Updated: Jan 3
Written by: Larry Goodfellow
While other brick and mortars are moving towards online shopping, Amazon, the company that began with online shopping is moving towards brick and mortar.
Amazon’s Bid to Move into the Grocery Market
In a recent article in the Wall Street Journal entitled Amazon Working on Several Grocery-Store Formats, Could Open More Than 2,000 Locations the authors Laura Stevens and Khadeeja Safdar discuss the company’s bid to move into the grocery market. Last Monday Amazon Go opened its first small grocery brick-and-mortar store in response to customers who seem unwilling to buy certain things online. Among future stores planned are multi-function stores, which offer curb side pickup, and drive-through locations. The stores are part of Amazon’s plan to open more than 2,000 brick-and-mortar grocery stores, which will rival Safeway, which has a total of 1,335 stores across the U.S.
While Amazon would like to have shoppers buying everything online, this has proven difficult in the area of groceries. In regards to purchases like fruit and meat, consumers want to be able to squeeze their produce and pick the cuts of meat they buy. Also, among single individuals they have reported not feeling online purchases as being valid for their short lists. In regards to time, individuals who want to eat or cook certain meals that day are unable to get their groceries delivered on time if they purchase online. This inability to meet the varying needs of the customers have led Amazon to begin venturing into brick-and-mortar style stores. This move has combined technology so as to remove all of the inconveniences that customers complain about when shopping.
Understanding the Customers Frustrations and Needs Like No Other
Amazon has taken the time to understand their customer’s needs and frustrations while planning their new store. The number one complaint among grocery shoppers is the lines. With Amazon Go stores you simply scan your phone on the way in, and when you select items from the shelf they are recorded into your purchases so you simply walk out of the store and your groceries are charged to your account. Having built in a user experience that rivals that of Apple stores so that shopping becomes a pleasurable experience. They have also combined key items such as meal kits, which customers have shown to love as part of their special offerings. Amazon’s understanding of their customers wants and needs make me wonder why more companies have not spent more time, and testing with both traditional market research and market research online communities to gather the detailed understanding needed to compete with Amazon.
Amazon’s plan to move into groceries is well thought out. While groceries don’t tend to generate huge profit margins, retailers such as Wal-Mart and Target have figured out that food draws customers into the store, and leads them to other purchases with higher margins. Stevens and Safdar write, “Grocery sales produce slim profits for chains like Target and Wal-Mart but are important because they drive traffic to their stores where consumers buy higher-margin products like apparel and home items.”
Amazon’s move to compete with large retailers such as Wal-Mart and Target has led to new offerings by these giants. The article discusses how large retailers have begun expanding their online services and well as other services such as curb side pickup at Wal-Mart, which allows customers to order online and then pick up their order curb side at their nearest store. Target has also considered offering a grocery delivery system but hasn’t made definitive plans. Currently Target has partnered with Instacart.Inc in select cities throughout the U.S. to provide grocery deliveries but is uncertain whether that partnership will continue.
Increasing Purchasing Power
Stevens and Safdar write how the new Amazon retail stores are a part of the company’s bid to build out their distribution, and increase their purchasing power. “The online retailer hopes to one day function as a grocery-delivery service and distributor for brick-and-mortar retailers, according to one of the people, a move that will help lower its own costs as it builds out its own transportation network.” The brick-and-mortar stores also allow Amazon the ability to build up their purchasing power in the area of food.
As technology increases the possibilities to disrupt traditional business models increase creating greater competition in the market place. While many predicted that the future would be a world ruled by online sales we are seeing a mixture of the two. As the traditional models are being rethought, companies that understand their consumers best have the advantage.
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