Amazon & the circle of life

Last week, Amazon announced the planned opening of their first bricks & mortar store - planned to be opened in central New York, not far from Macy's department store. The move is an attempt to provide some of their customers with a traditional face-to-face customer service.

If you have been following other recent Amazon announcements and expansions, you will be familiar with their other recent moves:

Same day delivery - Amazon has been a dominant power in e-commerce for a long time, and given the small margins they operate, and being loss-leaders in some products to drive business elsewhere, it's going to be difficult for any newcomer to genuinely compete, and as Amazon continue to spread more and more into all forms of goods, its also slowly making it harder for shops to operate in a specialist vertical.  However, there is always going to be times when convenience and the ability to have something immediately trumps price, so there was always going to be a market share that Amazon will loose. A lot of the time people will pay a small percentage increase in price for being able to have the product in their hands in a few hours.  Same day delivery will reduce that - again their will be the premium cost of the delivery service, but customers can have products instantly (almost).  There are some significant logistical challenges to do this, but being in a position to do this also opens up another opportunity..

Fresh groceries (having been doing non-perishable groceries for some time). One of the biggest challenges to Amazon rolling out fresh grocery deliveries more widely (currently only available to parts of North America) is building the capacity to enable fast, same day delivery of fresh goods; so the goods can leave a chilled warehouse and be with the customer in a short time - what is a short time exactly? It seems from existing supermarket delivery services that most people are happy with same day delivery (or at least fixed day delivery - e.g. the goods leave the warehouse on the same day they arrive to the customer), using refrigerator delivery vehicles, which seems simple enough for an individual case - in the UK Amazon could ship from their large Swansea warehouse in the morning and deliver the goods to most parts of the UK the same day. The inevitable problem becomes when this starts to scale up, As soon as even a small percentage of the UK want to order their weekly fresh groceries from Amazon the problem gets a lot tougher, and Amazon would need to have a large, distributed warehouse/delivery infrastructure to enable this kind of efficient, same day grocery deliveries.  The kind of infrastructure that existing supermarkets like Tesco or Sainsburys already have, having long built the infrastructure to provide a similar level of stock control and service to their supermarkets.

It's no secret that Amazon returns very little profit to their shareholders, and continues to plough the majority of their revenue into new business and further expansion - a large part of the investment going into expanding their delivery and warehouse capacity and distribution.

Scaling same day delivery is a hard problem to solve, if only because the solution is really just more distributed warehouses. Amazon have tried to ease the scaling problem with Amazon lockers and local partners/shops that can take delivery and can then be picked up from by the customer at a convenient time (a local shop that a customer can pick up their goods from on the way home from work for example), but really their move to bricks and mortar is really just another step to a long established industry.

Is Amazon really disrupting groceries/shopping? Or are they just competing against the usual retail giants?  Neither same/fixed day delivery or fresh grocery delivery is a new feature. Providing both online and physical stores is also not a new model, so really all we are seeing is another retail powerhouse slowly marching onwards and upwards to a fairly conventional business plan**, maybe the only thing of interest is that it is doing it in a different order (Tesco scaled from bricks and mortar, to online shopping, to same day delivery; Amazon are simply starting from online and expanding to the others).

So I guess we will need to wait for drone-delivery to see any real innovation in the retail space.

** Conventional business plan for the retail/groceries aspect of the business - there is still lots of innovation and interesting things that Amazon are doing, with mobile devices, could services, video delivery/production etc.