AMAZON TOP 5 - REVIEW & PREVIEW - RETAILNET GROUP AUGUST 2015 GRAHAM HOTCHKISS - NATIONAL GROCERS ASSOCIATION
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Amazon Top 5 – Review & Preview
RetailNet Group
August 2015
Graham Hotchkiss
graham.hotchkiss@retailnetgroup.com
www.retailnetgroup.com
© 2015
AugustKnow
2015Tomorrow Today www.retailnetgroup.com
NGA Antitrust Statement The National Grocers Association is committed to complying with the antitrust laws. Therefore, to assure compliance the board of directors, members and staff must refrain from engaging in discussion that may result in antitrust violations such as agreements to fix prices or margins, allocate markets, engage in product, supplier or customer boycotts, and refusal to deal with industry members. NGA appreciates your compliance with the law as the Board and members engage in association Board meetings, education programs and other activities to advance your competitiveness in today’s market.
Table of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.com
Introduction
Amazon Maintaining High Growth Rates As It Continues to Scale
$100,000 Amazon US GMV (USD millions) 80.0%
$90,000 $87,424
70.0%
$80,000
$72,147 60.0%
$70,000 53.7%
$60,833 50.0%
$60,000 44.8%
$50,566
$50,000 40.0%
31.6%
$40,000 $38,436
30.0%
$26,546 20.3% 21.2%
$30,000 18.6%
20.0%
$20,000
$10,000 10.0%
$0 0.0%
2010 2011 2012 2013 2014 2015E
Sales (GMV) YoY Growth © 2015
Source: RNG database; USD constant 2014 Know Tomorrow Today www.retailnetgroup.com
Introduction
GMV Set to Surpass $200 Billion by 2020
Amazon US GMV (USD millions)
$250,000
$202,404
$200,000
$173,304
$147,171
$150,000
$124,442
$104,552
$100,000 $87,424
$72,147
$60,833
$50,566
$50,000 $38,436
$26,546
$0
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
Sales (GMV)
© 2015
Source: RNG database; USD constant 2014 Know Tomorrow Today www.retailnetgroup.com
Introduction
Amazon Aggressively Leading the Industry Into Online Retail
Amazon serves as the share-leader in online retail and plays a key
role in developing consumers’ expectations for online shopping
© 2015
Source: RNG database; USD constant 2014 Know Tomorrow Today www.retailnetgroup.com
Introduction
Unique Economics Allow Amazon to Access Improved Margins
40.3%
59.7%
© 2015
Source: RNG database; USD constant 2014 Know Tomorrow Today www.retailnetgroup.com
Introduction
Advantaged by Different Standards Around Profitability
$100
Amazon Revenue vs. Net Income (USD billion)
$90
$80
$70
$60
Revenue
$50
Net Income
$40
$30
$20
$10
$0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-$10
© 2015
Source: Amazon Know Tomorrow Today www.retailnetgroup.com
Introduction
Elevated Investment in Innovation Drives Grocery-Relevant Initiatives
© 2015
Source: Amazon Know Tomorrow Today www.retailnetgroup.com
Table of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.comInitiatives – CPG Online
Amazon in the Process of Revamping Consumables Strategy
Amazon is not currently a primary
destination for consumables
Looking for breakthrough initiatives
‘Destination to transform CPG categories
CPG’ Shifting focus from Profitability to
‘Smart Growth’
© 2015
Source: One Click Retail Know Tomorrow Today www.retailnetgroup.comInitiatives – CPG Online
Leveraging Supplier Expertise to Develop Breakthrough Initiatives
Breakthrough Collaboration
© 2015
Source: One Click Retail Know Tomorrow Today www.retailnetgroup.comInitiatives – CPG Online
New Collaborative Attitude Coupled With Private Label Expansion
New Amazon Elements Categories Listed in
Patent Application
• New patent reveals major
Water
expansion plans for Amazon’s Fruit Beverages Fruit Juice Energy Drinks
Beverages
private label line into food & Cereals Cereal Bars Tea Cookies
other consumables
Rice Flour Soups Milk
Salty Snack Household
• Job postings suggest that these Foods cleaners
Razors Baby Food
products will be available across
Amazon.com, Pantry, and Fresh Food Vitamin Dietary
Vitamins
Supplements Supplements Supplements
• Amazon competing directly with Pet Food Coffee Chocolate Pasta
major suppliers Pre-Packaged
Dried Fruits Baby Diapers
Dinners
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – CPG Online
Amazon Elements Has Gained Little Momentum to Date
Baby Wipes
Launched December 2014
• Positioned as low-price & premium
Diapers • Diapers pulled after poor reviews
• Expecting resurgence of diapers & new
products this fall
• Access to enhanced product content &
products appear inflated in search results
• Little sales impact from either wipes or
diapers © 2015
Source: One Click Retail, RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – CPG Online
Success of Amazon PL Poses a Threat to Both Competitors & Partners
