Amazon is described as the “everything store” but food and consumer goods are particularly important to it. With shoppers on average conducting 24 grocery shopping trips a month, Amazon wants to benefit from the high frequency of purchase to drive traffic to its websites. This will help it to attract more vendors, increase its selection, intensify competition and provide a better customer experience. Grocery can therefore help Amazon to sell all its other products and services.
There are five ways in which Amazon is planning to win in grocery.
1. Increase choice
To offer a competitive grocery assortment, Amazon is partnering with traditional retailers. In May, Amazon announced that it was collaborating with Life supermarket in Japan to sell fresh foods in parts of Tokyo. In June, we heard that Morrisons in the UK would roll out its home delivery partnership to cover more cities, such as Glasgow and Portsmouth.
Amazon will also differentiate its grocery proposition by offering unique, exclusive products demonstrated during this year’s Prime Day. There were several celebrity collaborations, such as the exclusive launch of Lady Gaga’s Haus Laboratories beauty brand and there were limited-edition product launches, from brands such as Oreo and Maggi.
In food and drink it’s partnering with smaller specialists, such as Gail’s Artisan Bakery and the East London Brewer Company in the UK. It’s also using Marketplace by helping producers and manufacturers sell directly to consumers with differentiated offers. For instance, in June, BIC launched an Amazon exclusive direct-to-consumer brand called Made For YOU, in the US. Last year, Amazon France launched a shop-in-shop, La boutique des producteurs, selling high quality, locally- sourced, delicatessen products and fresh produce.
Its private label offer is evolving, and it appears to be prioritising ambient products, that are easy to ship, higher value, purchased consistently and frequently. For instance, in March, it launched the skincare brand Belei. In the future, it’s likely to use data and its understanding of shoppers to improve product development. This data-driven product development or consumer-to-business (C2B) model would follow Alibaba and its successes working with Mars and Colgate in China.
2. Price discounts
Amazon offers competitive prices through its pricing algorithm and Marketplace, as third-party sellers compete to win the buy button. However, it’s also been investing to reduce prices. In December, Amazon Australia cut the price for a number of favourite FMCG brands, offering products 50% cheaper than key rivals.
In recently launched markets, Amazon is discounting the price of Prime membership to acquire customers (the discount might also reflect the benefits available). Prime drives loyalty and results in shoppers spending more. For instance, in Australia, Prime costs the equivalent of €36, whilst in Germany it’s €69. Prime shoppers also benefit from additional price discounts. For instance, in the US, members shopping at Whole Foods Market are benefiting from exclusive promotions, an additional 10% off promotional prices and another 5% cash back if they make a purchase using a Prime Rewards Visa Card.
Amazon Prime membership is the gateway to Amazon’s channels such as Pantry, Fresh and Prime. Once shoppers are Prime members, it’s incentivising the trial of the channels with discounts, such as in the UK, save 25% on Prime Now for first-time customers or get free delivery on Amazon Pantry.
In the future, Amazon can use data and expertise in artificial intelligence to differentiate by providing shoppers with helpful, relevant, personalised promotions.
Source: IGD Research
3. Making grocery shopping more convenient
Amazon continues to launch in new markets and expand its convenient online offer. In January, it started selling groceries in Brazil and in the US, rolled out pickup and Prime Now from Whole Foods Market stores.
Amazon will differentiate through its speedy fulfilment and in July launched AmazonFresh in Las Vegas, offering delivery in one and two hours. In the US, it has rolled out free next day delivery to more than 10 million products for Prime members.
Convenience isn’t just about speed and Amazon’s removing friction from ordering through to returns. In March, it enabled shoppers to consolidate multiple orders to arrive on a self-selected day, with its Amazon Day service. It’s made collection points available at high street stores, such as Next in the UK. It’s also made its after sales service more convenient. For instance, in the US, shoppers can return products at Kohl’s department stores with its Amazon Counter service.
Shoppers expectations of convenience will only increase, and Amazon is well prepared. For instance, voice ordering (Alexa) or unattended deliveries (its already delivering to fridges, garages and cars with its Amazon Key service).
4. Open stores
Stores are a key part of Amazon’s grocery strategy and the acquisition of Whole Foods Market could be a test for more acquisitions in the future. The stores help drive credibility and awareness of its grocery offer. As mentioned, Amazon is using the stores to acquire new Prime members and sell its devices. They also act as mini fulfilment centres and support rapid deliveries.
Amazon is testing store formats to find a differentiated offer that can be scaled up. It currently has 11 checkout-free Amazon Go stores. In 2017, it launched AmazonFresh Pickup, and Amazon Instant Pickup, both offering rapid click and collect.
Amazon will offer seamless online and offline shopping. Using its app and data, it could provide offline shoppers with personalised recommendations and promotions. This will remove the friction from offline shopping, helping shoppers quickly find products, access product information and make payment. Its stores will offer collection, returns and acts as efficient fulfilment centres for grocery and non-food items.
Source: IGD Research
5. Supply chain as a competitive advantage
Amazon is investing in developing technologies to establish a competitive advantage in the supply chain.
It continues to recruit for highly-skilled engineers, software developers, data scientists and machine learning experts. In the first half of 2019, it’s invested in self-driving forklift trucks through Balyo, driverless technology through Dispatch, in robotics through Canvas Technologies and electric vehicles through Rivian. It’s also been investing in drone technology through the Prime Air service and in June committed to make its first drone delivery within months.
Keep up to date with developments at Amazon
In September you can hear from Amazon’s UK and German senior leadership team, by booking tickets for the IGD Amazon UK Vendor Leadership Day in London on 10 September or our new IGD Amazon.de Vendor Leadership Day in Munich on 12 September.
IGD Retail Analysis subscribers can see the latest Amazon news here and you can learn more from our Amazon Strategic Outlook presentation.