Does Amazon need bricks to make its online grocery business click?

Discussion
Source: Amazon.com
Mar 29, 2017
George Anderson

For all the mystique that surrounds the company, Amazon.com has encountered the same problems with its AmazonFresh service as others who have tried to tackle home delivery of groceries, according to a Bloomberg report. Perhaps the key to success for Amazon is not in bringing groceries to customers, but having them pick up orders placed online. The e-tailing giant is about to test that strategy with the official launch of its AmazonFresh Pickup service at two locations in Seattle.

Amazon bills the new service as a convenient way to order and pick up groceries. The service is currently in beta mode and is available to Amazon employees only. Following its test phase, AmazonFresh Pickup will be offered as an exclusive, free perk to Prime members. Amazon has been reported to have roughly 50 million members in the $99 annual subscription program.

Orders place for pick up can be ready in as little as 15 minutes after being placed, according to Amazon. Customers drive to the AmazonFresh Pickup location and park in designated areas where their orders are brought to their cars. Amazon says Prime members can choose from thousands of grocery products. There is no minimum order.

A recent report by Bloomberg cited a research paper by Vrajesh Modi, an engineering student who now works for Boston Consulting Group, that described problems with the AmazonFresh home delivery business including lack of demand, poorly trained employees, and issues with food quality.

DISCUSSION QUESTIONS: Do you expect that AmazonFresh Pickup will become the model for Amazon’s grocery business going forward? What do you think of the service being offered for free as an exclusive perk for Prime members?

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Braintrust
"This category is a strategic wedge for many other Amazon services so it may not even need to 'work.'"
"Just as real estate is critical to all of retail, it will take some time I believe for Amazon to find the right locations..."
"Amazon Fresh is incredibly expensive and unless you have money to burn, it won’t be a big hit."

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20 Comments on "Does Amazon need bricks to make its online grocery business click?"


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Lee Peterson
BrainTrust

Walmart’s already doing this, by the way. What makes live pickup important is the fresh component. At Walmart’s version, if you don’t like your bananas or your strawberries seem a little wonkie, you can switch them out on the spot. I’d imagine Amazon will do the same. That tactic mitigates, but doesn’t kill, the idea that you’re going to get crappy fresh goods when you BOPIS. In any case it’s a great test and, as usual, they’ll learn a LOT.

Jasmine Glasheen
BrainTrust

Convenience and innovation don’t matter if there are “issues with food quality.” Perishable food has to be on point for AmazonFresh Pickup to catch on, or customers will opt to order dry goods for traditional home delivery and shop a brick-and-mortar store for the rest. However, if AmazonFresh Pickup employees are trained to monitor the quality of perishable goods before they’re packaged and handed out to the customer, this could prove a very lucrative venture. It could be marketed as not only a time saver, but an economical way for customers to stick to the items on their shopping list, as opposed to potentially overbuying in-store.

Max Goldberg
Guest

I don’t think Amazon has settled on a grocery model and will continue to test and innovate until a profitable model can be found. If the research can be believed, Amazon fell into the same morass that has plagued past online grocers: problems with food quality, margins and consumer acceptance. I don’t think the answer will be free pickup for Prime members. And it certainly won’t be unless the company improves the quality of its fresh offerings.

Ricardo Belmar
BrainTrust

With grocery products freshness is key. Amazon is not alone in creating new pickup models for grocery customers. I suspect the main thing they hope to learn from this exercise is why the delivery model isn’t working for them. Maybe BOPIS is the answer, may it isn’t. I think the main issue for grocery is the perception by consumers that they won’t get the best quality food if they aren’t selecting it themselves. The question every grocery brand should be asking is, what’s the great pain point for customers? The shopping process through the store, or the drive to the store to buy anything? If customers want to avoid the shopping process and don’t mind driving to a location to pick up goods, then AmazonFresh Pickup should work well. If the primary pain point was the inconvenience of just going to the store, then delivery should have worked better!

