Amazon is unleashing a range of products and services that will undermine the Big 4’s customer base… and Tesco is moving deck chairs around on the Titanic.
The latest move is the announcement of a trial of physical store format AmazonGo – a convenience food that eliminates queuing and checkouts by recognising which items you pick of the shelf and charging them to your Amazon account via a mobile app. It’s just one of a steady stream of grocery innovation over the last 3 years. It’s clear that Amazon wants to dominate grocery and has much bigger plans than being the online everything store… but the major traditional retailers look like they’ve all the time in the world to re-invent themselves.
“It’s not the strongest that survive, nor the fittest, but those that are most adaptable to change.” This quote is attributed to Charles Darwin but he never said it or wrote it. It was written by a US marketing professor. Which just goes to show that you can’t trust marketers…
While the quote may not be genuine, the sentiment is. The problem is that we’ve all read this quote so many times in the last ten years that no one is taking notice of it anymore. And in particular the supermarkets aren’t listening because they think those shouting about the coming market disruption from the likes of Amaozon are crying wolf.
But industry disruption is coming. And it doesn’t look like the gentle side-by-side existence of Ocado and the traditional grocers over the last 15 years.
it looks like the Terminator – you can’t kill it and it will not be stopped. In this case, the Terminator is Amazon, who in the last month has announced a raft of products and services that are going to persuade a whole load of digital natives and parents to think of Amazon instead of Tesco when they buy their groceries.
And the Big 4 are watching Amazon prepare for battle and they are doing nothing. Well, not nothing… Sainsbury’s is trialling same-day delivery and Click & Collect in London. Tesco announced plans to roll out same-day Click & Collect to 300 stores. At least two of the big four grocers are figuring out how to rival Hello Fresh and Gousto with recipe ad grocery boxes. Of course, Tesco and Sainsbury’s move towards same-day delivery is a move in the right direction, but the speed and the focus on these activities is not in proportion to the speed and size of threat that Amazon poses to the Big 4.
Amazon is coming for them. Make no mistake – they want to own grocery shopping, just how they own e-commerce. They also want to be in your home and get you to order groceries from them – and no one else – from your sofa with Alexa and Dash. And they want to be an FMCG powerhouse. They want to be Tesco plus Unilever plus Deliveroo and they have the smarts, the cash and the ambition to do it.
Here’s a recap of what Amazon is doing right now:
Amazon Smart Dash Button – stick on buttons that allow you to order a single product as it runs out. More than 100 brands have signed up.
Amzon Dash – a wand that reads product barcodes and ads them to your Amazon order.
Amazon Fresh – the same-day grocery deliver service has expanded to 128 London postcodes.
Amazon Echo Dot – the small version of the Amazon Echo is a voice-controlled ‘ambient computer’ that allows you to order takeaway from Just Eat and ask for a Jamie Oliver recipe. Ordering groceries is a logical next step.
Amazon Go – convince store format to be trialled early 2017 to Amazon staff at first.
Amazon retail – Besides Go, there are talks that, in the US, Amazon is staffing up to launch 30 pop-up stores this year and up to 100 in 2017, to showcase its technology products. It is also experimenting with launching a drive-through grocery store in the US.
Here’s the problem: some people read the list of products and services above and they don’t see a threat. They see new and untested technology that they don’t get. They see tech that requires consumer behaviour that doesn’t exist yet. So they mistakenly believe there is little immediate threat.
Some people just don’t get the level of threat. Earlier this year Tesco Chief Executive Dave Lewis said of large format stores: “If you are time poor, you can go to one place and get everything you need at the right price in one trip; it is actually very efficient”. It seems to me that Lewis is ignoring how consumer behaviour is changing and that ‘efficiency’ no longer means ‘everything in one place all at once’, but ‘small shops, when I want, where I want, delivered fast’.
Five years ago, to get from A to B in a city, you stood on the street and waved at taxis. Now you tap an Uber app.
Five years ago, to order takeaway you used a website or made a telephone call. Now you tap the Deliveroo or Just Eat app.
There are also slower shifts in consumer behaviour that are now reaching a tipping point. In 1995, people spent 62 minutes on average preparing dinner. In 2015, that was only 32 minutes. The number of shops carried out in large format stores are slowly decreasing. The concept of the big weekly shop is in decline. Discounters are on the rise, as is top-up shopping from convenience stores, as is online grocery retail.
When it comes to food shopping and where and how we eat, behaviour is changing. Less people eat meals that they have cooked themselves. The Starbucksification of the UK and the growth of quick service restaurants has made it much more common to eat out or eat on the go. Now UberEats and Just Eat and Deliveroo are undermining the need for cooking. And the likes of Hello Fresh and Gousto are attempting to make scratch cooking something special and premium that you only do with them. And the big grocers are doing little to counter these fundamental changes in how we shop and eat. People are increasingly shopping for ‘meal solutions’; supermarkets sell endless shelves of deconstructed meals.
In a shareholder meeting in May, Amazon CEO Jeff Bezos said the company would now be more aggressive in its retail expansion. He said that part of the reason was so Amazon could educate itself in which sales tactics work best in offline environments. He says they will be opening retail stores to learn from them rather than make a lot of profit. But make no mistake, Amazon is coming for the supermarkets one way or another.
