Opinion: The Cornerstones of Competing With Amazon

Bill Bishop, Co-Founder, Brick Meets Click

Amazon is not just disrupting retail—it’s reinventing much of the system, including how consumers shop. It’s also rapidly expanding the definition of convenience, and this is creating challenges and opportunities for c-stores.

Here are some numbers that show Amazon’s influence:

  • According to Kantar Retail, 83% of all households have bought something from Amazon, and that percentage continues to grow.
  • An estimated 50 to 65 million Amazon Prime customers get free shipping on purchases. Amazon doesn’t release its membership information, but research shows this number is growing each year, and it could represent  20% of American consumers.
  • Amazon sites attracted 48% of all online grocery trips in 2016, up from 39% in  2014, according to Brick Meets Click research. (See brickmeetsclick.com for more.)

A Reinvented Model

Since late  2016, Amazon has been opening its own small Amazon Go stores, which are more like superettes than c-stores. It is still testing these sites to determine the best size, but it’s clear that with this format, Amazon takes a big step in reinventing the retail model and integrating a full range of technologies to deliver a streamlined shopping experience—all while increasing profitability. For example:

Customers don’t have to get in line to check out or even scan the products. They just have to open the app, take the desired items from the display or shelf, and leave the store. Checkout and payment happen  automatically within the app.

The product assortment is tailored to each store, which reduces inventory investment. And, thanks to real-time communication of sales to the supply chain, replenishment is faster, out-of-stocks are lower and sales per square foot are higher.

Amazon’s move into physical stores brings good and bad news for convenience retailers. The good news: Amazon’s store growth can’t go as fast as their online growth, at least for a time, because it will have to build out its store network. This investment in stores will lower its profitability.

The bad news: Amazon will become more directly competitive with convenience retailers (at least for some shopping occasions) as it becomes better positioned to sell a broader range of products traditionally bought at c-stores, including fresh products.

Changing Shopping Habits

Shoppers have many more options shopping at Amazon than in a traditional retail store visit. By eliminating the need to visit the store, Amazon has also expanded the number of potential shopping occasions it can serve. For example, shoppers can now:

Shop whenever they have time to go online or open the Amazon app. They may not get the products right away, but they can get the buying decision and purchasing out of the way at a time when it is convenient.

Simplify shopping by signing up for a subscription service so they don’t have to reorder. Instead, it happens automatically.

Take advantage of delivery that, in some cases, happens within an hour. This will increase competition for food to go and other immediate needs traditionally served by c-stores.

As these shopping occasions proliferate, we can expect to see the market further fragment.

So how should convenience retailers respond to the growth of Amazon? While each retailer will want to develop its own strategy, we think each should have two cornerstones.

First, recognize that Amazon is riding the growth of online shopping. For some consumers, it’s a way to save time and money; for others, mobile is simply how they interact with the world. This means convenience retailers need to find ways to attract and retain customers who will be doing more of their shopping online. This can be done by participating in the online shopping ecosystem by becoming a pickup point for online orders—e.g., installing lockers in your stores.

Also consider offering customers online shopping options for products already in the store, and possibly for a range of products that they could buy at the pump or in the store.

Second, make the shift to treating customers individually vs. as a group. This starts with a loyalty program that identifies customers and their unique purchasing behavior, builds it into personalized offers and ultimately results in personalized pricing. Most brick-and-mortar retailers have not moved quickly to become more customer-centric, but the growing presence of Amazon makes this an important “to-do” in the very near future.

Bill Bishop is the co-founder of Brick Meets Click, a food retail consultancy. Contact him at [email protected].