• Presence of low-priced private label intensifies price competition
across category
• Lack of third party sellers of private label products gives Amazon
Risks for more autonomy around pricing decisions
Suppliers • Elements products have access to enhanced product pages &
inflated search results
• Amazon leveraging beneficial economics of private label to compete
on both price & quality
• Consumers that grow accustomed to Amazon brands will be less
likely to shop for consumables at nearby locations for proximity
• Further shifts consumer expectation around online products to be
Risks for low prices, high quality, and fast delivery
Retailers • Amazon has an advantage in that it’s extensive base of shopper data
will allow it to more effectively introduce new products and target
them at relevant shoppers
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comTable of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.comInitiatives – AmazonFresh
Amazon Slowly Expanding its Core Grocery Service
• Amazon’s online grocery delivery
service
• Currently available in 5 metro areas
• Expanding slowly to new metro
areas in and outside of the US
• Offers Same-Day delivery
• Fulfillment system complicated by
fresh grocery and “Need it now”
grocery mentality
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – AmazonFresh
Amazon Implements Prime Fresh – Emphasizing Profitability
Amazon slowly expanding Fresh due to concerns around profitability
Prime Fresh membership fee is a result of Amazon’s determination to
breakeven with its online grocery business
$299/year represents a large barrier to consumer adoption
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – AmazonFresh
Relying On Fresh as a Platform For Experimentation
Local
Restaurant
Delivery
Digital
Meal Kits
Promotions
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – AmazonFresh
Amazon Reportedly Opening a Standalone Drive Format
• Located in Sunnyvale, CA
• 8 pickup lanes
• Looking to access shoppers
outside of urban centers
• Willing to invest more for stronger
convenience offering
• Allows Amazon to avoid costs of
last-mile logistics
• Reports indicate that this would
be the first of many drive formats
© 2015
Source: Silicon Valley Business Journal Know Tomorrow Today www.retailnetgroup.comTable of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.comInitiatives – Last-Mile Logistics
Each of Amazon’s Initiatives Aims to Improve Delivery Logistics
Subscribe &
Reduce Shipping Speed More Items Per Box Reduce Shipping Distance
Save
Someone Else
Add-On More Items Per Box
Pays
Someone Else
Prime Pantry More Items Per Box
Pays
Reduce Shipping Speed
Someone Else
AmazonFresh Own the Carrier Reduce Shipping Distance
Pays
Prime Now Own the Carrier Reduce Shipping Distance
Someone Else
Drive Format Pays
Reduce Shipping Distance
© 2015
Know Tomorrow Today www.retailnetgroup.com
Source: One Click RetailInitiatives – Last-Mile Logistics
Last-Mile Delivery Can Represent up to 33% of Supply Chain Costs
Amazon pushing these costs even further:
• Same-day delivery available to 25% of
North America market (free for Prime
members)
• 1-2 hour delivery available in 14 metro
areas (2 hour delivery free)
• Fresh offers same-day delivery for all
orders placed before 10am
© 2015
Source: Logistics View Points, MWPVL Know Tomorrow Today www.retailnetgroup.comInitiatives – Last-Mile Logistics
Amazon Looks to Maintain Lead in ‘Convenience’ Through Prime Now
• 1 hour delivery on thousands of
‘Everyday Essentials’
• Delivered by contractors directly
from Amazon warehouses
• Looking to compete with asset-
light delivery models (Instacart,
Google Express, etc.)
Launch in NYC Dallas Austin
(Dec 18, 2014) (Mar 26, 2015) (Apr 9, 2015)
Now in 14 US metro
areas & the UK
Baltimore, Miami Atlanta Frozen & Chilled - NYC © 2015
Source: RNG Research & Analysis (Mar 18, 2015) (April 2, 2015) (April 20, 2015) Know Tomorrow Today www.retailnetgroup.comInitiatives – Last-Mile Logistics
New York Provides Glimpse Into Future of Amazon Grocery
vs. Added Frozen & Chilled Category in April,
2015
© 2015
Source: Amazon, Instacart Know Tomorrow Today www.retailnetgroup.comInitiatives – Last-Mile Logistics
Amazon Exploring New Fulfillment Methods to Meet Customer Demands
Leveraging owned Fresh trucks
for non-fresh deliveries
Expanding USPS delivery
partnership to new metros
Reportedly building a standalone
drive format
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comTable of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
Why Are Connected Devices Important?
New Data Streams
New Platforms for Marketing
New Platforms for Commerce
New Intermediaries
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
Owning the Device
Can You Win If You Don’t
Own the Device?