Because Bezos knows how to use technology to track and influence consumer behaviour, it is Amazon that is best placed to provide modern shoppers with what they are looking for. But let’s assume that some readers are still uncertain that technology will make serious in-roads in how we buy food and other FMCG products. Let’s go back to basics and view the challenge from Amazon through the lens of good, old-fashioned supermarket marketing principles.
What do supermarket shoppers want?
Value
Convenience
Choice
Inspiration
Now let’s look at how Amazon might compete with Tesco and the Big 4.
Value
Asda may be known for everyday low prices. And in a post-Credit Crunch world the Big 4 seem locked into an obsession with price cuts and price matching. But look over there… there’s Amazon with $12.5bn cash reserves and much less physical infrastructure costs. A company with a history of undercutting the market until it owns a massive share of that market. If Amazon wants to play the value game with shoppers, it can.
Home delivery basket spends of less than £25 kills margins for the Big 4. Thats’s why delivery fees and minimum spends are required. But Amazon’s whole business revolves around figuring out how to deliver small purchases and make money from them. But what’s really got to hurt the Big 4 is that while their shoppers gripe about paying for home delivery, Amazon customers are happily paying £79 a year to sign up to Amazon Prime to take advantage of its convenient services. which brings us on to…
Convenience
How convenient is it to drive to a Tesco Extra? Convenience shopping is on the rise. But the ultimate expression of convenience is a grocery store on very corner and anytime, anywhere shopping. The Big 4 have got the physical stores covered, but Amazon can deliver anytime, anywhere ordering with one-hour delivery through Amazon Prime Now… and it’s home devices like Echo and Dot allows Amazon to bring convenience into the home, without the need to deal with a clunky shopping app.
Choice
It’s long been supermarkets’ assertion that shoppers want more choice. Large format supermarkets can stock 50,000 SKUs, and while discounters stock a lot less, they are still making in roads in the Big 4’s sales. The problem is that social science studies such as the famous jam experiment don’t support the idea of endless choice, but let’s ignore that for a while.
If choice is what people want, even the biggest hypermarket cannot compete with the everything store, Amazon. While the number of FMCG items in the Amazon UK store is limited right now, the global nature of Amazon means it could offer every FMCG brand in the world to every market to create the truly endless shelf. If choice is what shoppers want, Amazon can easily win.
Inspiration
So many briefs from FMCG brands to creative agencies talk about inspiring shoppers with their products, and now grocers are getting into the game too… Lidl Surprises and Sainsbury’s Little Twists campaigns aim to inspire people to make their everyday food just a little bit more special. But if you really want to inspire, the shopping environment needs to be inspiring. And how inspiring in a row of shelves? Wholefoods is often held up as a great example of a more modern in-store experience, with natural materials, handwritten staff reviews and a food service offering that includes a food court and sushi bars. The Big 4 have also made moves from just selling product to selling food experiences, from Tesco’s personalised cake stations to Waitrose replacing takeaway rotisserie chicken areas with dine-in sushi bars.
Inspiration is often hard to do online, because it’s harder to deliver a deep sensory experience on a flat webpage, compared to a physical store. Until augmented reality and virtual reality is used by people to grocery shop, the likes of Amazon will have to rely on great photography, recipes and content to inspire. Both traditional retailers and Amazon could do better in inspiring shoppers with their existing toolkits.
The conclusion?
In three out of four traditional grocer drivers, Amazon can compete or outcompete the Big 4, if it decides to.
The problem is that the Big 4 have been slow to respond to the threat of disruption. Many of Amazon’s new products and services were announced in 2013 and 2014. That’s an age in internet time, but a blink of an eye in supermarket time. When Amazon acts, it acts with speed and with its full resources of capital, logistics and global staffing.
Speed of response to digital disruption isn’t just a problem for grocers. It’s a problem for all mature industries. The music industry didn’t take Napster seriously for too long and didn’t believe that iTunes’ digital sales would dominate. Taxi companies didn’t build Uber-killing apps. Newspapers never found a model to pull the same level of revenue from digital properties as it did from print. Blockbuster was slow to counter Netflix and LoveFilm and ultimately lost the battle.
So what’s likely to happen next?
The battle for shoppers’ grocery spend could end with Amazon being one of the Big 4. It could end with one of those four struggling to compete in a multi-channel world where the technological bleeding edge is being built by Amazon.
There are signs that the Big 4 are starting to take the threat of Amazon seriously. Morrisons, which was last to the e-commerce game when it partnered with Ocado, is a supermarket that seems to understand this current power shift. It’s inked a deal to use Amazon lockers and another deal to supply it’s produce through Amazon. Sainsbury’s is investing strategically in the purchase of Home Retail Group, bringing Argos’ knowledge of same-day delivery, warehousing and logistics to the retailer.
“It’s not the strongest that survive, nor the fittest, but those that are most adaptable to change.”
The Big 4 are finally showing signs of adapting to change. Tesco revolutionised grocery shopping with Clubcard. Now Amazon is revolutionising shopping again. It’s not just deep pockets that will be needed to survive digital disruption, but fast moves and innovation on a scale that grocers have not always been known for.
