‘A box of Cheerios and a book aren’t that different. You don’t have to fundamentally rewrite or build an entirely new infrastructure.’
Ian Clarkson, ex-Amazon executive, 201836
Prime Pantry allowed Amazon to test demand for products that would have been cost-prohibitive to ship for free. The lack of fresh food was not a deal-breaker for US customers – remember many to this day are still hesitant to purchase perishables online. In international markets like the UK, however, we believe that Prime Pantry is less compelling. Consumers expect to do a full grocery shop online, plus the high density of supermarkets and lack of storage space in comparison to US homes means that British shoppers don’t ‘bulk buy’ in the same way as their American counterparts.
But would American Prime members, who have become trained to expect free shipping, be willing to shell out an additional $6 each time a cardboard box of household goods turned up at their doorstep (bearing in mind some of these items were already available through Amazon’s main marketplace)? What is more, Prime members had also come to expect two-day shipping but Pantry delivery took up to four business days. Innovative, yes, but it was difficult to see the real value for customers.
In 2018, Amazon tweaked the model so that instead of paying per delivery, Prime members were charged $5 per month in addition to their annual Prime membership fee. Moving to a subscription model is part of Amazon’s broader strategy to add more tiers to their Prime membership scheme and will help them to drive both usage and customer retention.
With Prime Pantry catering to the monthly shop, and AmazonFresh to the weekly shop, Amazon decided to go after yet another shopping mission – convenience. The introduction of free two-hour delivery with Prime Now (or within the hour for a flat fee of $7.99) exclusive to Prime members, changed the game when it came to online shopping; don’t forget that same-day delivery was still often a chargeable service ($5.99 for Prime users; $8.99 for others) at the time. Prime Now was significant in that it enabled Amazon to more effectively target specific shopping occasions – and therefore share of wallet – while completely disrupting the sector in the process.
Despite their best efforts, no western competitor could offer as vast a range as Prime Now – 20,000 SKUs across both grocery and general merchandise categories – delivered in as short a window as one to two hours. They certainly couldn’t do it for free.
Tesco came closest with its Tesco Now service, which launched in the UK in 2017. Shoppers could have groceries delivered by third-party provider Quiqup within one to two hours, but they could only select 20 items from a range of 1,000 and for a minimum £5.99 fee. Amazon offers 20 times the range at no additional cost to the customer.
Amazon created Prime Now to ‘bring a sense of magic to our customers … to give people the time that they need to live their life, rather than go around the town to visit the stores that they need for their grocery shop’, explained Mariangela Marseglia, Director, Amazon Prime Now, in a speech at the Shoptalk conference in 2017.
In typical Amazon fashion, Prime Now went from product idea to launch in less than four months. It started out covering just one zip code in Manhattan because Amazon wanted to perfect the customer experience before rolling it out and Marseglia believed that if Prime Now could work in Manhattan, it would work in any other city. In December 2014, Amazon’s first Prime Now order, which was for a video game aptly called Rush, came in at 8:51. By 9:00, the item was picked and packed and by 10:01 it was delivered to the customer.
Christmas Eve is one of Prime Now’s most popular days, given Amazon’s unique ability to cater to the ‘crisis’ shopping mission. A customer in Manchester, England placed an order for jewellery, women’s perfume and a PlayStation console at 10pm one Christmas Eve and had it delivered by 11pm. Amazon is not only satisfying customers but perhaps saving some marriages in the process!
The two other shopping missions that Prime Now caters to are gifting and top-up grocery, the latter of which is becoming more popular in markets such as the UK. According to Jason Westman, UK Head of AmazonFresh and Prime Now, in order to cater to the ‘for tonight’ shopping mission, Amazon is pushing its cut-off times to later in the day. In some UK postcodes, shoppers can order as late 4pm and still have their order arrive that evening. ‘Time is becoming a more important commodity for everyone’, he said in 2018.37
We’ll discuss the mechanics behind Prime Now later in the book, but for now it’s important to understand the immediate impact it had at Amazon and on the wider market. Within a year of its Manhattan launch, Prime Now was rolled out to over 30 cities – primarily in North America but also London, Milan and Tokyo. By 2016, Prime Now was running in more than 50 cities in nine countries around the globe. It was even used as a vehicle for new market entry; in 2017, Amazon launched in Singapore with Prime Now.
Of all of Amazon’s grocery services thus far, Prime Now has hands down been the most disruptive. The price wars have been replaced by the time wars, with many supermarkets around the globe now scrambling to offer same-day delivery. This has had an impact on even the most advanced online grocery markets like the UK. Despite holding less than a 2 per cent share of the British grocery sector at the time of writing, Amazon has been a phenomenal catalyst for change when it comes to delivery speed. Since the launch of Prime Now:
The UK grocers, we believe, were broadly reluctant to offer same-day delivery prior to Amazon’s incursion, as a) shoppers weren’t crying out for it and b) it added unnecessary cost and complexity. But Amazon let the genie out of the bottle and now there’s no putting it back.