Nir Manor
BrainTrust

It’s yet another experiment to gauge customers’ acceptance and analyze costs and benefits. I don’t believe this will be the ultimate solution to fresh food delivery because of quality issues and because it doesn’t offer full convenience to the customer who still has the hassle of going to collect their orders.

Kim Garretson
Guest
2 years 7 months ago

The unknown to me is location. Of course, Seattle has some of the worst traffic problems in the country. Does that mean that their locations may be another barrier to scale because customers who should like the convenience find inconvenience in getting there, say on a commute after work? Just as real estate is critical to all of retail, it will take some time I believe for Amazon to find the right locations that are truly convenient to the segment of customers it is targeting.

Ben Zifkin
Guest
2 years 7 months ago

Pickup will be only one of Amazon’s models to make grocery work. Grocery is a very difficult business. There are generally three things that can make it work when you roll out en masse in this vertical. Quality, unlike many other categories Fresh is very finicky. Convenience, rarely have companies been able to tackle in-store, pickup AND delivery. Scale, access to quality products fulfilled conveniently consistently and from anywhere. Amazon is positioned well to make it work.

This model can’t be looked at simply by whether or not it works for AmazonFresh but how it fits into Amazon as a whole. This category is a strategic wedge for many other Amazon services so it may not even need to “work.”

Gordon Grant
Guest

In the UK, the majority of our main grocery retailers have cracked the in-store, pickup and delivery models. Initially poor quality on fresh produce was an issue. An additional early issue was staff members making poor “substitute” selections when a product was unavailable. You’d ask for vegetarian sausages and they’d give you pork sausages as a substitute! However, the UK market has evolved now and the process is incredibly smooth for customers, many of whom dip into each of the three purchase models.

What are the two trial locations like in Seattle? Do they have ample free parking and do you have to wait long between arriving and leaving with your purchases?

Anne Howe
BrainTrust

Looking at data from a March 2017 monthly consumer survey (source: Prosper Insights & Analytics via MacrosSavvy Resource Network) — 91.8 percent of Amazon.com shoppers shopped for groceries in a physical store in the last 30 days versus 12.4 percent online.

Amazon has to figure out grocery based on what shoppers define as an unmet need. I wonder if they understand their shoppers or are just trying to win a game. This data would suggest that a brick-and-mortar presence might be essential, but the question is really about understanding why dedicated online shoppers prefer to shop in the physical retail environment.

Tom Redd
Guest

First — why the obsession with Amazon? Could retail-related press people just get off their obsession with Amazon? The obsession is over.

  1. Kroger has a great click and pick up program. You place the order and are told which pickup slot to park in and boom — they bring it to your car.
  2. Walmart has a good program too. Amazon is just a retailer seeking PR and everyone falls for it. Want fresh food? Stick with a good grocer/superstore with pre-order.
  3. Skip one week of Amazon coverage and learn more about money making retailers vs. high tech shops who happen to do cloud to support their retail profit.
Jon Polin
BrainTrust

Three ingredients are key for online grocery success: 1.) product inventory, including fresh and perishables, replenished regularly, 2.) proximity between that inventory and customers, and 3.) a brand. Without physical locations, Amazon only has one of the three.

Brandon Rael
BrainTrust

The in-person multi-sensory experience works especially well with perishable goods, particularly fruits and vegetables. Enabling customers to pick up their products and switch/exchange the produce items that may be bruised or of inferior quality is critical for this model to be successful. The key for Amazon is to perfect this during a “proof of concept” before rolling things out nationally. Key to Amazon’s innovations have been their ability to test them, perfect them and receive feedback from their already extremely loyal fan base.

