Category Archives: omnichannel

Is Amazon’s bid for Whole Foods a big blunder, or another brilliant Bezos strategy?

In the past couple of weeks, the news from the United States has been filled with headlines about Amazon’s pending acquisition of Whole Foods.

Amazon’s current bid for Whole Foods is the largest acquisition deal attempted by far. CEO Jeff Bezos is paying a premium price ($13.7bn USD) for a marginally profitable retailer who has not been growing. And the price may go higher if other suitors consider higher offers for Whole Foods in order to block Amazon’s acquisition of a nationwide retail food store chain.

As omnichannel shoppers continue to seek convenience of home delivery, a major obstacle has been the vexing problem of the “last mile” – moving quality fresh food from the warehouse to the customer’s house. Will this be the magic marriage that enables Amazon to leapfrog the competition? Or is Amazon’s move to owning stores a recipe for failure by reaching too far beyond its core business?

In this piece, we explore the pros and cons of the Amazon deal with a perspective by Context’s Global Managing Director Adam Simon, and omnichannel strategist Chris Petersen.

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Reasons why Amazon’s acquisition of Whole Foods is a recipe for failure – Adam Simon

  1. Amazon’s business model is ecommerce, not running stores

Amazon has built a tremendously successful model based upon online ecommerce. It specializes in warehouse, distribution and logistics to deliver items directly to consumers. Aside from a couple of pilot stores, it has no experience, team or systems in place to turn around a chain of 440 bricks and mortar stores with relatively flat growth and marginal profitability. Rather than be saddled with a retailer’s legacy systems and real estate, Amazon would be better off growing its own version. Or it could have acquired a chain with smaller format stores which would have better fitted the click and collect model.

  1. Whole Foods is upscale pricing and not consistent with Amazon’s strength for the masses

The standing cliché is that when people shop at Whole Foods they spend their whole paycheck. By design, Whole Foods offers very unique items and fresh organic foods at premium prices. Amazon is aggressively competing with Walmart in the US who is focused on the mainstream and value pricing. Whole Foods product range and high prices do not offer Amazon a competitive advantage in acquiring stores with broad customer appeal. Whole Foods brand and pricing is also inconsistent with Amazon’s own “Fresh” approach already in market.

  1. Mixing Amazon and Whole Foods cultures are like oil and water

Previous Amazon acquisitions like Zappos were designed to expand categories (shoes and apparel) but were also consistent with and built upon Bezos philosophy of “customer first” and ease of use. It’s not that Whole Foods is anti-customer, but the stores and culture were built around product differentiation and segmentation. The management philosophy and pay scales of Whole Foods are quite different from Bezos’ empire in Seattle.

Why Amazon’s acquisition of Whole Foods is brilliant retail disruption – Chris Petersen

  1. Bezos is investing for 2024 … the play for Whole Foods is not about grocery stores

If you follow Jeff Bezos the CEO of Amazon, he operates with a long-term vision. He has discussed how teams are in the process of planning the first half of 2024 today. Dennis Berman from the Wall Street Journal perhaps best summarized the Whole Foods acquisition:

“Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does.”

To underscore the value of an Amazon total integrated play, Whole Foods 440 stores gives Amazon to refrigerated warehouses within 10 miles of the about 80% of the US population. That kind of reach goes a long way of delivering fresh food the last mile to your door.

  1. Whole Foods enables Amazon to rapidly disrupt with its ecosystem

The Whole is greater than the sum of the parts [pun intended] and the parts of the Amazon ecosystem are formidable. Amazon has 100 million Prime members. Imagine what they could offer Prime subscribers in terms of preferred discounts and services in 440 stores. Amazon just announced a $20 version of an Alexa device built for ordering food and getting recipes … a perfect recipe for the Whole Foods concept and persona of fresh and organic.

  1. A core category of all households and the Prime subscription model is “food”

Half of Walmart’s core business is food and consumables, and it drives more than 100 million customers through its doors every week. It makes perfect sense why Amazon would buy grocery stores as opposed versus another type of retailer. As far as Whole Foods notoriously high prices, Amazon is the world’s best at shrinking supply chain costs and negotiating with suppliers. What better way to launch retail stores than to go after a category that drives weekly traffic and is synonymous with a subscription model augmented by Alexa and Dash reorders.

The future of retail is “hybrid”. Bricks and mortar retailers have been racing to build an online presence. Ecommerce realises the need to build a physical presence to complete the customer experience and establish an outpost for the last mile, especially in categories like food.

Will the Amazon big bet of 13.7 billion USD on grocery stores pay off? Chances are we won’t have to wait 7 years to find out. The “food wars” are already underway and we have a ring side seat.

It’s a great time to be a consumer! A very challenging time to be a retailer bridging both the digital and physical world.

 

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Filed under omnichannel, Retail, Retail in CONTEXT

Reflections on DISTREE EMEA 2017

When the IT channel gathers in Monaco for DISTREE in February it is always good to get some winter sunshine, not just from the balmy Cote d’Azur weather, but also the opportunity to meet up with panellists, clients and new tech companies.

This year there was a strong distributor focus, and the keynote, delivered by Chris Petersen , our strategic partner, was a look at what distributors need to do to benefit from the omnichannel revolution. Chris challenged the audience provocatively with a tombstone showing that on 14th February 2017, traditional retail died. What is the significance of this date? It was on this day that Warren Buffett, the legendary investor, sold almost all of his WalMart stocks. The WalMart stock has been languishing for years now, as the company is incapable of catching up with Amazon on ecommerce. Their total of $13bn online sales is equivalent to the growth which Amazon puts on every year.

