‘I would agree that for a lot of retailers, whilst they’ve put up a great fight, ultimately working with the likes of Amazon is probably a good way to tackle the digital space.’
Marcus East, former Marks & Spencer executive, 201810
Some are even opting for Team Amazon. As we’ve touched on throughout the book, more retailers are turning to Amazon for their scale and expertise, risking the Trojan Horse element of such partnerships in return for a rapid upscaling of their digital offers. Others, meanwhile, are adamant that teaming up with Amazon is not in their playbook. ‘We hate Amazon’, said Tarsem Dhaliwal, MD of UK supermarket chain Iceland, in 2018. ‘They’ll bully us and do horrible things to us. They’ll use us; we don’t want anything to do with them.’11
Table 7.1 Co-opetition: more retail brands are leaning on Amazon
|
Amazon offering |
Retail Relationships |
Former Retail Relationships |
Nike, Under Armour, The Children’s Place, Chico’s FAS, Adidas, Calvin Klein |
||
Amazon Lockers |
Rite Aid, 7-Eleven, Safeway, Gristedes, Repsol, dm, Edeka, Aldi, Morrisons, Co-op |
Radioshack, Staples |
Prime Now |
Morrisons, Booths, Dia, Monoprix, Bio c’Bon, Fauchon, Rossmann, Feneberg |
Sprouts Farmers Market |
Alexa integration |
Peapod, Ocado, Morrisons, Dominos, Gousto, JD Sports, AO.com, B&H Photo, Woot |
|
Amazon Pop-Up |
Kohl’s |
|
Amazon device kiosks** |
Best Buy, Shoppers Stop |
|
Amazon Returns |
Kohl’s |
|
Amazon-powered stores |
Tuft & Needle, Calvin Klein |
|
Collaboration on exclusive product/service |
Best Buy (exclusive line of smart TVs); Sears (installation of Amazon tyres at its auto centres) |
|
AWS |
Brooks Brothers, Eataly, Gilt, Made |
NOTE Examples (list is not exhaustive)
SOURCE Author research, as of mid-2018
* Items from these brands were available on Amazon.com
**Unlike Pop-ups, device kiosks are not staffed by Amazon employees
CASE STUDY Knowing when to concede defeat
Tesco closed its Tesco Direct marketplace in 2018. This was the most transparent admission of defeat to Amazon; Tesco Direct was, after all, designed to compete with the behemoth head-on by replicating their marketplace format, extending Tesco’s product range beyond the confines of their superstores and Tesco.com offering. But if there is one rule in retail today, it’s this: you cannot out-Amazon Amazon.
Aside from racking up loyalty points on big-ticket purchases, there was very little incentive for shoppers to choose Tesco Direct over Amazon. Tesco’s site in comparison was confusing and full of friction. Pricing was inconsistent, it lacked product recommendations and reviews, and the range was neither broad nor compelling enough to make it the go-to destination for general merchandise. Let’s not forget that many shoppers today begin their product search not with Google but with Amazon.
Tesco Direct was loss-making and contributed very little to the top line, providing a cautionary lesson that can be learned from Amazon: admitting failure and swiftly moving on. Offering 94 types of treadmill online won’t help Tesco to retain its title as the UK’s largest food retailer. There’s no time for costly distractions when Amazon is on your doorstep. Tesco will be far better off merging grocery and non-food onto one platform, as some competitors did several years ago, and then focusing on logical category extensions to mirror what shoppers would find instore.
The Direct business joins a growing graveyard of Tesco brands including Giraffe, Euphorium, Harris + Hoole, Nutricentre, Hudl, Blinkbox and Dobbies. What was once considered business-critical diversification is now seen as a pricey distraction. Tesco Direct won’t be the last of management’s culls as they continue to tighten their focus on food by offloading non-core assets. There is, after all, only room for one ‘Everything Store’.
Days after the announcement of the Whole Foods acquisition in 2017, Natalie published the following prediction:
Whole Foods Market branding [will] be significantly reduced or disappear altogether once Amazon establishes trust and credibility in its fresh food offering. This isn’t going to happen overnight. Right now, Amazon needs Whole Foods for a number of reasons: strength in perishables, brand equity, overlap in customer base, not to mention bricks and mortar presence. But Amazon’s current grocery offering – think AmazonFresh, Prime Pantry, Subscribe & Save, Prime Now – is convoluted and ripe for consolidation. In the future, if Amazon is truly going to make its mark in grocery it will need one cohesive message both online and instore. This must be centred around Prime, which has become the gateway to Amazon’s most sought-after services.12
It has been over a year since that initial prediction and the authors stand by this claim. Some might disagree – after all, Amazon bought Whole Foods for its brand! But we believe that by 2025, Amazon will have cracked grocery. By 2025, its grocery offering will be seamlessly linked across online and offline channels. By 2025, Amazon will have a scalable supermarket concept which it will export globally, transforming the way consumers around the world shop for food.