Apple
Internet of Things
Shopping Apps
Amazon
High Utility Apps
Devices
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
The Fire Phone – Amazon Learning From Its Failures
WSJ
NYT
TC
FC
RC
© 2015
Source: The Wall Street Journal, The New York Times, TechCrunch, Fast Company, Re/Code Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
Amazon Echo Serving As Entry Point in the Connected Home
Music List-Building
Weather Information
Echo
Alarms Calendar
Connected
Home
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
Despite Amazon’s Presentation, Echo Is Also a Tool for Commerce
‘Amazon’s Choice’
• Amazon directing
shoppers to specific
products via Echo
• Using device to control
shopper behavior
• Potential to become a
marketing opportunity
for brands
© 2015
Source: Amazon Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
Dash Button Locking In Consumer Spend For High Frequency CPGs
1) Frictionless Ordering Process
• One-touch ordering
• No “checkout” process
• Emphasis on convenience
2) Brand-Centric Service
• Opportunity for brands to lock-in
consumer spend
3) Available Merchandise
• Subscribe & Save
4) Invisible Payments
• Innovative payment experience
• Builds on trust to avoid issues around
price transparency
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
Dash Button – Assortment Centered Around High Volume ASINs
© 2015
Source: One Click Retail, Amazon.com Know Tomorrow Today www.retailnetgroup.comInitiatives – Devices
The Future of Connected Shopping – Dash Replenishment
© 2015
Source: Amazon Know Tomorrow Today www.retailnetgroup.comTable of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.comInitiatives – Prime
Prime As the Foundation For Everything Amazon
Instant Video
Prime Now
Prime
Day
Two-Day/
Fresh Pantry Same-Day
Dash Buttons
Delivery
© 2015
Know Tomorrow Today www.retailnetgroup.comInitiatives – Prime
Prime Raising the Switching Costs in Online Retail
Benefits of Prime:
• Spend 3x/year as much on Amazon than non-Prime shoppers
• Less likely to shop at other retailers due to sunk cost of membership fee
Therefore less likely to compare prices against Amazon competitors
• ~40 million Prime users at the end of 2014
• Membership fees represent a recurring revenue stream
Retailer Prime Costco Amazon Home Depot PetSmart GNC
ARPU* $1,500 $1,477 $490 $311 $171 $130
Note: ARPU estimates for Costco, Amazon, Home Depot, PetSmart, and GNC are from 2012 sales & customers
*ARPU = Annual Revenue Per User
© 2015
Source: Wolfe Research Know Tomorrow Today www.retailnetgroup.comInitiatives – Prime
Prime Day a Win For Amazon Despite Shortcomings
“Thank you to the hundreds
of thousands of new
members who signed up on
Prime Day”
vs.
© 2015
Source: Amazon, Walmart, Best Buy Know Tomorrow Today www.retailnetgroup.comInitiatives – Prime
Amazon Growing ‘Exclusively For Prime’
• Starting in November
2014, Amazon began
rolling out an “Exclusively
for Prime” restriction on
specific items
• Items are shifted in and
out of this program each
week
• Potentially an experiment
around profitability
© 2015
Source: One Click Retail, Amazon.com Know Tomorrow Today www.retailnetgroup.comTable of Contents
Introduction
Initiatives
CPG Online
AmazonFresh
Last-Mile Logistics
Devices
Prime
Conclusions
© 2015
Know Tomorrow Today www.retailnetgroup.comConclusions
Implications for Retailers
1. At the foundation of Amazon’s rapid growth lies a unique economic model where Amazon
carefully balances margins and investments to optimize innovation. While competitors cannot
imitate the same model, emphasizing innovation in store-based retail is vital
2. Amazon is inherently advantaged by its extensive shopper data, advanced pricing algorithms, and
powerful technology solutions. Competing retailers will need to rely on data to make smart
decisions around traditionally unprofitable online grocery business models
3. Expect increased competition not only from the expansion of AmazonFresh but from new
consumables-oriented initiatives across Amazon’s platforms
4. Online retailers will need to focus on raising online switching costs to compete; Amazon leads this
front through its Prime ecosystem and collection of captive devices
© 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comConclusions
Implications for Suppliers
1. Amazon is entering a new collaborative period in which it will be looking to suppliers’ for their
category expertise. This opens up opportunities for suppliers to impact the way Amazon functions
and potentially remove some of the largest obstacles around working with Amazon
2. Amazon’s expanding private label line, while unlikely to have a profound effect in the near term,
has the potential to disrupt specific categories through its access to elevated search results and
enhanced product pages
3. Suppliers will need to work closely with Amazon as it rolls out new platforms to make sure they
remain on the forefront of digital retail. Recent shopping initiatives such as the Dash Button and
Echo offer a ‘Winner Takes All’ mentality for suppliers
4. As both Amazon and major grocers look to grow online grocery & CPG online, manufacturers
need to consider how they approach supply chain management, packaging, and product content © 2015
Source: RNG Research & Analysis Know Tomorrow Today www.retailnetgroup.comQuestions?
Graham Hotchkiss | Research Analyst
graham.hotchkiss@retailnetgroup.com
RetailNet Group
© 2015
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