As with voice-shopping, Amazon ignited a new trend in same-day delivery, altering shopping behaviour and expectations to such an extent that some competitors have begun turning to Amazon’s very own infrastructure in a bid to stay relevant. It’s not just Morrisons and Booths in the UK that sell via Prime Now; Amazon has inked similar supply deals with many national and independent grocers around the world including Dia in Spain, Fauchon and Monoprix in France, and Rossmann and Feneberg in Germany, to name just a few. Meanwhile, a long-standing supply agreement with US natural food retailer Sprouts was unsurprisingly terminated in 2018 after the Whole Foods acquisition – Sprouts has teamed up with Instacart instead.
At the moment, these partnerships are essential for Amazon because, despite their many innovations, Amazon is still not seen as a credible food destination. What good is the infrastructure without a compelling range of stuff? These supply deals, and the Whole Foods acquisition which we’ll come on to shortly, give Amazon instant brand recognition and credibility in the competitive grocery category and, crucially, allow Amazon to learn more about how to sell food online.
But this brings up an important point. If Amazon’s plan is to differentiate in grocery as it does in non-food – through product choice and convenience – then it needs to take on a host role. It needs to be the gateway to other retailers and brands; it’s the marketplace, the infrastructure. In non-food, we’re seeing more and more retailers succumb to Amazon’s platform because of its undeniable reach. After years of resistance, brands such as Nike have given in to Amazon. In theory, Amazon could have done the same in grocery – but then they bought Whole Foods Market. At some point, they’ll need to decide whether they want to be the supermarket or marketplace.
1 Stone, B (2013) The Everything Store: Jeff Bezos and the age of Amazon, Bantam Press, London.
2 Anonymous (2017) The challenge of selling toys in an increasingly digital world, eMarketer, 19 September. Available from: https://retail.emarketer.com/article/challenge-of-selling-toys-increasingly-digital-world/59c169efebd4000a7823ab1c [Last accessed 19/6/2018].
3 Walmart (2017) Thomson Reuters Streetevents edited transcript: WMT – Wal-Mart Stores Inc 2017 Investment Community Meeting, 10 October. Available from: https://cdn.corporate.walmart.com/ea/31/4aa1027b4be6818f1a65ed5c293a/wmt-usq-transcript-2017-10-10.pdf [Last accessed 19/6/2018].
4 Kowitt, Beth (2018) How Amazon is using Whole Foods in a bid for total retail domination, Fortune, 21 May. Available from: http://fortune.com/longform/amazon-groceries-fortune-500/ [Last accessed 19/6/2018].
5 Harris, Briony (2017) Which countries buy the most groceries online? World Economic Forum, 6 December. Available from: https://www.weforum.org/agenda/2017/12/south-koreans-buy-the-most-groceries-online-by-far/ [Last accessed 19/6/2018].
6 ibid.
7 Bowman, Jeremy (2018) Walmart thinks you’ll pay $10 for grocery delivery, The Motley Fool, 18 March. Available from: https://www.fool.com/investing/2018/03/18/walmart-thinks-youll-pay-10-for-grocery-delivery.aspx [Last accessed 19/6/2018].
8 NPR/Marist (2018) The Digital Economy Poll, June 2018 [Have you ever bought fresh groceries online?] The Marist College Institute for Public Opinion, Poughkeepsie, NY: NPR [distributor]. Available from: http://maristpoll.marist.edu/wp-content/misc/usapolls/us180423_NPR/NPR_Marist%20Poll_Tables%20of%20Questions_May%202018.pdf#page=2 [Last accessed 19/6/2018].
9 Walmart (2017) Thomson Reuters Streetevents edited transcript WMT – Wal-Mart Stores Inc 2017 Investment Community Meeting, 10 October. Available from: https://cdn.corporate.walmart.com/ea/31/4aa1027b4be6818f1a65ed5c293a/wmt-usq-transcript-2017–10-10.pdf [Last accessed 19/6/2018].
10 ibid.
11 Kowitt, Beth (2018) How Amazon is using Whole Foods in a bid for total retail domination, Fortune, 21 May. Available from: http://fortune.com/longform/amazon-groceries-fortune-500/ [Last accessed 19/6/2018].
12 ibid.
13 Millerberg, Spencer (2018) Amazon Grocery Year in Review, Clavis Insight, 16 January. Available from: https://www.clavisinsight.com/blog/amazon-grocery-year-review [Last accessed 19/6/2018].
14 Chambers, Sam (2018) Britain’s robot grocer is coming to the U.S., Bloomberg, 15 June. Available from: https://www.bloomberg.com/news/articles/2018-06-15/britain-s-robot-grocer-ocado-is-coming-to-the-u-s [Last accessed 19/6/2018].
