Is Amazon at it again, remaking retail in their own image.

Is Amazon at it again, remaking retail in their own image.

Mar 11, 2019 | Innovation, retail, Strategy

Amazon launched their ‘Dash’ button in 2015 in an experiment with Procter and Gambles Tide detergent, the monster of the category in North America. It is a one touch, one product order and delivery system that has succeeded, expanding to a range of 350 Sku’s in the middle of 2017 (latest numbers I could find)

Now Amazon  has withdrawn the Dash button from ‘service’. I guess the role played by the buttons is being overtaken by voice operated loyalty systems, largely Amazon Prime and Alexa, and on top, they were recently declared illegal in Germany for breaching consumer laws.

Killing off a successful service that was still growing at a very fast rate, but that was being replaced by a newer set of technologies is a logical move, but one only a company with the power of Amazon, who also owned the replacing technology space, would contemplate.

Clearly, Amazon  is now a technology and data business first, and being a retailer, where they started, is a very long second. 

They know more about many of us, our habits, preferences, and foibles than we know ourselves, and have that knowledge stored for analysis, retrieval and action by emerging AI functionality. They also know that we are not looking for a wide range of choice, despite what we say, that just confuses us and actually reduces purchase. We instead want certainty. 

Put all that together with the now 472 FMCG Distribution locations (450 in the US) Amazon has via the purchase of Whole Foods,  and you have the potential for Amazon to anticipate what we might buy, shape it by adding usage tips, recipes, and thoughtful additions, all in a box that delivers to your door. It combines operational and logistic efficiencies with maximum margin to Amazon while wowing customers.  

Suddenly the withdrawal of the dash button makes more sense than ever, as in the supply chain of the very near future, it would have been just another point of friction.

Meanwhile, Coles and Woolies are tarting up their Deli sections in stores my now three year old granddaughter will probably never visit to do her shopping as an adult.

 

 

 

 

 

 

 

Where is the gap to be filled in retail?

Where is the gap to be filled in retail?

Mar 8, 2019 | Customers, Marketing, retail

The range of retail format options is huge and multifaceted.

At one end of the continuum you have pure on-line retailers,  to full service bricks and mortar retail at the other, and everything in between.

It is the ‘everything in between’ where the development is happening, and the opportunity lies.

Apple ‘Zigged’ when everyone else was ‘Zagging’ and spent a decade and billions of dollars opening retail stores. While they are now the most successful retailer in the world on a turnover/square foot basis, the reason was more about brand building over the long term than just retail revenue. Brilliant.

Amazon has been the catalyst to the on-line gold-rush, but you have to ask yourself are they are retailer, or a data business first? They started as a retailer, simply using a different channel, but to enhance their position they have evolved into a data company that uses on line channels to sell and deliver product.  With Amazon Go, they have combined bricks and mortar retail with their data capabilities, which can only become more important as they evolve their purchase of Whole Foods.

Meanwhile, B&M retail is either hunkering down, cutting costs, and generally moaning about how on-line sales are cutting their margins, or investing in their businesses, some by increasing service levels, others by setting about ‘digitising’ to compete.

Any way you look at it, the gap is in the middle.

That gap will be rapidly filled by deploying digital tools already available, or in development, based it seems on two rapidly converging technologies:

  • Facial recognition, powered by our on line profiles and pattern recognition software, and
  • Location definition powered by our devices and GPS.

Amazon Go is able to recognise and record stock movements from the shelf to your shopping basket, and back, as it happens, and debit your card with the purchase. It is a small step to use facial recognition as you approach a store, or product category while inside the store, and match that with your previous purchase patterns to make exclusive, and immediate offers to you tailored to your history.   You do not need to be Amazon go to deploy the second part of that scenario, you just need the facial recognition and location data connected to your purchase history, and perhaps purchase intent identified by browsing history.

This combination of location, facial recognition, purchase history and browsing patterns will be the game changer in the current gap.

The question to be answered is how we as members of the public and consumers feel about this complete exposure of what has been to date private. On the one hand we seem to want the convenience and immediacy it can deliver, but on the other, remain very wary of offering up our privacy to the unknown forces that can tap the data in ways never expected or sanctioned.

However, I suspect the horse has bolted, and the gap will rapidly  be filled!

