BrainTrust Query: Is Amazon.com’s Grocery Beta a Harbinger of Trade Promotions to Come?
By James Tenser, Principal, VSN Strategies
My email a few days ago included an unusual offer from Amazon.com – a $10 promotional credit on a purchase of $29 or more worth of Harmony snacks.
I confess to being a bit jaded about marketing matters, but this one stopped me for several reasons: First was the designation “Grocery” at the top of the page. Second was the message indicating that I was targeted because I had “purchased food or books on hiking, camping, or surfing in the past.” Third was the co-marketing nature of the promotion.
I reached for another handful of trail mix and whipped out my magnifying glass.
I soon discovered that this promotion marked a soft launch of Amazon.com’s Grocery beta. There’s been no press release or announcement. “Beta” means it’s almost ready for a formal launch but subject to a few tweaks based on early user experience.
A company spokesperson confirmed that the non-perishable grocery offering is new and distinct from the gourmet products offering that has been available from Amazon.com for some time. Grocery orders are fulfilled like most other categories of goods – from Amazon.com’s own U.S. distribution centers – and delivered via the standard methods used for books, toys, CDs and the 30 or so other categories it offers. About 10,000 items are offered, many in large package sizes. Gourmet products are handled separately through partnerships with several retailers.
A look at the Grocery tab (click here to view) reveals some nifty features, including easy browsing by brand or category, shopping list functionality, and a grocery “best-sellers” list. The shopping list works with three other Amazon consumables categories: Beauty, Gourmet and Health and Personal Care. A scan of the best-sellers showed various disposable diapers in 12 of the top 20 slots. The Amazon spokesperson said this can change hourly, depending on site activity.
I also noted with interest several other branded promotions that seemed designed to promote stock-ups. Two separate deals for Lipton Tea and Annie Chun food products, like the Harmony offer from my email, both had high hurdle rates of $29 to attain the $10 promotional benefit. There was also a promotion on Pampers, Luvs and Kandoo baby products – spend $99 now and get $30 off a future purchase. Seems like that might partly explain the best-sellers list.
Moderator’s Query: What do we make of this latest tributary to Amazon.com? Will it be a competitive threat to other retailers? Which ones? How will consumers
accept targeted email trade promotions based on prior purchase behavior? Will Amazon shoppers be sufficiently motivated by store credits rather than price breaks?
As a long-time watcher of the online grocery sector, this one fascinates me. In some ways it resembles Netgrocer.com from 1990-2000, as it offers only non-perishable
products and ships by third parties.
But it’s different too: Amazon’s Grocery beta is designed for affluent bulk shoppers, like the well-heeled folk who load their SUVs up once a month at Costco
with household staples by the case. Who else buys $21 worth (4.5 lbs.) of organic granola at one time?
This group may be motivated by future store credits as promotional rewards if they expect to spend those credits on books or future consumables. But offers
like these also pre-suppose a loyal relationship with Amazon.com. Until Amazon cracks the code on delivering perishables too, it will be dealing with split shoppers – with divided
loyalties. – James Tenser – Moderator
“It seems that no idea ever becomes so discredited that someone isn’t willing to give it another try.”
John White wrote that in his book “The American Railroad Passenger Car” (a nifty book….and available, of course, at Amazon.com), and it sums up my sentiment on this latest effort.
To Bill’s point, Amazon’s great advantage is the ability NOT to think like a grocer, but to approach grocery sales like an online retailer. What this alludes to is the development of a new set of buying occasions that take advantage of the convenience and organizational benefits that the online technology can provide.
However, I’m not seeing much of that happening yet. We know what conventional grocery store buying occasions are like: the regular weekly trip; the “What’s for dinner?” trip; the fill-in trips in between. For club stores, it’s typically a monthly stock-up occasion. Consumers are conditioned to these occasions and write the appropriate shopping list for each without much thought.
But the online grocery experience is not clearly defined in terms of occasion. Am I stocking up? Just browsing for bargains? Looking for unusual items? Amazon needs to develop marketing that creates occasions that make sense to online shoppers: the “send a care package to the dorm” occasion; the “ship a week’s worth of food to the mountain cabin” occasion; the “build a gift basket” occasion. You’re not going to get that many of these occasions from each household, but they reach an awful lot of households compared to most grocers.
This is interesting to me because it ties into a conversation I had at UConnect with a fellow from the “World’s Foremost Outfitter,” Cabela’s. I must confess, I was not familiar with Cabela’s but the thing that intrigued me was that they are “reverse engineering” their organization. As a long time catalog and internet retailer, they are just beginning to put brick and mortar locations in place. They have many years of experience with analyzing customer purchase data to manage their business. Site selection for them has been an exercise in analyzing their data against the highway and infrastructure capabilities in the areas where they might put stores. The results have been fantastic, with one store opening actually shutting down the Pennsylvania Turnpike. Even the Governor’s limo was unable to get there in time for the ribbon cutting.
There is no doubt a lot is to be learned from historical data and the internet companies are far ahead of the brick and mortar stores in their ability to both accumulate data and extract actionable information. I think more of them will begin to use this information in their business planning to expand revenues, not only into new categories, as Amazon is doing, but into the “real world” of brick and mortar stores. It will be interesting to see how well they do.
Amazon.com is a bookstore. Bookstores sell books. Sometimes bookstores sell music, and maybe they also sell little electronic gadgets and other tschotkes that book (and/or music) lovers might find interesting as impulse purchases. But bookstores do not sell diapers. That is not what bookstores do. Amazon.com needs to stop thinking that it is anything but a bookstore, because it is a bookstore.
Amazon believes they can be a department store selling almost every category. Amazon can be a marketing portal for “full service partners” (companies that can bill, inventory, and ship on their own) and Amazon can also act as the retailer themselves. The overwhelming issue: where’s the profit? It’s awfully hard to make money selling discounted groceries since the margins are low while the logistics costs aren’t. It’s easy to gain volume, but many investors are skeptical of Amazon’s ability to make a decent return on its investment. One big cloud: everyone knows that starting a business often requires money-losing promotions. But how can Amazon make money after the grand opening period?
This will be interesting to watch, as Amazon can do for retailing what many bricks and mortar retailers won’t – focus on the sell rather than the buy. Arguments will be made all day about margins and logistics but two things about this model may work to Amazon’s benefit- superior selection, where the consumer will pay more because there is nowhere else to buy the item, and the consumer pays the freight. Sure, Amazon will have discounts and a program that discounts shipping for a fixed annual fee, much like Costco, Blockbuster, Barnes & Noble and Best Buy have premium programs for an annual fee. That’s where the discounting will most likely be, since traditional retail store labor will be reduced significantly by ordering in case lots, having pick & pull teams in the 10 warehouses (non union?), and the gross margins could be comparable.
This has been cited as “long-tail retailing” elsewhere and Amazon could be the largest supplier of the 60% of items that do not generate the bulk of sales for most CPG concerns today.