Chris elaborated on 5 areas where distributors can contribute. Here are two key ones:

  • The last mile represents 40% of costs – how can distributors help with logistics support such as drop shipment, and inventory management.
  • The long tail is the chosen strategy of ecommerce and particularly online marketplaces, which are big competition for distributors. What can distributors do to help retailers increase the breadth and depth of categories which they hold.

In addition, CONTEXT had a workshop slot, and presented a deep dive on three emerging technology areas – Smart Home, VR and PC Gaming. There is a thirst for understanding all these areas, as evidenced by the full house of those attending the talk. Of all of them, the theme which cropped up throughout the three days was PC Gaming. In the CONTEXT presentation there was a very visual presentation of the need for deep analysis in this area, with a slide showing two Asus models. One was a Republic of Gaming model, evidently a gaming machine.

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Adam Simon, Global MD – Retail, CONTEXT

The other was a “business” laptop, but when you dig into the specifications you can see that it is also gaming capable. The channel needs to understand the total market if it is to develop the gaming category, and that is where the CONTEXT categorisation is very useful.

Finally, we were asked to take part in a panel on Brexit. All 4 UK participants had been pro-Remain and are all now pragmatic if concerned about the future. We are delighted to see additional investments recently announced by tech companies in the UK, and look for an interesting competition between the hardware strong France and the software strong UK.

by AS

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Filed under Connectivity, Home automation, omnichannel, Retail, Retail in CONTEXT, Smart Home, Smart Technology

2017 Tech Retail Trends – Omnichannel Transformation

 

Omnichannel is critical, but 40% of retailers say that they are not yet getting an ROI on their omnichannel investments

At its CES breakfast in Las Vegas, two retail CEOs presented their view of omnichannel transformation in Europe, and CONTEXT delivered the highlights of the Omnichannel Retail Survey it conducted in December 2016. The responses from 31 European technology retailers, two-thirds of them in the C-suite, illustrate dramatically the transformation of retail to omnichannel.

While the focus last week in Las Vegas was on new products, CONTEXT hosted a CES breakfast on selling technology products in an omnichannel world. Retailers clearly recognise the critical importance of omnichannel transformation – 90.3% of responses to the CONTEXT survey said that omnichannel is critical or very important to their business, but 40% also said that they are not yet getting an ROI.

“Consumers are already omnichannel, but very few retailers are, because it is really hard and expensive to become truly omnichannel,” said Oliver Meakin, CEO of Maplin, as he opened the session. “Service and advice will be the key areas of differentiation in technology retailing in the future, coupled with good old retail-tainment – people like going shopping, and, therefore, omnichannel – rather than pure clicks – will ultimately win through.”

While the investments are substantial, they appear to be worthwhile. Retailers responded that they know they have to do it. 96.8% responded that they are transforming themselves to adapt to customer behaviour. The expectation is that omnichannel customers will engage more often, purchase more, and potentially add more items to their market basket. And yet, when CONTEXT asked the top tech retailers if omnichannel customers were more profitable, the verdict was not clear:
• 40% of tech retailers said yes, omnichannel customers are more profitable
• 30% said no, omnichannel customers are not more profitable
• 30% said they do not know

This mixed set of responses is indicative of two factors. Major omnichannel investments are relatively recent, so perhaps there has not been time to measure results. Additionally, it can be challenging for retailers to measure total customer relationships across time and channels.

“Do the consultants on omnichannel realise how difficult it is?” asked Hans Carpels, President of Euronics International, Europe’s second-largest tech retailer. Mr Carpels highlighted as an example the difficulty of setting up an omnichannel returns process with stores who are not the beneficiaries of that particular online sales.

There are no end of processes which need to be addressed in order to make omnichannel work. As Dr Chris Petersen, keynote speaker and retail expert said, “The whole is greater than the sum of the parts. You may have a great click-and-collect experience online, but if you wait for ten minutes to collect your goods, or the wrong product has been picked, that one piece breaks the whole experience.”

The reality is that is that transformation to omnichannel is happening in retail. It is significant that 19.4% said that they are well prepared for omnichannel, 74.2% said that they are making considerable progress and only 6.4% owned up to being not ready.

Clearly, other than sales from social media, the majority of retailers are now offering enormous variety in how they fulfil customer orders, whatever this may cost them.

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The level of complexity is evident from the different areas of investment which retailers have made. Systems integration tops the list, as it is essential to develop the web interface and link the POS system with logistics and CRM. Only returns management scored low, with just over 20% of retailers having added new internal or external resources in that area.

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Our key takeaways

It is clear that omnichannel is not just the new normal for customers, but for retailers as well. There are some clear trends and calls to action for 2017. In the retailer transformation to omnichannel:
• Retailers will continue to invest in omnichannel but will have to manage programmes closely to ensure that they get the ROI on it, or they risk seriously weakening their financial position.
• We expect that omnichannel retailers will gain competitive advantage by increasing the number of categories and SKUs held online – in the survey, 80% said that they have already significantly increased the number of SKUs.
• Retailers will manage the inventory implications of omnichannel fulfilment by partnering with third parties such as distributors.
• Omnichannel success will be not based on one thing, but rather a collective enterprise approach involving merchandising, systems, technology, and logistics.
• Consumers do not think in terms of channels: they view their path to purchase as a seamless experience across their customer journey. As a consequence, the term omnichannel itself is no longer accurate. In 2017 omnichannel will become omniretailing.
It is a great time to be an omni-consumer and a very challenging time to transform to become an omni-retailer!

For more information about the CONTEXT Retailer Omnichannel Survey please email asimon@contextworld.com

oliver-meakin-2Oliver Meakin, CEO of Maplin speaks at CONTEXT Retail CEO Breakfast at CES, 6 January 2017

By AS

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Filed under IT Distribution, omnichannel, Retail, Retail in CONTEXT