How Amazon plans to kill brick-and-mortar retail — offline!

At virtually every retail conference I went to in the past couple of years, I was witnessing more or less intense discussions with two conflicting scenarios on how the (grocery retail) world would end: 

  1. Some argued that all retail would go online eventually. Brick-and-mortar retailers would die and Amazon would have monopolized online retail anyway
  2. Others were sure that grocery retail would never go online

These discussions take a very different direction now ...

The Whole Foods deal changes everything

With the Whole Foods Market deal Amazon has revealed that it simply does not care about whether a consumer is shopping online or offline.

It's no longer about offline vs online. The only thing that Amazon cares about is that consumers shop with them as much as possible.

Amazon realized a simple truth: while online grocery shopping is on the rise, 97% of all purchases in the US are still done offline and online grocery retail is not going to be double digit for years to come because grocery is often impulse-driven and for fresh produce consumers like to see before they buy.

While the previous served as a comforting fact for many, unexpectedly, Amazon took the war offline. And it started so with grocery retail - after housing and transportation the #1 channel where consumers put their disposable income. The acquisition of Whole Foods is just the beginning of a series of acquisitions they will do around the globe. The logic here may be, that having a big offline presence guarantees:

  • Unrestricable access to suppliers
  • Untapped consumer acquisition potential
  • Catering consumer need to see, feel, and smell fresh produce

Thus, for Amazon acquiring more traditional retailers makes lots of sense - from a supply chain perspective as well as from a consumer perspective.

So what is so dangerous about Amazon?

Bezos on customer centricity

Traditional retailers have much too long viewed consumers as a tool to remove the stock off the shelves.

On the contrary, Amazon has relentlessly put the individual customer first and they will do so offline. And here comes the problem: traditional retailers have much too long viewed consumers as a tool to remove the stock off the shelves. For many customers are still a gray mass reacting to listings and promotions in a largely unpredictable fashion. In the bottom of the belief system of brick-and-mortar retailers is that money is made in the process of sourcing and demand is largely stable or unpredictable.

When it comes to service level traditional retailers may be able to trail Amazon for some time, but where they will fall short is personalization. We know that consumers have very different preferences for products and thus different willingness-to-pay. Once Amazon got their service level right, they will outperform every traditional retailer when it comes to tailored offers and recommendations for their user. The Amazon Go concept hints at the future: the smartphone and other smart devices will replace the role of the cashier and later the role of a very knowledgeable store clerk.

This week Amazon also announced Spark - a highly personalized feed of shoppable items. So Amazon takes personalization to a new level.
Amazon Spark

How retailers can react - Fight or flight?

In summary, Amazon understands the consumer better and is willing to adapt to their preferences with everything technology has to offer including machine learning and store digitalization.

Clearly, in many of my conversations with retailers the previous ignorance of viewing Amazon as "just an online retailer" is gone with the Whole Foods coup. One of my clients calculated that in Whole Food terms they would be worth $55bn. So should retailers just surrender and wait to be bought?

Gartner suggests 3 steps retailers should take immediately:

  1. Drive strategies and tactics to digitalize everything way beyond where they are today
  2. Work with other functions in the organization to create strong disruptions
  3. Partner with others to create customer reach and value

This is the definite wake up call for the industry: today's customers expect a highly personalized shopping experience where digital and non-digital channels are connected.

Consumers want a great and easy shopping experience - online and offline. Brick-and-mortar retailers have great experience in creating a basic consumer proposition that is compelling. However, this will not be enough to win the fight against Amazon. Retailers will need to gain the ability to sense and cater each consumer's individual needs and preferences. This will only work with the help of artificial intelligence, where the machine learns on the massive amounts of data and gives the consumer great promotions and other incentives. Much like the good old store clerk would have done when retail was what it should be - putting the consumer first and truly understanding her needs and preferences.


PS: So1 is one of the driving forces of retailer digitalization. We have created a very powerful AI for retail which is capable of personalizing promotions for users in real-time and across devices. The So1 Engine sources the entire portfolio of the retailer and automatically selects the right products for each individual consumer and adjusts discounts such that revenue, profit, or consumer satisfaction are maximized.

Raimund Bau

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