15 Wilkinson, Sue (2017) How my weekly grocery shopping habits relate to U.S. grocery shopper trends, Food Marketing Institute, 25 July. Available from: https://www.fmi.org/blog/view/fmi-blog/2017/07/25/how-my-weekly-grocery-shopping-habits-relate-to-u.s.-grocery-shopper-trends [Last accessed 19/6/2018].
16 Kowitt, Beth (2018) How Amazon is using Whole Foods in a bid for total retail domination, Fortune, 21 May. Available from: http://fortune.com/longform/amazon-groceries-fortune-500/ [Last accessed 19/6/2018].
17 ibid.
18 ibid.
19 O’Brien, Mike (2018) Google, Amazon and the relationship between paid search and ecommerce, Clickz, 29 March. Available from: https://www.clickz.com/google-amazon-paid-search-ecommerce/213753/ [Last accessed 29/6/18].
20 Kowitt, Beth (2018) How Amazon is using Whole Foods in a bid for total retail domination, Fortune, 21 May. Available from: http://fortune.com/longform/amazon-groceries-fortune-500/ [Last accessed 19/6/2018].
21 Bensinger, Greg (2015) Rebuilding history’s biggest dot-com bust, Wall Street Journal, 12 January. Available from: https://www.wsj.com/articles/rebuilding-historys-biggest-dot-come-bust-1421111794 [Last accessed 19/6/2018].
22 Anonymous (2001) What Webvan could have learned from Tesco, Knowledge at Wharton, 10 October. Available from: http://knowledge.wharton.upenn.edu/article/what-webvan-could-have-learned-from-tesco/ [Last accessed 19/6/2018].
23 ibid.
24 Bluestein, Adam (2013) Beyond Webvan: MyWebGrocer turns supermarkets virtual, Bloomberg, 17 January. Available from: https://www.bloomberg.com/news/articles/2013–01-17/beyond-webvan-mywebgrocer-turns-supermarkets-virtual [Last accessed 19/6/2018].
25 Anonymous (2001) What Webvan could have learned from Tesco, Knowledge at Wharton, 10 October. Available from: http://knowledge.wharton.upenn.edu/article/what-webvan-could-have-learned-from-tesco/ [Last accessed 19/6/2018].
26 Barr, Alistair (2013) From the ashes of Webvan, Amazon builds a grocery business, Reuters, 16 June. Available from: https://www.reuters.com/article/amazon-webvan-idUSL2N0EO1FS20130616 [Last accessed 19/6/2018].
27 Ocado website. Available from: http://www.ocadogroup.com/who-we-are/our-story-so-far.aspx [Last accessed 19/6/2018].
28 Barr, Alistair (2013) From the ashes of Webvan, Amazon builds a grocery business, Reuters, 16 June. Available from: https://www.reuters.com/article/amazon-webvan-idUSL2N0EO1FS20130616 [Last accessed 19/6/2018].
29 Amazon press release (1999) Amazon.com announces minority investment in HomeGrocer.com, Amazon, 18 May. Available from: http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=502934 [Last accessed 19/6/2018].
30 Barr, Alistair (2013) From the ashes of Webvan, Amazon builds a grocery business, Reuters, 16 June. Available from: https://www.reuters.com/article/amazon-webvan-idUSL2N0EO1FS20130616 [Last accessed 19/6/2018].
31 Kowitt, Beth (2018) How Amazon is using Whole Foods in a bid for total retail domination. Fortune, 21/5. Available from: http://fortune.com/longform/amazon-groceries-fortune-500/ [Last accessed 19/6/2018].
32 Anonymous (2016) AmazonFresh expands to Chicago, Dallas, Progressive Grocer, 26 October. Available from: https://progressivegrocer.com/amazonfresh-expands-chicago-dallas [Last accessed 29/6/18].
33 Amazon press release (2007) Amazon.com’s grocery store launches new Subscribe & Save feature allowing automatic fulfillment of most popular items, Amazon, 15 May. Available from: http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1000549 [Last accessed 29/6/18].
34 Sheehan, Brian (2018) The key to a winning Amazon ad strategy? Go big everywhere else, Ad Week, 2 February. Available from: https://www.adweek.com/brand-marketing/the-key-to-a-winning-amazon-ad-strategy-go-big-everywhere-else/ [Last accessed 29/6/18].
35 Paul Clarke, CTO of Ocado, speaking at Salesforce event in London, 2016.
36 Kowitt, Beth (2018) How Amazon is using Whole Foods in a bid for total retail domination, Fortune, 21 May. Available from: http://fortune.com/longform/amazon-groceries-fortune-500/ [Last accessed 19/6/2018].
37 Amazon UK Analyst Briefing, London, July 2018.
38 Macadam, Dan (2018) Can supermarkets really deliver in a day? BBC, 4 February. Available from: https://www.bbc.co.uk/news/business-42777284 [Last accessed 29/6/18].