WHY IT MATTERS: Digital Transformation

WHY IT MATTERS: useful survey from ATN on digital adoption in QUEBEC. For context (and a good laugh) see this presentation from Sergei Brin of Google in 2000 at Wireless World.

https://www.wired.com/2014/05/brin-mobile-2000/ 

This was the basis for their acquisition of Rubin in 2005.

https://en.wikipedia.org/wiki/Andy_Rubin

Interesting question: what technology are we hearing about today that will actually be everywhere in 20 years? blockchain? VR? AR? metaverse? quantum? Pretty tough to predict. I put my money on blockchain + AR.

WHY IT MATTERS: membership programs are popular and this report provides a number of good reference numbers.

WHY IT MATTERS: Prime has 200M members worldwide, 143M in USA. Interesting to see what people use it for - but the survey hides an important fact: the real value of PRIME for Amazon.

I wrote about the value of PRIME in the past but this increase warrants a review of previous numbers. Back in 2016 when "only" 48M members, this report valued PRIME at 143B$.

www.vox.com/2016/10/5/13175272/amazon-prime-valuation-worth-143-billion-cowen-report

Also more here: blog.fmcs.digital/?q=amazon+prime

WHY IT MATTERS: No surprise, Amazon dominates eCommerce in Canada and Amazon PRIME appears to be a major reason why (if you have prime then you more inclined to spend on Amazon to recoup your investment). But online grocery is a tough nut to crack and traditional retailers lead in that category.

I predict that in the future Amazon will give traditional grocers a run for their money if they do not invest in:

1) reducing cost of pick-pack-delivery via automation and robotics,

2) becoming marketplaces to attract consumers and deliver more than food products (think dry cleaning, meals, and other low margin / high volume products) and

3) converting their store real estate to improve service over merchandise (think Apple store more than Walmart). 

To do so this may mean that their shareholders will need to support this massive investments and tolerate lower benefits and EBITDA...

WHY IT MATTERS: I've been writing for years that Amazon prime is a cash cow for Amazon if only because prime members spend 2x to 5x more on Amazon than other clients. Should be a no brainer. Similar comment for Starbucks mobile app payment which has been hugely popular and huge source of revenues.

For more see here:

https://www.scoop.it/topic/digital-transformation-of-businesses?q=starbucks

WHY IT MATTERS: delivery is the final frontier in eCommerce and Amazon has made it a lot more expensive for retailers to compete. Who else has a network of distribution centers like this? Walmart? Kroger and other large grocers? They should invest in marketplace technologies to let smaller retailers leverage their distribution network because otherwise, HOW ARE SMALL RETAILER GOING TO COMPETE AGAINST AMAZON?

Once this battle is won by Amazon the last remaining blocker will be last-mile delivery and here UPS-FEDEX-USPS-CanadaPost-etc. are not making moves to cut down on costs so the land is open for a cost effective solution to emerge. Self driving cars? maybe? bringing back the milk runs? maybe.

Any ideas or solutions that come to mind?

WHY IT MATTERS: I reported in the past that Prime programme has a total value of 143B$ (http://sco.lt/8ot9NJ). These updated numbers show that growth continues outside the US. Expect Amazon to leverage its membership programme to wall-in its clients and protect it from competition. Tough road ahead for other retailers as Prime members will be looking to stay with the brand.

WHY IT MATTERS

Amazon has been innovating on all fronts but it appears that their prime loyalty program may be the most powerful tool they have in their arsenal. This blog post has tons of very useful metrics about the Prime programme. Other retailers should take note.

WHY THIS IS IMPORTANT

I rarely comment on news unless they have the potential to mark an inflection point. I believe this is one of those news because it brings Amazon 400+ prime store locations and a grocery footprint to propel its Amazon Fresh service. 

WHY THIS IS IMPORTANT

eCommerce Achille's heal is delivery cost - the last mile. Any company that solves this problem wins the eCommerce game. Amazon has been experimenting in this field for years and it looks like some are really popular with customers and beneficial to Amazon. Case in point: Amazon Prime members spend 5x more than other consumers because they feel shipping is "free". Amazon grocery delivery will put thousands of trucks on the road effectively making delivery cost marginal for Amazon. And here, with repetitive restocking, delivery costs can be reduced by shipping in bulk and high volume.

WHY THIS IS IMPORTANT

A key piece of eCommerce and retail has to do with delivering packages from warehouse to customer homes or offices. Amazon spends 12% of its revenue for shipping and is expected to ship more volume than FedEx in 3 years. To reduce this cost and improve customer service by allowing more frequent and faster delivery, Amazon has been doing a number of things:

1- putting trucks on the road with its AmazonFresh grocery delivery service;

2- building delivery infrastructure between its warehouses and distribution centers and delivery spokes;

3- now it is planning to become a broker between small parcel delivery providers in a UBER like model (this article)

4- self-driving vehicles have been targeting trucking industry as their primary focus, with UBER recently investing in startup OTTO and demonstrating a 2000 case beer delivery via self driving truck

Combine all these innovations and you have a profound disruption in the delivery and logistics industry. Retailers should now consider Amazon no longer as an online marketplace and third-party logistics company (3PL) but also as a parcel delivery solution provider that can compete FedEx and UPS provide last-mile delivery solutions and eliminate the need for retailers to maintain or lease their own delivery vans and trucks.