Adrian Weidmann
BrainTrust

The entire grocery industry should be monitoring and tracking what Amazon does very closely. While Amazon will test, measure, iterate, refine and determine what works for Amazon, they will set the benchmark from which everyone else will be measured in the eyes of shoppers. While freshness, quality, location and a host of other challenges exist, Amazon knows that the $700 to $800 billion grocery market is the largest retail sector and they will keep innovating until they crack the code on the optimal way to combine online and the physical store for grocery.

Ross Ely
Guest

This approach will likely be successful with true Amazon fans, but will not attract the broader population. Most every grocery operator today is offering BOPIS options, and these grocers have built strong reputations for high-quality meat, produce and other items. Amazon will need to offer compelling reasons to lure shoppers from their favorite grocery stores; a standard BOPIS model will not be enough.

Shep Hyken
BrainTrust

The assumption is the product is what it’s supposed to be … good, fresh, high quality, etc. After that it is all about the service and convenience. Amazon has always focused on customer convenience and will figure out the best way to deliver that easy experience to the customer.

Thomas Becker
Guest
2 years 7 months ago

Consumers are beginning to cut cords everywhere and that includes the cord to the (current) physical store. Over time, the role of the store will transform as options for delivery and pick-up continue to improve — and this is another example of that.

While many companies are working their way out of the store — from store, to pick up, to delivery — Amazon is working their way backward from delivery, to pick up, to store. The difference is Amazon is transforming the status quo, and their model will continue to evolve, so I don’t think what we see today is what we will see tomorrow.

A recurring them I would address is quality, and I do not see this as a problem but as a medium for generating loyalty. Quality concerns are well known and because it is, retailers are implementing increasingly higher (zero-tolerance) standards and more impressive accommodations when a problem does arise.

Tony Orlando
BrainTrust

Amazon Fresh is incredibly expensive and unless you have money to burn, it won’t be a big hit. This is where brick and mortar can compete and unless Amazon is willing to hire real meat cutters, their prices will remain out of reach.

Shep Hyken
BrainTrust

The assumption is the product is what it’s supposed to be … good, fresh, high quality, etc. After that it is all about the service and convenience. Amazon has always focused on customer convenience and will figure out the best way to deliver that easy experience to the customer.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
2 years 7 months ago
It is all about options! Consumer shopping preferences are different for each individual and product category. We will continue to see retailers offering multiple customer journey models and the last stage in the journey, physical possession of the product, has multiple options for retailers and consumers. The AmazonFresh home delivery model has not been a success and moving to the “pick-up” model has some advantages. Having consumers pick-up their groceries saves the expense of home delivery for Amazon. While most grocery products are perfect for online ordering, there are a few product categories like produce and expensive meats that consumers what to see before they buy. Offering some products that consumers can hand-pick themselves when they pick up their online orders, is a great hybrid approach that gives consumers more choices. To accommodate the unique preferences of individual consumers, Amazon and other retailers will evolve to offer multiple options for consumers, as one size does not fit all and Amazon is not the only retailer doing this, but they seem to get all the press.… Read more »
Alexis Clarfield-Henry
Guest

Amazon’s continued expansion into brick-and-mortar with the launch of AmazonFresh Pickup reinforces the need for traditional grocery retailers to offer a full omni-channel experience that allows customers to shop anyway they want. Amazon has cracked the code on a convenient shopping experience and they’re quickly extending this into grocery. The result will be a redefined set of consumer expectations around how quickly and easily they can get their groceries — in whichever way they feel like shopping that day. And with 68% of online shoppers willing to switch grocers for a better digital experience, Amazon is starting to look like more and more of a real threat to traditional retailers.

Our advice? Move today and move quickly. Your brand likely already has great resonance with your shoppers, so now it’s about expanding your offering to give them what they want, and expect!

wpDiscuz
Braintrust
"This category is a strategic wedge for many other Amazon services so it may not even need to 'work.'"
"Just as real estate is critical to all of retail, it will take some time I believe for Amazon to find the right locations..."
"Amazon Fresh is incredibly expensive and unless you have money to burn, it won’t be a big hit."

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