Knowledge Bank Blog, Channel Execution

Amazon Disrupt Again

Are you looking forward not back?

So, Amazon has bought Wholefoods.

They paid a cool $13.7bn – their biggest acquisition so far.  It’s a big deal in the US, where Wholefoods have 400+ stores.  Indeed, after the announcement, Wal Mart’s valuation fell by almost as much as the sum Amazon is paying for Wholefoods.

Only Amazon knows the real strategic intent behind the deal, however, there seem to be 3 things it instantly does.  It gives them a decent foothold in the US grocery market.  It gives them a good store presence.  It gives them food credibility – packaged and fresh.

Whilst, this is a much bigger deal in the US at the moment, it could also be a pretty big deal in the UK in the next few years.  Competitors that UK retailers didn’t need to worry about too much could be key competition in the next few years.  The quality of the Wholefoods offer + the scale of Amazon can make that offer more accessible to UK shoppers.  Partly, in terms of reach – you may no longer have to live in West London to buy from Wholefoods.  Partly, in terms of affordability – Amazon has deep pockets and may well drive Wholefoods prices down.

However, this plays out, we think this is another big signal of a changing dynamic in our industry.

Firstly, that the old competition isn’t always the new competition.  Channels and categories continue to blur.  Channel blurring is taking place between traditional food retailers, food solution providers (e.g. Hello Fresh, Gousto) and restaurants.  Smartphones and fulfilment options (e.g. Deliveroo) are changing things significantly.  The question “what shall we have for dinner tonight?” has many more options.  As does the question “where shall we get it from?”.

Secondly, that the old advantages are unlikely to be the new advantages.  What do we mean?  Well, if you were a retailer, location used to be a key advantage.  It is still pretty important, but becoming less so over time.  As a brand leader you used to have the advantage of visibility, lots of shelf space, history, often limited serious competition.  However, in some channels these advantages are significantly reduced – brand blocks don’t really exist online.  In many categories, these advantages are being reduced.  Think Graze in snacking challenging the status quo.  Think Craft beer taking space and listings from big brands.

So, how can you survive and thrive in this changing environment?

Know who your real competition is.  This may not be who you typically thought about.  It may be smaller, emerging players in your category.  It may be players outside of your category who are competing for the same consumer need (e.g. snacking, refreshment, breakfast, meal for tonight).  It may be players who are tiny now.  Could Wholefoods/Amazon be Waitrose’s biggest competitor in 10 years time?

Know how to beat them.  What can you do differently to the competition?  It is likely to be one of three things.

Be cheaper.  For instance, the Aldi proposition means that they have to be cheaper than the competition.  There are other benefits to shopping there – a simple shopping experience, over delivering on quality for the price paid, finding new and different things – but, fundamentally, they differentiate by being cheaper.  It works for them.  Of course it won’t work for everyone.

Be easier.  Convenience has always been key to shopping.  But, even more so now.  Shoppers have been trained to expect it.  This means being convenient to use – product and pack formats.  It means being more convenient to buy – different selling models.  For instance, Amazon are rolling out Dash Buttons to more brands.  One press and you have reordered.  If you set up a Graze subscription, you effectively buy once, then you don’t have to think about it again.

Be better.  It has never been more important to deliver better products and experiences.  This can be functional benefits – performance, taste, health.  Or it could be emotional – Ben & Jerry’s make great ice cream, but there is also an emotional benefit to buying it.

Of course, if you can do two of these things, you have even more chance of winning.  For example, Nespresso delivers easier and better.  And it has worked pretty well for them.

Tell shoppers about it.  You’ve heard us talk about this a lot before.  We talk about it a lot, because it is so important.  Whatever your main reason to buy, make it clear to shoppers on all key communication.  Then communicate it consistently.  If you don’t, there is nothing for shoppers to fall back on when the next new competitor comes in to challenge you.

So many industries are changing.  The old competition is no longer the new competition.   The old advantages are no longer the new advantages.

Don’t look in the mirror.  Keep your eyes on the road ahead.

Feel free to forward.  Have a great weekend and speak to you next week.