Amazon, Alexa, and The Black Plague of Retail

One of my good friends, Kevin Coupe of Morning Newsbeat, scored one of the best interviews of the new year. In his conversation with Tom Furphy, a former Amazon executive, he drills deep into Amazon’s secret sauce as well as its implications for the rest of us who are living through the “black plague in retail”. From overall retail to the impact of Alexa, it’s a great conversation, or as Kevin would say, “An Eye Opener” and you won’t find it in the Wall Street Journal or the NY Times. You can listen to the interview here: The Innovation Conversation

 

Amazon Whole!

Its Game of Thrones time with the unfolding battle between Amazon, Aldi, Wal-Mart and the growing food oriented Dollar Stores. Kroger melting down and Amazon buying Whole Foods are just the tip of the coming “winter” in grocery retail. As if there were not enough potential for retailer margin impact, the stealth European giant Aldi is firmly committed to a private label only strategy which puts more pressure on brands.  If you thought food and household products were in a deflationary spiral, this slug fest at the bottom says it’s a long-term 3-5 year battle.

The WSJ had a story called “Pressure on US Grocers Rises”. Pressure is not the word. Final nail in coffin is better. For 30 years the grocery industry has ceded market share to Wal-Mart which was barely in food when it started! Aldi, the European low cost “Ryan Airways” of grocery, is planning to open 900 new stores with 5 billion dollars in the US market. Lidl is also ramping up and if you have not visited one of these stores you must. And Amazon is now taking a leadership position by overlaying their consumer technology and warehouse expertise onto a premium and well located chain of stores.

Between Aldi at the bottom and Amazon/Wholefoods at the top, this is the coupe d‘grace for the Grocery retail sector which is the worst managed retail segment in American retailing. With a dead man’s focus on slotting fees and illegal charge-backs, the Grocery chains long ago forgot how to be merchants and innovators. Except for a select few like the innovator Wegman’s, there is little to miss after they ceded almost half of the entire food market to Wal-Mart during the past 30 years.

There is another serious deflationary piece on top of all this. Amazon recently signaled it’s entering the fight to take market share at the lower end of the demographic market. With Prime household penetration at 50%, the next segment for growth is the 50% of American households below the median household income line. Of course with the Whole Foods acquisition, they just bought 431 “fresh distribution/pickup centers” and with the highest demographic customers in the market. Hi end/low end…Amazon wants it all. But let’s focus on the larger end, the lower demographics.

Most commentators, such as the WSJ, think that Amazon is aiming at Wal-Mart. Clearly they are, but there are two looming competitors that are sharper and tougher for Wal-Mart to battle in the lower end market; the above mentioned giants of the value segment, Lidl and Aldi.

The WSJ has a great chart of food stamp customers which illustrates the relationship between Amazon, Aldi, Wal-Mart and the dollar stores. This story, which may be the most significant one in years, if you sell the mass market, shows how Amazon wants that market and is making some incredible changes around payment systems for the un-banked, delivery for security challenged areas, and lowering the cost of Prime membership. This is the first time that I’ve seen an Amazon strategy that is capable of hurting the dollar stores and Wal-Mart all in the context of the massive Aldi and Lidl launches.

Amazon may have cracked the digital divide and entered, what has been to date, that last retail corner immune to the digital wave. It’s still too early to call the winner(s), but the household products and food industry are in for some serious deflation/price pressure. Wholefoods, with Amazon at the helm, will morph from “Whole Paycheck” into “Half Paycheck”. Far from value but they can easily double the sales by cutting pricing and passing through their better back end management. Food, like war, is a logistics battle and nobody other than Wal-Mart can compete with Amazon.

So if you are a brand owner, ramp up the marketing. As the old Chinese proverb says, “The more you sweat in peacetime, the less you bleed during war.” The only defense against price deflation is a strong brand.

Just Another Brick in the Wal…..

While Wal-Mart was busy getting hip buying Jet.com, Amazon was getting serious and just announced that it is offering air freight services to its sellers based in China. Think of this as the penultimate direct to consumer structure ever. Wal-Mart is still the king but this does not bode well.

The new battlefield is digital and like all battles it’s not the glorious stories on page one that mean victory. Similar to real wars, it’s superior logistics that win but to find this you have to dig into the WSJ story on page B4  with no photo announcing the new service.

This is a game changer for all who sell wholesale products. Imagine that today your factory in China now has a direct link to your customer’s home or business WITH EFFICIENT Amazon built end to end logistics. That’s a real “Jet”.

The Wrinkle in Luxury Beauty E Commerce

Not to “Drone” on about Amazon, but WWD Beauty Inc. Nov 8, 2013 edition had an article called Site Plan by Rachel Brown. It’s a terrific read about the impact of Amazon on the high end beauty business with learning for all categories beyond beauty.  Not since the hyper growth of Wal-Mart in the mid ’90s has the retail world faced such a seismic shift. Continue reading “The Wrinkle in Luxury Beauty E Commerce”

Leverage Amazon and Build Your Brand

Beyond the drone hype, leveraging Amazon’s success will be the key differentiation between brand winners and losers as the digital revolution completes its march down the grocery and other retail aisles.  One of the best articles I’ve ever read about Amazon was recently written by a former employee, Eugene Wei in Salon.com.  If you are an investor or consumer products producer,  this is the must read article explaining in a deep way the nature of the greatest force in retail outside of Apple.  (In fact they are quite symbiotic but that’s for another post…) Continue reading “Leverage Amazon and Build Your Brand”