We also believe, as per our initial prediction, that Amazon’s grocery strategy will be underpinned by Prime. Could we see Whole Foods supermarkets rebranded as Prime Fresh in the future? Could AmazonFresh and Prime Pantry become obsolete? We think so. One thing is for sure – Amazon will continuously refine its grocery strategy until it finds the right model for growth.
So what has changed since that 2017 prediction? Within months of the acquisition closing, the retailer scaled back its AmazonFresh services in nine states. The focus rightly shifted to Prime Now which, as discussed previously, Amazon has been aggressively rolling out across Whole Foods stores. We believe the combination of Whole Foods’ physical infrastructure and Prime Now’s delivery logistics that enable two-hour delivery will allow Amazon to genuinely disrupt the status quo.
Behind the scenes, the AmazonFresh and Prime Now divisions merged following the Whole Foods acquisition. But from a customer’s point of view, there’s still a lot of confusion. In her 2018 article, ‘Amazon is still sorting out its grocery strategy’, Bloomberg journalist Shira Ovide illustrated this complexity with the example of buying something as straightforward as butter:
If a Prime subscriber in Dallas wants a pound of Whole Foods brand butter delivered, he could order it from Whole Foods and an Amazon courier would bring it to his door. In Boulder, Colorado, where Amazon doesn’t have its own delivery option, the butter buyer is directed to set up an account with Instacart.13
In Philadelphia, meanwhile, shoppers can have the same item delivered from Whole Foods or AmazonFresh, while in New York, shoppers can buy a couple of dozen different butters (but not the Whole Foods brand) from Prime Now.
Clearly, Amazon’s management have their work cut out for them. The short-term complexity can be excused as they integrate Whole Foods and figure out how to do bricks and mortar, but in the longer term, Amazon will need to have a far more coherent grocery strategy.
1 McGregor, Jena (2017) Five telling things the Whole Foods CEO said about the Amazon deal in an employee town hall, Washington Post, 20 June. Available from: https://www.washingtonpost.com/news/on-leadership/wp/2017/06/20/five-telling-things-the-whole-foods-ceo-said-about-the-amazon-deal-in-an-employee-town-hall/?utm_term=.1e861128178f [Last accessed 11/7/2018].
2 (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].
3 Meyer, Robinson (2018) How to fight Amazon (before you turn 29), The Atlantic, July/August issue. Available from: https://www.theatlantic.com/magazine/archive/2018/07/lina-khan-antitrust/561743/ [Last accessed 11/7/2018].
4 McGregor, Jena (2017) Five telling things the Whole Foods CEO said about the Amazon deal in an employee town hall, Washington Post, 20 June. Available from: https://www.washingtonpost.com/news/on-leadership/wp/2017/06/20/five-telling-things-the-whole-foods-ceo-said-about-the-amazon-deal-in-an-employee-town-hall/?utm_term=.1e861128178f [Last accessed 11/7/2018].
5 Lovelace, Berkeley Jr. (2018) Amazon could double Whole Foods’ customer base with Prime perks: analyst. CNBC, 25/6. Available from: https://www.cnbc.com/2018/06/25/mark-mahaney-amazon-could-double-whole-foods-customer-base-with-prime.html [Last accessed 11/7/2018].
6 Levy, Nat (2017) How Amazon’s $13.7B purchase of Whole Foods is a ‘blessing in disguise’ for Instacart, Geekwire, 10 October. Available from: https://www.geekwire.com/2017/amazons-13-7b-purchase-whole-foods-blessing-disguise-instacart/ [Last accessed 11/7/2018].
7 Rovnick, Naomi (2017) Ocado dismisses fears of increased competition from Amazon, Financial Times, 5 July. Available from: https://www.ft.com/content/f48fecac-6151-11e7-8814-0ac7eb84e5f1 [Last accessed 9/7/2018].
8 Levy, Nat (2017) How Amazon’s $13.7B purchase of Whole Foods is a ‘blessing in disguise’ for Instacart, Geekwire, 10 October. Available from: https://www.geekwire.com/2017/amazons-13-7b-purchase-whole-foods-blessing-disguise-instacart/ [Last accessed 11/7/2018].
9 Guest commentary.
10 Dawkins, David (2018) Marks and Spencer told to team up with Amazon to save retailer as stores close, Express, 20 June. Available from: https://www.express.co.uk/finance/city/977070/amazon-uk-marks-and-spencer-m-and-s-high-street-online [Last accessed 11/7/2018].
11 Key, Alys (2018) Iceland Food rules out deal with Amazon as Food Warehouse attracts new customers, City AM, 15 June. Available from: http://www.cityam.com/287618/iceland-sales-heat-up-food-warehouse-attracts-new-customers [Last accessed 11/7/2018].
12 Berg, Natalie (2017) 3 Predictions: Amazon and Wholefoods, LinkedIn, 21 June. https://www.linkedin.com/pulse/3-predictions-amazon-whole-foods-natalie-berg.
13 Ovide, Shira (2018) Amazon is still sorting out its grocery strategy, Bloomberg, 12 June. Available from: https://www.bloomberg.com/view/articles/2018-06-12/amazon-whole-foods-anniversary-sorting-the-groceries [Last accessed 11/7/2018].