Amazon Effect

Amazon EffectI am publishing this post to highlight few aspects of combined effect of Amazon’s supremacy in online retails sales and its recent acquisition of Whole Foods. Amazon is undoubtedly a retail disruptor and eying for dominant role in pretty much every consumer segment. Based on recent analyst reports, Amazon’s wallet share is about 44 cents out of every e-commerce dollar spent in the USA, followed by eBay (6.8 cents every e-commerce dollar), and Walmart & Apple each at 3.8 cents every e-commerce dollar. Highlighting below Amazon’s impact on CPGs and counter measures

Amazon E

  1. Amazon fueling CPGs Direct-to-Consumer (D to C) channels going forward: Amazon being brand agnostic, promotes them all and let consumers decide the winners and losers. What’s relevant and important, though, is to give consumers the best prices possible. Amazon looks at itself as working on behalf of the consumer. If a CPG company has the resources and patience to work through their D to C strategy integrating with Amazon (probably the largest CPGorganization in the world) it will benefit. Furthermore, if brands are willing to play ball the consumer-oriented way, they’ll win. The losers will be those that don’t know how to play D to C tactics with Amazon, or don’t have the resources.
  2. Amazon acquisition of Whole Foods impacting CPGs: High cost has been Whole Foods’ biggest obstacle to the fresh concept. With Amazon in the picture, more consumer-friendly pricing is already on the horizon. Secondly, along with entry into “fresh” play, Amazon is trying to get a “bite” out of Millennials’ shopping habits. Amazon is looking at grocery as the next step in consumer satisfaction and Whole Foods enables Amazon to have 450 brick-and-mortar locations and multiple distribution centers to enhance its online delivery to the customers who want it.
  3. Combining Amazon online supremacy with in-store experience: We can foresee that Whole Foods in-store experience will evolve as Amazon uses consumer purchase data to reduce inventory levels at Whole Foods making space for Amazon to use Whole Foods stores as showrooms for Amazon products (Books, Kindles, Alexa, etc.) and pickup locations for Prime purchases. CPGs will have to prepare for tighter inventory management, faster shipping, and possible packaging changes to adapt to the new format.
  4. Leading to “Click & Collect” dominance: Amazon can leverage Whole Foods physical stores as pick-up locations for Amazon Fresh Pick-up. CPGs will have to ensure that they achieve full distribution in Amazon Fresh and invest to ensure strong platform visibility.

Amazon’s acquisition of Whole Foods could influence consumers shift away from pre-packaged foods and center of store items so be prepared for volume declines on brands that aren’t able to be positioned as healthy and all natural. The shift towards healthier, more natural food and personal care products will accelerate. CPGs will need to shift their product portfolio accordingly.

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Direct-To-Consumer (DTC) Strategies fuelling Retail Growth – Part I

DTC

Direct-To-Consumer companies  through new retail channels are driving two fundamental changes in the business models fueling next-level growth. 1) Offer shoppers ways to cut out physical store visits avoiding traffic, 2) Enable bypassing middle-man distributors. Innovation in DTC e-commerce and Omni-channel strategies is playing a key role in retail business sustenance and growth. DTCs primarily focus on designing and selling apparel, accessories, and many more directly to consumers through their own online channels. DTCs offer a superior shopping experience, higher-quality goods, cheaper products or greater convenience overcoming the constraints of incumbents monopolistic companies. Let us examine how DTCs enabling next-level growth with few use cases below.

1) Legacy companies usually sit on large profit pool and accustomed to doing business one way being constrained to pivot and think outside the box. Take a closer look at Warby Parker from its emergence in 2010 as it redesigned customer experience featuring home try-on and dramatically reduced price points as compared to dominant industry players. Warby Parker succeeded in establishing a business model to directly reach consumers.

2) Razor market is another classic example. As Gillette having cornered the retail market and established high price points, a DTC subscription model got emerged with upstarts like Dollar Shave Club and Harry’s which succeeded in bypassing the retail channel completely, which enable them to offer hugely discounted prices. And despite Gillette trying to play catch-up with its own DTC offering, its prices are still higher as compared to new crowd favorites.

3) Dental hygiene is a tough market, with just a few familiar consumer brands from which to choose. Goby has circumvented traditional distribution channels by aligning itself with dentists who have come to recommend the product. Goby is aiming to change that paradigm, offering the first subscription-based DTC rechargeable electric toothbrush that’s simpler and half the price of retail brands

4) Fresh start of DTCs enables them with innovative B2C marketing strategies. While Huggies and Pampers have been the diaper mainstay for generations, for example, Honest has been giving them a run for their money, thanks largely to its superstar spokeswoman and brilliant marketing tactics.

5) Take a look at Wine industry. Vying for customer attention with digital-first brands in a highly fragmented industry where brand loyalty is notoriously low. Penrose Hill, which is reinventing the wine club experience through homegrown wine brands offer improved value, selection and convenient delivery formats direct to consumers.

One key take away is DTC companies are less shackled by the legacy technologies, risk-averse cultures that large companies so often are, but on the other hand established players will need to do far more to emulate their DTC counterparts if they want to tap into high-growth market opportunities.  The next post in this series focus on DTC business model innovations.

Retail and CPG Supply Chain Excellence with IoT

SCM IoT

As the supply chains are getting digitally enabled, Internet of Things presents unprecedented opportunities to Retailers and CPG companies by creating solutions combining digital and physical products and services. IoT enabled upply chains surpasses the traditional developments like functional integration of supply chain, improve collaboration with suppliers & customers, and focus on virtually synchronizing the supply chain across players into one logical enterprise. IoT is helping supply chains to further progress with dynamic response by event management, increased visibility, responsiveness and throughput with supply chain control towers.

IoT is disrupting modus operandi of Retail/CPG industries and future shoppers. Device and sensor proliferation is aiding Retailers to experiment intelligent and connected devices to innovate new business models to try new markets, offer new services and create rich & compelling customer experiences building IoT enabled digital ecosystems. IoT adoption is supply chains accelerate with right platform implementation (commercial IoT platforms vis-a-vis indigenous development with multiple vendors), cloud ready infrastructure, building big data and advance analytics capabilities enabling faster and effective business decision making, and robust compliance and security. IoT supports the convergence of the Digital and physical supply chains and following use cases highlights how IoT driving the supply chain excellence of Retail / CPG businesses

  • Improve customer experience using big data for consumer insights and store-level merchandising. Help companies mine social media trends to showcase types of products that are rising in popularity, and local weather data is compared against historical sales data to boost sales. Also I would like to quote a personal experience with RFID-enabled MagicBand wristbands at Disney that provide theme park access, entry access for guest hotel rooms, and cash and card-free payment food and merchandise. All that activity is also tracked data that potentially helps Disney build a better picture of how guests use services.
  • Create new service offerings combining IoT potential with real-time view of usability statistics enabling targeted advertising based on instantaneous bidding that creates new revenue streams for retailers. Implementation of lightweight NextGen IoT platform for tracking shifting user behaviors reacting with appropriate business actions.
  • Help businesses innovate new business models with connected IoT solutions. One example is connected kitchen solution creating consistent brand expanding into quick serve restaurant anywhere in the world across few thousand chains. Through remote management of kitchen appliances automate hundreds of decisions in a day for optimizing energy usage and oil consumption leading improving bottom-line.

This presents an opportunity for supply chain leaders to co-develop new information-based solutions for individual customers or markets. Infusion of IoT in the supply chain as well is creating new challenges and demands on corporate supply chains. IoT offers a great opportunity for the supply chain leaders to play a critical leadership role in defining the overall digital business strategy achieving the next-level of value chain excellence.