Photo credit: Kristian Dye via Flikr

When price becomes almost irrelevant.

When price becomes almost irrelevant.

Nov 1, 2018 | Marketing, retail, Sales

Price is just an arbitrary scale for the ‘unquantifiables’ which has only two functions:

  • it is a reflection of the amount someone is prepared to sell something for.
  • It is a relative measure, helping you to make purchase choices by giving you and the seller a constant scale and language to reach an agreed point of exchange.

How often do you choose a restaurant because it is the cheapest?

You might decide to go Italian, or Chinese, then decide which one. You decide on a variety of factors, parking, quality of the food and service, are they licenced, who is it that is going with you, is it a special occasion or just a meal. The conversation in your mind goes on and on, often almost unnoticed.

Why is it then that we tend to make major commercial decisions on price?

Almost every  time I am involved with a client in a commercial purchase decision, one party or another uses price as a major point of choice and often leverage

Why?

Few people buy purely on price, and often you would not want them as a customer anyway, so why let them hammer you down?

Think about the value, what it is that the product or service is delivering, how it solves a problem, how it reflects the image to be projected,  how it fits in with everything else going on.

Price is just a means to come to a point where the value can be exchanged.

Value is what is important, price is just a way of converting value to a common language.

Next time you  are being belted about how high your prices are, agree, they are high,  but they deserve to be because of the value delivered.

Just talk about the value.

Talk persuasively about value, and price will become a result, not a driver of the decision.

The real challenge is to figure out how to do this in a situation where the other party has all the power.  A small supplier selling to one of the Australian supermarket gorillas has little leverage, the definitions of ‘Value’ will never be easily reconciled, so the hard choice is to walk away, and deliver value to  customers outside the supermarket system.

Header credit allanandallen.com

Future retail success will come from ‘Organic Intelligence’

Future retail success will come from ‘Organic Intelligence’

Oct 24, 2018 | Change, retail

 

There is some really interesting and contradictory stuff going on in retail.

On line shopping is continuing to expand at breakneck speed, so we are told. According to Statista.com the current percentage in Australia is 7.2%, but the percentage varies enormously from very little to an astonishing (estimated)  19% in China.

Small brands are being created, that rapidly become big brands, such as Shoes of Prey, that would not have been able to get off the ground pre internet, and bricks and mortar retail is struggling, going out of business at a rapid rate.

The latest casualty is Sears, the ‘Amazon’ of a former era, started in 1886 by Richard Sears, selling watches on the side of his day job as a railroad station manager. After the first catalogue was produced in 1896, to bring access to goods to the widely spread American population, Sears expanded geometrically. It was an entirely mail order operation, ‘analogue on line’ until the first store bricks and mortar store opened in 1925 adjacent to the distribution centre. The  following rapid spread of stores, saw the end of ‘Mum and Pop’ stores around the country, who could not compete with the range or prices that Sears offered.

Sound familiar?

Sears became a huge diversified business, accumulating a huge property portfolio as well as associated businesses and brands they owned, but it started to unravel in the mid 90’s, just as ‘Big Box’ retailers moved in, and the net evolved as an alternative channel.

Now we have Apple and Amazon investing billions in bricks and mortar stores, re-imagining them, but they are still bricks and mortar, and they are profoundly successful.  Apple, on a sales per square foot basis, the standard retail KPI, is the most successful retailer in the world. Amazon effectively acquired Whole foods for nothing, paying $US13.6 Billion for the chain, then seeing the share price rise in the following days by more than that amount on the back of the purchase. While Whole Foods is yet to make the expected profits, it is early days. On top of that you have Amazon bookstores and Amazon Go carving out a niche.

When the two most innovative and successful  retailers in the world double down on a business model, it might be worth a close look, and when it resembles an older model, but is clearly superior, that examination should be very thoughtful indeed.

The factor that has driven the success of Amazon, and all other on line retail, is Artificial Intelligence. The ability to write code that can trawl through mountains of data, identify patterns, and alter the output as a result of that recognition. They get better with use, but within the boundaries of the algorithms.  The factor that made Sears, and all other analogue retailers successful over the years, and has taken Apple to new heights, is the opposite side of the coin.

Organic Intelligence.

