AMAZON FRESH

THOUGHT LEADERSHIP: TOM FENDER, DEVELOPMENT DIRECTOR, TWC

AMAZON FRESH AND A FOUR LETTER WORD

TWC’S TOM FENDER DISCUSSES THE TWO NEW AMAZON FRESH ‘JUST WALK OUT’ STORES ANDHIGHLIGHTS THE POINT MOST PEOPLE SEEM TO FORGET.

Those of us who have visited either of Amazon’s new Fresh stores in Ealing and near Wembley have been impressed by the technology. But the biggest advantage Amazon has is not the technology. They have that in place now and it will improve. No, the biggest advantage Amazon has now – and is only going to grow with each customer transaction – is DATA.

David Sellinger wrote in 2014: “While conventional wisdom has held that customer service is Amazon’s secret sauce, Bezos’s core innovation was to place data at the centre of his corporate culture.” We have had seven years to understand and replicate this. How many businesses have?

So, having been asked by The Week In Retail for them, here are my thoughts on Amazon Fresh in the UK...

Amazon wants to know everything about you – what you buy, what you listen to, what you’re spending money on. The one major gap in their knowledge bank is ‘food’, despite their purchase of Whole Foods and their work with Morrisons. Will Amazon need to open hundreds of ‘Fresh’ stores to get the intelligence/knowledge they need to understand the principles of convenience shopping? Probably not.

You need to be an Amazon customer to get access to the store, but with more than 90% of the UK population thought to hold Amazon accounts, that shouldn’t be a problem. Those millions of customers have made life very easy for Amazon by helpfully giving the company their precise address. Maybe those clever people at Amazon will send offers direct to those people living close to a new Fresh store. I am one of those customers, so what does this mean for me?

Amazon can link my food purchases to non-food purchases I make on the Amazon website, building up an even better understanding of me. Here are some examples:

I buy a BBQ on a Monday for delivery on the Thursday – Amazon sends me incentives to buy burgers, beer, sausages.

I buy gym equipment/sports equipment. They ping me offers on healthy foods too.

I buy toys or items for a pet – they send me offers for dog/ cat food.

I start buying items for new born babies – Amazon starts sending me offers for nappies, baby food etc.

Amazon have all transactions logged to a specific individual – their name, address, email address, telephone number, interests, hobbies and a pretty good guess at their age. knowledge and data becomes the biggest competitive advantage in the food industry, not price, not range, not NPD, not promotions, not home delivery.

Amazon will know what food products I buy on a regular basis. Amazon can send me offers to keep me loyal… or to encourage me to ‘trade up’, creating premiumisation on an industrial scale. They also know what products are typically bought with other products. If I buy product A, but not product B, when most people like me buy Product B with A, then send me an offer to try Product B. This offer voucher will obviously be paid for by the manufacturer of Product B (not by Amazon). The vouchers will be digital, which are much cheaper than paper vouchers. But they also have a far higher ROI for suppliers because they are targeting the right people with the right product – it brings an end to blanket carpet-bombing of paper vouchers.

While conventional wisdom has held that customer service is Amazon’s secret sauce, Bezos’s core innovation was to place data at the centre of his corporate culture.

If I stop shopping at the Amazon Fresh store, they can check I am OK (although they will know I am heading off on my hols, because I will have bought new shades and sun cream from Amazon)… that I am not bedridden (let us send you some paracetamol) or not annoyed for any reason. Incentives are sent to re-engage me. So far in this customer journey, Tesco can do a lot of this via their Club Card (as long as a customer remembers to have it instore with them), but let’s consider how much more Amazon can do.

They can link meal occasions to events – so if you download a movie, Amazon can offer linked deals of food and drinks. They can even offer food and drinks based on the type of movie downloaded – certain types of movie are likely to be watched by certain types of people, who will want certain types of food and drinks (date night, romcom, action, documentary). Amazon will get it occasionally wrong, but machine learning will mean they will learn from their mistakes. Of course, a lot of those movies are on Amazon prime so suppliers will be encouraged to sponsor around the movies which are likely to generate the interest in the products viewers will want to eat/drink.

They also know what music their subscribers listen to and what genre it is, so someone who regularly listens to running playlists, can be targeted with sports products (protein shakes, energy bars) along with gym equipment and clothing.

They know what their customers are reading too so if a customer buys cookery books, Amazon can offer a discount on food and kitchen equipment.

They ‘save’ your purchases so that you can ‘repeat purchase’ again in one easy click. How many purchases in UK c-stores are repeat/regular? 50%? That’s £20bn every year of repeat purchasing in UK c-stores – with almost no effort made by retailers to remind customers and/or simplify the process for them. This might be called ‘low hanging fruit’ in the corridors of Amazon towers.

Amazon could be capturing so much of a household’s shopping that it could reach a stage where consumers pay a subscription direct debit of £150 pcm and it covers music, food, TV/movies, reading material/books. It is the ultimate in subscription lifestyles - you pay a fixed fee, and they deliver everything. By opening up a chain of physical stores, Amazon is setting up a distribution network for click-and-collect and returns which they can control – ‘the last mile’ is always the most difficult and costly for a distributor. And I suspect there could be quite a few empty commercial premises available for cheap rent (or purchase) following the pandemic.

Don’t forget you can also use Amazon as a bank now as a payment service. So if their customers shop somewhere else, payment can be made by Amazon Pay – hence they know what Is being spent even when it is not with them.

Finally, Amazon’s offering helps attract a younger shopper… UK c-stores are predominantly used by older consumers.

The opportunities are endless. But it all comes down to DATA. If the word ‘data’ scares you, put it another way – it’s about knowing your customers better than your competitors know their customers and, sometimes, even knowing what your customers want to buy before they know themselves.