I can personally attest to all three! Jason Weston, UK Country Manager for Prime Now and AmazonFresh, said that Christmas Eve is one of the most popular days for Prime Now. He gave the example of a Manchester customer placing an order for women’s jewelry, perfume and a PlayStation console at 10pm on Christmas Eve, which was delivered by 11pm. Meanwhile, cut-off times are getting later and later in a bid to cater to the ‘for tonight’ shopping mission. Today, customers can order by lunchtime and have their delivery arrive by dinnertime. In some postcodes, this can be as late as 4pm. I was surprised to learn that Prime Now covers 30% of the UK, although this is largely limited to cities. I asked Weston if he thought same-day delivery would become the norm in UK grocery (Prime Now has been such a catalyst for change as I describe here in this BBC article). His reply? “Time is becoming a more important commodity for everyone.” I couldn’t agree more.
Too early for a book plug? My and Miya Knights’ book on Amazon is now available for pre-order here.
‘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.
Why the big push into private label? It will help Amazon inch closer to sustained profitability. With its own brands, Amazon can widen margins without raising prices. It gives them greater leverage over suppliers and allows them to sweeten the deal for Prime members, as many own label items are sold exclusively to them. With the sheer amount of customer data Amazon holds, no one is better positioned to understand customer needs and then develop ranges specifically for them.
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.