Will Amazon open supermarkets?
Amazon's Whole Foods Market supermarkets are doing well but, according to the e-commerce giant, to grow and compete they need "a stronger physical presence, given that most purchases still take place in physical stores" . The in-depth analysis by Mario Sassi, author of the Blog_notes on work
We call them physical stores in the USA they call them "brick and mortar" (bricks and mortar) a term freely taken from Psalm 127 of the Bible often contrasted with the digital store. In reality, the real opposition is between those who consider the customer central (in words all) and consider accessories places and tools to reach him, involve and satisfy him and those who defend the place as the center of the world because going beyond it would mean having to question oneself. Amazon has understood that today, the customer appreciates them both. And while it enjoys a built-in edge in digital commerce, it continues to lag Walmart and other retailers in terms of market share generated by traditional stores: 2.6% versus 18%.
Andy Jassy, CEO of Amazon, in the recent letter to shareholders reiterated that, in order to grow and compete "we need a more marked physical presence, given that most purchases still take place in physical stores". There is a necessary equivalence in competition. Walmart attacks on technology and digital, Amazon cannot fail to reply on the physical. Whole Food and Amazon Fresh proved to be a weak response. Able to worry about potential but not enough to counter the Bentonville giant. It is necessary to “identify and build the right mass format suitable for the Amazon scale” concluded Jassy. Whole Foods Market is doing well. Sales and profitability are growing. But as conceived it does not seem to form the basis for a sufficient answer.
Opposite two viable roads. The first is more traditional: first of all to acquire brands in a market, the USA which accounts for around 800 billion dollars and then aim at other key countries. The complexity of the integration of Whole Foods alone into Amazon is there to demonstrate that thinking of competing with the best retail performers by concentrating different brands in terms of organization and culture and simply putting yourself on their turf is a gamble that risks costing a lot. Andy Jassy hints at the diversity of their journey in a passage from the shareholder letter. “Over twenty years we have built a significant presence by locating products on supermarket shelves that do not require temperature control such as paper products, canned and canned food, candy and snacks, pet care, health and personal care and beauty. Three million items that have eclipsed the few tens of thousands offered by traditional retail”. Assortment, home delivery and discounts are the key to success also through the Subscribe & Save program which is very popular in the USA. A strategy certainly linked to the product and its greater simplicity of management but also built by innovating the process.
Amazon fresh does not therefore seem to be considered an adequate answer. As well as thinking that technology alone can be. The one used in the Amazon GOs, in addition to being expensive, easily reproducible and improved in different parts of the planet, is the demonstration that the technology does not in itself increase the number of customers. So it is necessary to take another path that deals with the offer and the service in the point of sale within a unichannel strategy. And this is, I believe, the main reason why Amazon has not proceeded with acquisitions subsequent to Whole Foods even though it has considered some both in the US and in Europe.
In a previous Amazon article , I mentioned the ongoing stall. Amazon can't just copy Walmart. He doesn't have the history, profile and experience. And he knows he would be a loser. He has to do something else. It has three advantages to exploit. First of all, the data available and their potential. Artificial Intelligence is the real technological revolution we are experiencing. It's not something a company will adopt as if it's just another technology to support their business. AI will become the main engine of business. And Amazon's advantage with AWS is indisputable.
The second advantage is represented by the fact that the business area that will be most affected by AI is the supply chain. Just as many companies are making strides to design and operate autonomous vehicles, several companies have created software to fully automate their supply chains. And this is a real strength for Amazon. The business model of the Seattle company is based on speed and efficiency. Amazon has also come under fire for the way it runs its fulfillment centers. However, the efficiency of its centers is proverbial. Amazon invests heavily in fulfillment operations, using robotics for process automation and network expansion. Along with the existing Amazon Robotics facility in North Reading, Massachusetts, the epicenter of the company's robotics innovation, the Westborough site will include offices, labs and manufacturing spaces, allowing Amazon to "design, build, program our robots, all under same roof,” according to Tye Brady, chief technologist at Amazon Robotics. Extracting data from customers, simplifying supply management, forecasting demand before products are required, optimizing warehouse and logistics management, automating vehicles in distribution centers are just some of the ways the artificial intelligence in the world of retail.
However, technology is not enough to attract customers. Hence the importance of developing the third leg. The one that "must" lead to innovation of the offer and service also inside the point of sale. It is not enough to increase the number of stores to beat the main players. Amazon must introduce a distinctive, competitive, personalized offer tailored to the customer's spending. And about his possible expectations. And it is on this that for now, rather than concrete projects, many ideas are circulating. Only in this way, however, can Amazon revive the competition and create something truly innovative in the world of retail.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/amazon-aprira-supermarket/ on Tue, 25 Apr 2023 15:22:53 +0000.