The Amazon Challenge


The Amazon challenge poses the single largest threat to the grocery industry in the post WWII business era. Grocers have never encountered a formidable foe with the repertoire Amazon possesses. We are barely entering the initial phase of the disruption age, an era which Amazon has spurred rapid growth in the grocery and retail sectors while concurrently refining a treasury chest of competitive advantages that possess the ability of mass destruction across the industry.

Alexa is leading the user adoption race in the virtual assistant market, with an estimated market share of at least 70%, according to three separate reports. With Alexa, Amazon customers have two-way customer engagement 24/7/365 from any Alexa integrated device. While grocers and retailers might not be losing sleep tonight over the Alexa threat, new research indicates Alexa is more likely to recommend Amazon Prime products when customers virtually shop. To make matters worse, online grocery consumers are more likely to use or plan to purchase a smart home speaker, according to a new study. With online grocery sales estimated to reach $100 billion by 2025, grocers should be aggressively pursuing a virtual assistant integrated mobile shopping application of some sort to stay relevant in this digital age.

Amazon’s deadliest weapon to date may be under development. The Amazon Go automated store concept leverages such advanced technologies as machine learning, real time sensor monitoring, customer identification, and mobile cloud technology to automate the entire customer checkout process within a 1,800 square footage retail site. It is critical for Amazon to perfect it’s in store technology before scaling it to operate a full size supermarket. The New York Post reported that Amazon is considering launching supermarkets that would range in size from 10,000-40,000 square footage. These supermarkets would require only three FTE employees to operate, with the remaining labor conducted by robots and technological automation. Amazon Go’s technology is imperative in order for this future store concept to materialize.

Amazon is different than any other traditional grocery business model. The Amazon Web Services (AWS) division has reflected continuous annual revenue and earnings growth that have enabled the online grocer to easily absorb all losses attributed to their grocery sales, so long as market share continues to climb at the expense of traditional grocers. Legacy grocers do not have the luxury of relying on cloud computing revenue to keep the lights on. And most of these grocery stores cannot raise capital by selling bonds, just as Amazon accomplished with their $16 billion Whole Foods acquisition. Even with President Donald Trump recently taking aim at Amazon’s predatory business model, it is difficult to envision the United States government regulating a company that it is also allowing to bid on a winner take all multibillion dollar contract with the Defense Department. 

Every weapon within their technology war chest carries the magnitude of disrupting the grocery sector respectively. When you assemble the entire arsenal, the ammunition Amazon possesses carries all of the ingredient to impose industry wide mass destruction, victimizing every existing grocery chain within their path. Grocers need to embrace automation now, with a laser focused mentality of eliminating all non-value processes within their existing business models. The only means to accomplish this is through technological automation. Eliminating non-value processes recaptures financial savings that can be passed onto your customers or utilized for any business initiative that could benefit your organization. For example, freeing up labor better positions your stores to quickly respond to your customers’ shopping experiences.  When your customers elect to visit your stores there are unique opportunities to engage with your customers that no mobile application or platform can captivate. Conversing with your customers will lead to a richer shopping experience, increasing store loyalty, and a higher upselling probability. There is no guarantee that consumers will adopt Amazon’s technological dependent business model. Unfortunately this isn’t a risk your business can afford to predict incorrectly. Tops Friendly Markets and Southeastern Grocers are two organizations that everyone can learn from. Tops was forced to file for bankruptcy late February, while Southeastern announced a refinancing agreement last month with the expectation to file for bankruptcy this month. Within filings, Tops stated it could not offer the price cuts needed to stay competitive, nor could it offer the organic premium products that customers expect today. When life gives you lemons, lemonade is just one of many dishes you can create with the right ingredients. Now that Amazon has outlined their game plan, grocers need to act with urgency or risk becoming the next victim in this digital age. For those grocers that stay ahead of the curve and can see the big picture, not only will you survive this third industrial revolution, your business will be positioned to thrive in the digital age resistant to any external technological threat.