The logistics revolution has started
Amazon has launched its Prime Now service in the Spanish capital, charging €5.90 for one-hour delivery and no charge for two-hour delivery.
Customers have some 18,000 items to choose from, including food, home goods, electronics and entertainment. The question some are asking is will the company be able to sustain the service?
The short answer is yes. And it will do so by optimizing its processes and shifting a lot of goods. This kind of fast city delivery has already been shown to work in the case of Maple (I wrote about them few weeks ago), Grubhub, Postmates, Hello Alfred, UberEats, DoorDash or Deliveroo. Amazon’s advantage over its competitors is that it will be able to sustain losses until it reaches tipping point.
Furthermore, speedy delivery is just part of its strategy: its Amazon Premium flat rate in Spain comes with add-ons such as cloud photo storage and early access to BuyVip deals and offers. Subscribers in the United States get free ebooks, music, movies and television series. The company’s options to sugar the subscription pill are virtually limitless.
In the United States, Amazon Prime is hugely popular in high-income households, with growing numbers effectively doing their weekly shop with the company. Once this families pay the flat fee, their monthly spending with the company almost doubles. The growth of Amazon Prime has been rapid and customers renew their subscription each year without blinking an eye. Is the Spanish market really that different to that of the United States?
Amazon has other tricks up its sleeve to increase customer loyalty, such as Amazon Dash buttons or ordering via voice with Amazon Echo, not yet available in Spain, which literally bring goods to your door at the press of a button.
There are even white goods able to order detergent or softener themselves. This is a blessing for brands: once a customer installs a washing machine that effectively supplies itself, unless the brand is overcharging, it’s hard to see where things can go wrong. The losers in all this of course, are the supermarkets or corner shops. In France, Paris Mayor Anne Hidalgo wants to prevent Amazon from offering its Prime Now service, saying this will hit shopkeepers as well as increasing pollution in the French capital.
We are about to witness a distribution revolution in which logistics is simply the first phase. Traditional distributors will have a hard time competing online with Amazon and its deep pockets.
At the same time, trying to become a category killer by specializing in segments that we still tend to buy in person such as fruit and veg or fish and meat, is a high-risk strategy. Amazon Fresh is proving highly successful. Madrid is not Spain, and Amazon Prime Now will probably not be extended to other cities here because they won’t provide the volume it needs, but we will see rapid change in people’s purchasing habits in the coming years, and neighborhoods being considered more or less trendy depending on whether or not they have access to Amazon’s fast delivery.
That said, Spanish distributors are efficient and are not going to stand by while Amazon steals their lunch… but it won’t be easy for them, for sure!
(En español, aquí)