Links in this post:

• amazon net shipping costs 4.7% of revenue: http://fmcs.digital/blog/new-e-commerce-strategies-threaten-ups-fedex/ 
• amazon total shipping costs 12% revenue: http://www.beyonddevic.es/2014/02/03/amazons-prime-problem/  http://www.wsj.com/articles/amazons-newest-ambitioncompeting-directly-with-ups-and-fedex-1474994758 
• amazon fresh trucks: http://sco.lt/7i9FbN 
• self-driving truck: http://fmcs.digital/blog/tesla-brings-self-driving-hardware-to-its-entire-fleet-see-the-video-for-a-glimpse-into-the-future-of-driving/ 
• amazon competes fedex: http://fmcs.digital/blog/jeff-bezos-amazon-wont-compete-with-fedex-and-purolator-usps-i-dont-believe-him/ 
• FBA 3PL: http://fmcs.digital/blog/27-tips-on-how-to-build-fba-strategy-via-cpcstrategy/ 

Take a minute to watch the video. This is the future of retailing.

WHY THIS IS IMPORTANT

Amazon has disrupted many industries with its online business. Recently, as other digital leaders have done, Amazon is trying to bring digital revolution in the world to blend our physical and digital experiences - think Google self driving cars, Starbuck mobile phone payment and geofencing app, Apple stores that are more showrooms and help centres than stores because eCommerce is there to fulfill orders to your door, etc.

Amazon has been focussed on grocery for the past 10 years to use this weekly recurring, low cost, high volume shopping trip to the supermarket as its pathway to bring digital into the real world and blend it with online e-commerce.

With Amazon Fresh for examples they have been busy putting trucks on the road to deliver groceries to your door overnight with minimal costs. Why grocery? Because its high volume guarantees that trucks will be on the road everyday in all areas. And once trucks are running around carrying groceries they can also bring other items - books, TVs, etc. - at little or no cost, effectively making FedEx irrelevant or at least giving Amazon huge negotiation power.

I wrote about this in many blog posts, just see here: http://www.scoop.it/t/digital-transformation-of-businesses?q=amazon 

Here with Amazon GO, it addresses some of the major pain points of customers in grocery stores: waiting in line at the cash register. As they've done online, Amazon focusses on its customer issues to smash them or make them so irrelevant that they are not issues anymore. See "amazon secret sauce" for insights on this: http://sco.lt/979c4P

Take Amazon Prime for example. It addresses the delivery fee issue: we do not want to have to pay for delivery. So they make it a non issue, providing 2-day delivery for free for an annual fee. Side effect: if you've paid for prime, then you spend up to 5x more at Amazon (300$ annually for average client, 1500$ for prime member), basically becoming a loyal shopper. Wow.

Back to Amazon GO and why it is important. The grocery industry has not seen a major disruption since Costco started top sell grocery in bulk format years ago - grocers ost 10% market share with that new player in the field. But today, grocery stores are the same, the layout is the same, the process is the same than it was 50 years ago. There has been little or no innovation in stores recently (last one may be the barcode in 1970s) but GO shows that there may be a perfect storm of technologies that combine to make physical stores transformation a reality:

1- mobile phones are on every customer back pocket;

2- electronic payment is everywhere, making cash almost irrelevant;

3- loyalty programs and big data allows retailers unprecedented customer knowledge and forecasting trends;

4- artificial intelligence enables real-time image analysis, feature detection, and robotic improvements.

From the concept store video and the Amazon description, all that GO is doing is applying these new technologies on a new problem set: adding and removing items to shopping basket and speeding the checkout process.

Of course, at the end of the day, the winner will not be the grocer with the best technology. It will be the one with the lowest prices and the best selection (best marketing and customer service won't hurt either). On those fronts (price & selection) Amazon GO faces huge headwinds from established grocers that have long standing relationships with suppliers and way more volume than Amazon. But it does not mean Amazon cannot provide customers with a more enjoyable, easy, fast experience - especially to millennials - which may give GO 5% or 10% of the market (the "good" 5% by the way, those that spend more and spend on higher margin items) from established retailers. And this will hurt established grocers like hell.

Also see the analysis from business insider here: http://www.businessinsider.com/amazon-go-grocery-store-future-photos-video-2016-12/ 

and the plans for Amazon to open up to 2000 store in the future if GO concept works: http://www.businessinsider.com/amazon-2000-grocery-stores-10-years-2016-10

Millenials are shopping differently than older generations. They see the value that comes from eCommerce solutions. Retailers thus should rethink their business models along the lines that innovating companies such as amazon fresh do.

Here are the reasons this millenial calls "perks" for using amazon fresh vs. walmart or other grocers. Take note:

- High quality produce
- Similar, and sometimes better product offering (for me anyway)
- Rotating inventory of local restaurants and vendors
- Custom home delivery time (with $4 suggested driver tip)
- Tracks purchases and gives recommendations
- Amazon Dash uses voice and barcodes to track groceries
- Compatible with the rest of Amazon inventory
- Comes with Prime free two day shipping and Prime Video.
- Dedicated mobile app (no need for grocery lists anymore)

When you make eCommerce and digital your central focus, as I do, you look for key trends to guide your strategies and roadmaps. This data is one of those key trends. It means that people find Amazon Prime to be convenient and cost effective.

If you are setting up for eCommerce and are struggling with delivery fees you should charge, then this should be your guide: people will pay to get "free shipping", and when they do they will spend more than twice what others will. You, as a retailer, win on both fronts.

Amazon is by far the largest online retailer. If its shipping costs are growing, as they appear to be, all other retailers should take note as they should expect the same.

This analysis suggests that we have started to use Amazon to buy smaller products more often, which in turns cost more to be delivered compared to the price of the item. Thus the surge. This may indeed be right, as Amazon Prime cuts down on the incentive to increase basket size to get free delivery.

So for Amazon the solution may be to increase the Amazon Prime membership price, open physical stores (as they have announced) or accelerate its deployment of local distributiuon centers to get closer to customers - thus reducing delivery costs, and delays. Or do all three!

For other retailers, the solution may be as simple as keeping the minimum order size to a high enough value that ensures sufficient margin to account for the free delivery costs.