When its founder and CEO Jeff Bezos, started Amazon in Seattle back in 1995, the team were using second hand computers and operating out of a garage. Yet despite these humble beginnings, the ambition to dominate was clearly there early on for it was not by accident that Bezos named the fledgling company after the mighty River Amazon.
The Amazon is enormous. It isn’t the longest river in the world (a close second after the River Nile), but it discharges more water than any other, has more tributaries and has the largest watershed. Bezos’s ambition was to build a bookstore on a scale similar to that of the company’s namesake. In fact what they have done is build the worlds biggest online market place and the dream of building the world’s largest bookstore is now firmly in the rear view mirror.
Whilst it was the publishers and book shops (both bricks and mortar and online) that once saw Amazon as the bogeyman, for some years now it’s been the retailers in a huge range of sectors from electrical goods to sports, gardening, clothing (and just about anything else you can sell) that now fear the creeping beast. Amazon USA stocks nearly 500 million individual products far more than its rivals such as the far longer established companies such as Walmart in the USA and Tesco here in the UK who have moved online.
One of the key features of Amazon’s model has been to keep sales growth as a priority with revenue in 2015 of over $100 billion according to Statista whilst maintaining a low or negative profit levels.
The second key feature is to not remain focused on one particular market but to grow in all the markets they operate in. Right back when the company began it was an online bookstore. Then it became famous for its electrical retailing as well as books. Then more general goods became popular as we’ve already mentioned and now the sights are set firmly on groceries and media. Both these areas are undergoing seismic shifts thanks to the ability to order groceries for delivery and stream film and TV content.
Traditional television broadcasters have for a few years now been developing their own online presence whilst keeping an eye on the likes of Netflix and the other new wave media players as they encroach on their turf. Terrestrial broadcasters and Netflix though now have Amazon Prime to worry about.
With the ability to invest heavily in specific content an example being their version of the BBC hit show Top Gear boasting a £160 million budget, success is predicted and along with that success, growth. We have until the Autumn to see how much of a magnet effect this will have, drawing in viewers and therefore Amazon Prime customers. If programmes like Amazon’s motoring show complete with Clarkson and co, are a hit then surely subscribers to Prime will grow.
Amazon Prime & The Pantry
Convenience is lets face it one of the things that customers of Amazon have always enjoyed. The ability to open up the website, tap your product search in then compare and select before paying and sitting back to wait for your purchase to be delivered can be done in minutes. No more planning a shopping trip, traipsing from one shop to another, paying for parking and all that.
Amazon’s development of Amazon Prime in 2007 gives their members for an annual subscription access to: fast deliveries (one day for all customers and one hour in certain major cities via Amazon Prime Now); a wide range of streamable music; e-books and films and now groceries.
Like the media giants who were used to battling with one another for market share, the UK’s big four of ASDA, Morrisons, Sainsburys and Tesco have a war to fight on various fronts. Firstly there are the discount supermarkets – Lidl & Aldi gradually chipping away at their market share, and then there’s customers moving away from one big shop to convenience shopping and now Amazon Pantry. The product range available via their online Pantry Service stands at around 4000 with this set to grow thanks throughout 2016/17 thanks to strong initial sales.
A partnership with Morrisons announced in February this year means that Amazon Pantry will stock fresh goods as well as their existing lines of non-perishable big brands. In the USA, Amazon Fresh is available in some of the large cities so the move to offering a similar service in the UK is based on this experience. Customers already using the grocery delivery service are going to like it as yet again it makes their life easier. Online groceries sales in the UK are still modest at only 6.3% of the total market but with the arrival of Amazon it is unlikely to make this sector’s growth slow down. Quite the opposite in fact as once Amazon moves into a market survival for the existing occupants becomes a major issue.
Buttons & Drones
Amazon Pantry customers need not worry anymore about running out of their favourite brand of tea (or over 100 other leading branded products for that matter) as they can now set up ‘Dash Buttons’ in their home or workplace. Once they’re connected with your Amazon account and synced to your Wi-Fi network, you can literally at the press of a button order your preferred type of coffee, crisps, washing powder (the list goes on). 10 seconds holding the button is all it takes and the order goes through and a product delivery is arranged and dispatched. The buttons can be stuck with their adhesive pad to a cupboard door, fridge (or just about anywhere that children can’t reach!) making it the next step in Amazon’s drive towards convenience and efficiency for their customers.
Meanwhile in the skies above our heads it seems we may soon be seeing the products that Amazon customers order whether it be from their mobile, laptop, tablet or button arriving via drone. In what was initially seen as a clever PR stunt, they are progressing with plans to develop a programme of autonomous drones capable of delivering products within as little as half an hour after an order has been placed. 10 years is Amazon’s timescale for the skies to become dotted with these little flying robots but like their other innovations so far, it’s likely to only improve their market share thanks once again to making life easier for their customers.
Where all this leaves everyone else is a moot point with the only certainty being that Amazon will continue to invest heavily in innovation and will seek to grow their market prescience. History has shown that this strategy works for them and that people decades before Amazon was created like convenience (remember ‘all under one roof’ supermarkets and their crushing of small shops in the 20th century?)
But Amazon has weaknesses that can be exploited. Customer service, individual relationships, niche products, specialist knowledge, green attitudes and localness are not no matter how hard Amazon tries ever going to be as good as that offered by the independent businesses. These gaps are there for the taking. In my opinion anyway, the most interesting feature of Amazon’s rise is that they have taken on the big retailers in the USA, Europe and beyond and are winning or forcing them into partnerships but the little players can survive as long as they too are willing to adapt. Warnings abound however of what can happen in retail if success is taken for granted. Amazon doesn’t rest on past successes and in retail no one can, just look at the list of disappearing UK high street brands once figureheads of UK commerce.
Amazon is a threat to all retail companies in a wide variety of sectors and only time what will tell how this plays out and the type of retail landscape that is created if they continue to try to squeeze out the big players. No one in the right mind would recommend trying to compete head to head against Amazon but tiny organisms live alongside enormous whales in our oceans. Can the retail ecosystem evolve over the coming years to allow the same, or is the future for retail a bleak place unless your name happens to be Jeff Bezos?