That ability of human beings to exercise empathy, and make connections an algorithm cannot yet make, and perhaps never will.

Apple and Amazon are learning to use both together,  and are streaking ahead as a result. Meanwhile, those legacy retailers who have not figured out AI are struggling, and more often than not, reducing their investments in Organic Intelligence as a short term means to reduce costs, so assisting in their own demise, as did Sears.

I wonder of any of the legacy retailers in this country will still be around in a decade?. To me it looks like the only one in the FMCG market that has demonstrated an understanding of the power of Organic Intelligence is Harris Farm.

 

 

 

 

 

What is the future of FMCG brand loyalty?

What is the future of FMCG brand loyalty?

Jul 16, 2018 | Branding, Marketing, retail

 

A few things have happened in the last few weeks that made me ask that question.

  • Coles MD John Durkan articulated a clear strategy for house brands, to build them at the expense of proprietary brands. I cannot help wondering if his successor will follow through.
  • I received a package from Amazon full of books, ordered in front of the new GST regime that came in on June 1, and it was covered with ads for Amazon Prime, which is now arguably the most successful loyalty program on the planet. At the time I was surprised, but then a day or two later, I realised they had launched in Australia.
  • Another small supplier to FMCG, a formerly successful business in a country town that had been around for 25 years, with a small but seemingly loyal consumer base, quietly packed it in. In the scheme of things a relatively insignificant event, unless you happen to be one of the people who have worked there for ages, and now find yourself unemployed and unlikely to be re-employed in your home town.

There is  no doubt the trend towards house brands across all categories of consumer spending will continue as retail supply chains become more transparent and global. Consumers are in a position to make judgements on the value they receive based on information from a variety of sources, not just on a label. Combined with the increasing necessity to pro-actively manage their spending, why would they not go for a cheaper item that delivered similar characteristics to a proprietary brand?

The driver of the change is digital. It is revolutionising the way consumers shop, by delivering them information that disrupts existing brand equity relationships. Consumers are now way less tied emotionally to brands, simply because they no longer have to be in order to feel confident about themselves and the quality they will get.

The ‘brand trust’ needed in the past has been replaced by access to information.

Retailers from FMCG to all forms of specialty retail see this. They are setting out to replace the consumer preference for product brands with a preference for their retail brand. Pretty much a strategic no-brainer when you think about it, but hard to deploy, simply because consumers do like some choice, and they recognise the retailers self interest in housebrands.

Mr Durkan points out that in some categories, the Coles house brands have a 50% market share, and seems to wrongly equate that number to consumer preference. In fresh produce, this number would be more like 95%, (I do not have numbers, this is a guess based on what I see) simply because Coles, (and Woolies) have not allowed proprietary produce brands onto their shelves, with very few exceptions, almost from the beginning.

This is not  driven by consumers, this is driven by  the strategy to capture the proprietary margin. If you are a shareholder, particularly of Woolies over the last decade, it has been a good outcome, but for a shopper, not so good. When was the last time you bought a plum in Coles that did not taste suspiciously like a cricket ball?

In FMCG retail, the driver of the change has not been digital, that is just an enabler, the real driver is Aldi, whose growth has hit the gorillas hard, and they have yet to find an answer. Aldi is a retailer, just like Coles and Woolies, but with a limited range, all housebrands, with a very few selected exceptions  like Vegemite and a few Arnott’s lines. This is not digital, it is a different business model, and neither of the gorillas has met Aldi on their own ground.

It is easy to be smart with hindsight, but here goes.

Woolworths responded to Harris Farm, and the move towards ‘specialty and fresh’ with Thomas Dux, initially very successfully, then screwed the pooch by not keeping it separate. Had they persisted, they could have built a very profitable and sustainable business, on a different platform to Woolworths.

The same opportunity offered itself in discount retail. It was not as if there were no precedents! I am old enough to remember ‘Jack the Slasher’ stores that stirred the pot  probably  35 years ago, Franklins, Jewel, and others. Discounters do work, they do attract customers. Aldi has just done it better than its forebears by eliminating transaction costs, and keeping overheads at a minimum.

The problem Coles and Woolies have is one of identity.

