The most sobering nugget of information came at the end of a presentation entitled “Competing for the E-Commerce Space” at the Western Michigan University Food Marketing Conference, held March 25-26.
Amazon will have same-day delivery in probably two-thirds of the U.S. within the next two years, according to Tom Furphy, CEO and managing director of Consumer Equity Partners, whose past experience includes senior roles at Wegmans as well as VP of consumables and AmazonFresh, Amazon.com’s grocery delivery service.
In the past two-and-a-half years, Amazon has built, expanded or announced plans to construct facilities in several states—Texas, Arizona, Indiana, Washington, Tennessee, New Jersey, California and South Carolina, among others, are getting new or expanded facilities. Amazon now has a physical presence in nearly every major metropolitan area in the U.S.
AmazonFresh has been available in Seattle since 2007. Very soon, the grocery delivery service may go from that limited availability and prolonged testing phase—which to many proves the difficulty of the business model—to other regions in the U.S. and ultimately nationwide.
The former Amazon employee believes that the opening of new facilities in San Francisco and Los Angeles is a signal that wider availability is coming. “Knowing the way Amazon operates, they’re doing that because they’re happy with where Seattle has gone,” Furphy said.
He and Kevin Coupe, founder of the grocery trade blog morningnewsbeat.com, discussed that potential, as well as where a business model that disrupts the traditional grocery industry could come from and how “crude implementations” of data soon will be more subtle and complex.
Furphy said AmazonFresh began as a “very traditional—if there is such a thing—online grocer, in that we owned all the product.
“They’ve actually evolved the model to be a little less about them being the purveyor of the fresh product into leveraging a network of local merchants,” he said. “It’s more of a fulfillment model as opposed to a direct grocery model.”
It could be similar to Amazon Marketplace, where third-party sellers offer products via Amazon’s infrastructure. By allowing multiple sellers to offer products in a category, Amazon boasts a much broader inventory than could be warehoused in its own facilities.
“When you get into a new category, you can only ramp your own assortment so quickly,” Furphy said. “If you’re letting in a new category, and then you enable multiple sellers to come in and sell products in that category, you can quickly get to legitimate size-wise in that category.”
It also creates price competition as multiple sellers offer the exact same SKU on the exact same Web page.
When including the third-party sellers, Amazon actually is a much bigger business than it seems, Coupe said. According to Furphy, if Amazon says it’s a $70 billion company, it actually is selling more like $160 billion in total retail volume.
Amazon is now using other retail sites, like convenience stores, to offer its Amazon Locker service. Items can be delivered and held at the “locker” until the shopper can pick them up.
“It does drive traffic to the 7-Eleven, the Staples, and they certainly hope they can leverage that traffic,” Furphy said.
Grocery is not immune
Coupe asked whether it would make sense to create stores where shoppers only interact with fresh foods. Furphy said entrepreneurs are working on that model.
“Taking today’s generation store and adding a pickup and delivery capability to the store, but taking out of store aisles is very inefficient, and actually once you get really good at it, once you get up to maybe 20 percent of your store volume done for pickup or delivery and you’re picking out of the store, then it really degrades the store experience, so you’re kind of cursed by your success,” Furphy said.
But CPGs could benefit from such a model because it would allow them to offer products beyond what supermarkets now sell. It would eliminate space constraints and manufacturers could go deep into product offerings, giving consumers more choices.
“I think there are real opportunities, and in 10 years, our industry will look much different than it does today,” Furphy said. “It just will. If you look at all the retail categories that have already been knocked down and disrupted by e-commerce, there’s no way that we’re immune to that. The bar is much higher in this business because of margin structures and the nature of the product and the way people are used to consuming and shopping for it. But it will evolve. There’s no doubt about it.”
Coupe wanted to know whether Furphy thought this new model would come from inside or outside the industry.
Furphy said three years ago he would have said that the industry is still holding on to the traditional model and would go down kicking and screaming.
“Everybody is recognizing that something is going to happen, and they don’t want to just sit and let it happen to them,” Furphy said. “I think the biggest innovations will ultimately come from the industry…and, frankly, they’re in a much better position to do it than an incoming disruptor.”
Those disruptors wouldn’t have the customer or brand relationships that retailers enjoy. Furphy believe brands and retailers will work together to develop a new model themselves.
“I think that’s really, really important at this point,” he said. “If I’m on the retailer or brand side, I really want to be thinking, ‘How can I disrupt myself while enabling my current business to continue to grow?’ Basically take a clean sheet of paper and ask, ‘What can my business look like in two years?’”
Sad but true: less insight, more formulas
Furphy said the traditional notion of insight, which has been very valuable to retailers, will give way to formulas.
“This is sad, but it’s true,” Furphy said. “There’s a real science now of linking these data and these actions to these outcomes…the traditional notion of insight actually just becomes data elements integrated within this experience. Any time you interact with a product electronically, that can be captured and ultimately leveraged. The amount of data that is out there is exploding, so the capabilities to use that data also are exploding.”
The science of the digital path to purchase is something, “an infinite loop,” he said. “You can enter that loop in many different places, and it really is all about data.”
Coupe asked those in attendance who were over age 25 how many were concerned about privacy, and then asked those under 25 to answer the same question. The outcome was predictable. Younger people are more likely to give up privacy to get a good deal and better service, while older, “digital immigrants” are more concerned about keeping their purchases, online searches and recent travel destinations to themselves.
When Furphy’s work moved him from traditional merchandising and marketing to Amazon’s customer data, widgets and engines, he said it felt more “like a computer science class, not a marketing class.”
The way data has been used in retail has so far been “a very crude implementation of the digital path to purchase,” Furphy said. He used his own purchase of a plane ticket from Alaska Airlines and the subsequent bombardment of ads from the airline as an example.
“I booked it. Be smart. Know that I booked it. Just give me another ad,” he said. “But we’re going to get so far beyond that it’s actually going to be relevant. It’ll be effective.”