Here’s Why Amazon Might Now be Restaurants’ Worst Enemy
If retailers were alone in fearing Amazon, Amazon decided to make its list of potential competitors just a little bit larger. With the acquisition of Whole Foods and its recent trademark filings for meal kits, Amazon is going to come for the restaurant industry. And in an epic tale for the ages, restaurants — like retailers before them — might hand Amazon the keys to the proverbial kingdom.
We’ll begin this article with a little bit of history. Amazon originally started by sourcing and selling books directly to customers. As it grew into an ecommerce platform, Amazon opened up and allowed third party sellers list their wares as well. All of the third party sales transaction data flows through Amazon, but these sellers could get access to Amazon’s clout while Amazon would take a roughly 15% cut. Today these third party sellers represent about 25% of Amazon’s gross revenues — and they’re highly profitable dollars for Amazon as well.
In 2014 it was alleged that Amazon was monitoring the sales data of its third party sellers to help it determine what products to source and sell themselves. The cries grew even louder as Amazon expanded into the business of private label brands. It’s hard to ignore these complaints when Amazon Basics, their private label brand, is crushing competitors in record time. As an example, Amazon now holds the third largest market share for online baby wipes, only behind Pampers and Huggies… a feat accomplished in a tad over two years.
Retailers didn’t realize how sophisticated Amazon was until they saw their customer numbers declining. From Sense360 regarding foot traffic on Amazon Prime Day:
Overall, retailers saw a 32% decrease in traffic among shoppers that have the Amazon app installed. They also had a 7% decrease in traffic among shoppers that don’t have the Amazon app. Ten retailers — Walmart, J.C. Penney, Macy’s, Barnes & Noble, Home Depot, Lowe’s, Sears, Kohl’s, Target and Best Buy — saw an average 24% decrease in traffic on Prime Day compared to averages during the prior 17 Tuesdays.
The same cultural problems (i.e. zero apparent adherence to data and objective decisions) that plagued retailers and led to their downward spiral also afflict other brick and mortar merchants. And Amazon is all too eager to make that apparent.
TGI Friday’s recently struck a deal with Amazon to use their Pay Places services. While much cheaper than Amazon Restaurants (Pay Places charges 2.9% and $0.30 per transaction versus the 30%+ commissions of Amazon Restaurants), Amazon’s strategy remains the same:
Access transaction data
Via Pay Places,
… you tap on the drop-down menu to access the app’s navigation, then tap on “Programs & Features”. The system is tied to an order ahead function that sends the order to T.G.I. Friday’s Micros POS system. Via the Amazon app, users will receive updates and the status of the order.
Amazon is integrating to the POS data and is seeing two critical pieces of information
- Customer information
- Item level (SKU) sales data
With these two data sets, Amazon can single handedly complete the golden circle of advertising. It’s for this reason that we previously argued Amazon might have the best shot for building a new payments network.
But replacing credit cards will be a while in coming. In the meantime Amazon can use the data it’s gathering from its restaurant customers just like it’s (allegedly) used data from its third party sellers: to find the right products to sell themselves.
As Amazon sees sales of restaurant products and their associated prices, Amazon will surely feed that data into its grocery and meal kit businesses. Amazon could use this data to fine tune its own prepared foods to very well compete with its own restaurant customers. If you’re thinking there’s no way Amazon would do this then how would you explain the creation of Amazon Basics?
Restaurants (and retailers) will continue to suffer as long as they ignore the power and importance of data in today’s economy. You can’t fault Amazon for finding ways to give customers what they want, when they want it, at lower price points with better experiences.
If only brick and mortar merchants would admit they need the help, they might be around to tell how the tale ends.