They are used to being all things to all people, and cannot conceive of a situation where consumers reject the idea. By eliminating proprietary brands, they are also eliminating one of the paths to differentiation and some level of intimacy with their customers, which will turn out to be a  bad mistake.

My view is that it is much harder now to develop a brand that builds and retains consumer loyalty than it has ever been, but then greater rewards will go to those who succeed. Those that do succeed will do so outside the ever decreasing  reach of the current retail gorillas, who will become increasingly challenged by both technology and new channels to the consumer.

 

What does the FMCG future look like?

What does the FMCG future look like?

Apr 27, 2018 | Customers, Innovation, retail

It is easy to be critical of just about anything, much harder to be constructive, and make suggestions about how to  change the things that attracted the criticism.

In my case, I have been critical of the retail gorillas, Coles and Woolworths for some time, specifically their capacity to change what appears to an outsider, to be their strategic priorities.

As a shareholder in both however, (via managed super rather than choice) I have been rewarded by the returns.

So, I am going to stick my neck out and make some observations, in no particular order, and would welcome feedback.

Delivery services.

Busy crowded lives seem to require a delivery service, and Coles and Woolies have dabbled in it with the delivery trucks we now see around. I have not used either, but several acquaintances have, several extensively, and generally just shrug with resignation at the inaccuracy, inconsistency and uncertainty involved, and wonder if it is worth it. Perhaps the order/pick-up combination will be the answer to the ‘last mile’ problem, as most of us have cars.

In the US there is a service called ‘Instacart‘ that appeared to be doing an ‘Uber’ on grocery shopping and distribution. In Australia, ‘Uber eats’ seems to be bobbing up everywhere, delivering from all manner of food service outlets. Shopping and delivering seems to be a small step to take, or just the delivery part after order assembly in store.

By contrast, Kaufland in Germany appears to have walked away from their on line grocery services, citing the costs of the ‘last mile’ making it unprofitable. This is in the face of Ocado in the UK seeming to go from strength to strength.

In summary, a lot of experimenting to do before the best model evolves, but the common element appears to be basket size. Encouraging on line shoppers of any sort to increase the order size makes some of the other problems less important. It is a standard retail metric, and even more appropriate for on line.

Digital marketing development.

Amazon has mastered the art of cross selling and using feedback to overcome the barrier of not being able to see, touch and feel products as you can in a bricks and mortar store. The current on line gorilla catalogues are just that, catalogues, little more. No cross selling, no recipes, no personalisation based on browse and purchase history, no seasonal suggestions beyond the digitisation of the generic  ‘shop now for Christmas’ stuff. With a few digital tweaks, the current catalogues look like the pages of Co-Op ads in the Wednesday afternoon  newspapers that used to be an important part of dealing with the gorillas.

Opportunity waiting?

Store automation.

Amazon has ignited retail with Amazon Go, poking into action all sorts of activity from the usual suspects as well as some unexpected places.

Hema supermarkets are quickly opening stores after 18 months of testing and development in a Shanghai pilot. Owned by Alibaba, the tech in these stores and the levels of service they offer will, or should concern the two Australian gorillas. Alibaba also has a pilot unmanned Tao coffee shop. I wonder at the quality of the coffee, but who would want to bet against that being commercialised?.  Another Chinese start-up called ‘Bingo Box‘ is planning unmanned convenience stores after a (reported) successful pilot in Shanghai taking Amazon Go type technology a step further.

It also seems obvious that there will be automation applied to the routine and labour intensive job of shelf filling, facing up, and highlighting offers of various kinds. Wal-Mart is experimenting with that idea in 50 stores, using robots to check inventory stock weight, location and pricing, and the other US retailers are not being left behind. Kroger is playing with mobile apps, to communicate offers, lists, coupons, and personalised messages, as well as scanning items in store to reduce checkout lines.

Supply chain automation.

Somebody, somewhere,  will apply Blockchain to the entire supply chain for a product. It will be  kicked off by a consumer taking a product from a shelf, being relayed back through the chain, creating production orders, invoices, inventory management, all ending up in an automated Kanban system at the store selling face, creating a genuine demand chain. The technology to do all this exists, in pieces, so putting it together will not be far off.

The only thing certain about the above thoughts is that there are many I have missed.

Photo credit; Mark Stevens via Flikr