How Amazon is about to pull another flanker on traditional retail outlets
In a move that leverages powerful synergies, Amazon has announced 10% discounts on some products for Amazon Prime members at Whole Foods supermarkets. For some time now, traditional retailers have been trying to woo customers with online initiatives, but here we see the leading e-commerce company and the third most valuable business in the world by market capitalization, using its online presence to attract new customers to its relatively pricey supermarkets.
There is another interesting aspect to Amazon’s initiative: Amazon Prime’s growth statistics are nothing if not impressive: 51% of American homes subscribe to it, up from 45% in 2017. Despite the recent price hike from $99 to $119, the service, which in addition to free shipping for most purchases, offers flat rates for a wide variety of books, music and television, it is still regarded as a good deal by users. In the highest purchasing power segment, with annual household income above $150,000, Amazon Prime’s popularity is above 70%, and what’s more, says Morgan Stanley, Amazon Prime subscribers spend an average of $2,486 a year, almost 4.6 times more than the approximately $544 that non-subscribers spend on average, a difference that only increases over time. Basically, if you’re an Amazon Prime user, you tend to make all your online purchases through it: the store has everything, the shipping is free in the vast majority of cases, as are most returns. The more people sign up for Amazon Prime, the bigger its market and share. In the United States, by September of 2017, the company had 90 million subscribers, up from the 63 million in June 2016 and 25 million in December 2013: that’s 29.2% growth, sustained over five years. At the international level, with a somewhat more heterogeneous distribution of supply and prices, this growth was 56% between 2016 and 2018.
What happens when the advantages of being an Amazon Prime member also apply to a chain of supermarkets with reputation of Whole Foods? A 10% may not seem much, but given the tight margins large food retailers operate within, this could have a big impact on perceptions. The effect could be twofold: on the one hand, many potential customers who see Whole Foods as expensive or exclusive may now consider joining Amazon Prime. On the other hand, users who already paid for that membership may now decide to pay a visit to Whole Foods, thus increasing the amount they spend at Amazon. Either way, more business thanks an advantage created online and now used out in the real world.
If you work in distribution, think about it: the popularity and success of your online business is no longer a nice extra to your main activity in traditional retail outlets: it can also boost your offline competitiveness. If you do not develop your online activities, someone else will come along and offer a better value proposition than yours, even in what was traditionally your domain, offline commerce. Amazon has managed to flip an equation many people believed was written in stone, and in so doing could change the basic premises of the business. Watch this space…
(En español, aquí)
