Amazon’s latest move into offline retail was widely reported last week, with the media alternately excited and dismissive of the online giant’s latest news. But in a consumer goods world already struggling with the new reality of changing shopping habits, any news involving Amazon and offline retail should not be dismissed lightly. So what are the likely implications of the Amazon convenience stores experiment?
Amazon convenience stores: More stores isn’t good news for anyone
The first thought has to be, does the world need more convenience stores? Does the world need more stores? At a time when retailers are struggling to make the economics of stores work, as shopper spending migrates online, more stores is going to make life harder for all retailers. Shoppers aren’t necessarily buying any more, so traffic must be being diluted across this expanding number of stores. Amazon convenience stores will make it harder for manufacturers too: yet another retail channel to invest in means that limited trade investment could get stretched even further.
Amazon convenience stores – have they gone mad?
One of the strange things about this move, is the fact that NOT having stores has been a major advantage of online players such as Amazon. Offline retailers have discovered that their stores, once their biggest source of competitive advantage, have become like an albatross around their neck. Stores suck up cash and are extremely hard to divest. Amazon mitigates this danger significantly by focusing on convenience stores, which have a smaller footprint. I’m also sure Amazon will expand carefully into bricks and mortar stores but that differential advantage is reduced regardless.
Amazon’s unfair advantage
Perhaps Amazon are prepared to take on the risk of a store network because of their other main advantage versus their offline competition. Amazon are largely funded by private equity, and aren’t (it appears) under the same short term profit pressure as some of their offline rivals. Perhaps Amazon reckon that they can weather the storm of retail Armageddon and come out victorious. If that is the case, it could get messy!
Amazon convenience stores: not competing with convenience stores
Ironically, there is arguably one retail channel that should feel (somewhat) less threatened by Amazon convenience stores, and that is convenience stores. Chains such as 7-11 still get much of their revenue and even more of their traffic from tobacco products, which are currently not available via Amazon. Further, around the world it is ready to eat food that is driving the convenience channel as the stores become more like fast food outlets than grocery stores. Amazon’s convenience stores, by contrast, seem to have built more to cater to the grab and go shopper, and to create an easy collection point for an online grocery shop. If this is the case, it is the grocery superstore and hypermarket chains that need to be worried more than the convenience store.
Amazon convenience stores: a recognition that fully online grocery is unaffordable
And as a last thought, something positive. The move to create offline stores, and to encourage shoppers to pick up groceries, is perhaps a major step towards realizing that it is really hard to create a fully online grocery model that is also profitable. That perhaps even Amazon need multichannel models, and that there is a limit to how far the industry can go down a path of increased costs and reduced margins. If Amazon can’t make it work, then who can?
Whatever this latest move means, it is clear that the consumer goods industry will continue to be a dynamic and dangerous place to play. Shoppers are changing their shopping behavior, and with more players in the market, things are likely to get tougher before they get easier. So what should a manufacturer do?
- Invest in understanding shoppers: Shoppers now have more choice about what to buy and where to buy it than ever before. Knowing which shoppers to target, and how to influence them, is not critical to business success. (complimentary e-book download)
- Build a meaningful channel strategy which reflects where shoppers can be influenced in the future, rather than your brand sells today. (complimentary e-book download)
- Urgently revisit your trade investment strategy to ensure it is configured to support your growth, not your customers’ bottom line. Demands on trade spend are likely to increase, so it is critical to make every dollar count.
This move by Amazon is just the latest of many moves which are shaking up the consumer goods industry. If you don’t have shopper-based future strategies for channels and retail, then please get in touch to see if we can help, before it’s too late.