Published on: September 1, 2017
By: Dennis Moore
For traditional grocery retailers, there is both good and bad news in Amazon’s acquisition of Whole Foods. The good news is that even Amazon is acknowledging that physical stores have a key role to play in the selling and distribution of fresh food and other household staples. The analogy of iTunes is to CDs as Amazon is to fresh food turns out to be false – it doesn’t necessarily represent end times for an industry. That said, the bad news is that traditional grocery retailers have a new competitor named Amazon…and they’re a damn formidable force to be reckoned with.
My high school trigonometry teacher, Mike Doyle, used to say, “Answers are easy. Questions are hard.” I think Amazon is really good at asking questions. Where many traditional retailers were asking themselves, “What grocery categories are well suited for eCommerce?” (and were secretly hoping the answer was “not too many categories”), Amazon asked the higher-level question, “What’s the best way to satisfy customer needs for fresh food and groceries?” Per Mr. Doyle, the answer to Amazon’s question turned out to be pretty easy – you need some sort of physical and local presence to supplement a robust online infrastructure.
Thus, while most traditional grocers assumed they had protection from Amazon because certain categories seemed less amenable to online commerce, Amazon yet again showed that they were not limited to only serving customers through their preexisting capabilities. No surprise there, as this has been a consistent pattern for Amazon. For example, the creation of Amazon Marketplace showed that Amazon does not think of itself strictly as a retailer, but rather is also willing to provide services that enable others to be retailers. Amazon Web Services (AWS), Kindle, Amazon TV, and myriad other elements of the Amazon ecosystem all demonstrate that Amazon is thinking at a much broader level about its business.
To me, it seems like the question Amazon is asking of itself is, “How can I best facilitate the way people acquire the things they want and need?” The answer to that question varies based upon the “thing” and involves different ways of acquisition, delivery, connecting with the customer, etc. But make no mistake, Amazon is willing to adapt its means to the needs of the category (in the eyes of the customer) – as opposed to trying to make the category fit Amazon’s business model.
I started working in the CPG industry in 1990 (not all stores even had UPC codes on products back then!). An old cliché from that era was that retailers don’t make money selling products, they make money buying products. The point being retailer’s profits were largely derived from the terms they extracted from their manufacturer partners. The problem with that formulation is that it made many retailers too narrow in the way they viewed the industry. They assumed that people would continue to acquire things the way they always had. When that all changed, many retailers were ill-equipped to ask themselves the right questions about what customers need and want. When you’re making as much money on the buy as you are on the sell, it’s just too easy to lose sight of who your customer really is.
As I said at the start, there is some good news for grocery retailers in the Amazon-Whole Foods acquisition. Namely, local, physical stores absolutely will play a major role in satisfying consumer demand for fresh food and groceries. The rumors of your disintermediation are greatly exaggerated. But, you need to ask yourselves the tough questions about what consumers want and then make the choices to adapt your business model accordingly. Because the answers are so much easier if you know the right questions to ask.