Working with Amazon: Welcome to the jungle
On Friday, July 24, Amazon released a positive earnings report that beat the market’s expectations. As a result, the price of the company’s stock soared 20% and for a while Amazon’s market capitalization exceeded that of Wal-Mart Stores, Inc. On that day the public may have learned what many publishing, media and consumer packaged goods industry executives already know — Don’t underestimate Amazon and don’t ignore them.
Much of this year’s Grocery Manufacturers Association Leadership Forum, held Aug. 14-16, in Colorado Springs, focused on e-commerce and in which established and emerging on-line business models food and beverage executives should consider investing. A consistent theme throughout the meeting is working with Amazon is one investment that must be made.
“It is imperative we know how to play with them,” said Dan Cooke, general manager of global e-commerce for the Kellogg Co., Battle Creek, Mich. “For someone in my shoes, I have to understand it. We need to make choices and understand the strategic intent behind what we want to pursue.
“Amazon is a critical customer for us in this space. They are still small, but they are growing quickly. When a consumer thinks about Amazon they think about a box that shows up on their doorstep. For us, they have continued to evolve their value proposition and offerings to consumers. It is important to note each one of their efforts has a value proposition for consumers, Amazon and us.”
In his presentation, Mr. Cooke listed the variety of platforms Amazon offers to its customers. They range from Prime to Prime Now, Prime Pantry, Subscribe and Save, and Fresh.
“Prime is an annual loyalty membership program,” Mr. Cooke said. “They offer a variety of bundled services, including media streaming and two-day delivery. This was their way of building loyalty and frequency.”
He described Prime Now as a one-hour delivery service that only is offered in specific locations.
“Amazon is really focused on logistics,” Mr. Cooke said. “Eventually they want to offer same-day service to 80% of the U.S.”
Prime Pantry allows Amazon Prime subscribers to order a variety of such every-day items as snacks, soups, beverages and other consumer packaged goods.
“Prime Pantry acts as a stock-up trip type of model,” Mr. Cooke said. “It behaves like a club trip would.”
Through Subscribe and Save consumers may order staple-type products and have them delivered one per month.
“With Subscribe and Save Amazon is building a regiment of replenishment,” Mr. Cooke said. “The consumer doesn’t even have to think about shopping anymore.”
Currently available in approximately 10 markets, Amazon Fresh offers same-day delivery of grocery products, other goods sold on Amazon.com and products offered by local businesses and restaurants in the designated area.
“When you look at these different platforms you have to realize each one has a different order element to it,” Mr. Cooke said. “It’s not like we ship a large truck to them and they sort it out.
“Each one has its own ordering specs and it can be very complex. Challenges are also compounded, because unlike traditional retail where you stack products high and let them fly, Amazon is very specific about what they want. They want to order single-digit quantities. They don’t need to build that in-store presence or need the in-store theater to make an impact.”
Mr. Cooke recommended companies that are considering working with Amazon consider paying to be a part of the on-line retailer’s Strategic Vendor Services (S.V.S.) program.
“This is your person behind the Amazon firewall,” he said. “They are there to advocate for your business. Amazon is a technology company first and foremost. They focus on repetition and process. Relationship building opportunities don’t exist there. The S.V.S. representative is someone on your side to facilitate the relationship.
“They assist us in building out all the merchandising plans, work with other vendor management teams, and compile all of our quarterly business review documentation. They are an important resource for us.”
While Mr. Cooke’s portion of the presentation focused on some of the logistical issues of working with Amazon, Bob Black, former group president of Kimberly Clark and a current member of Annie’s board of directors, said getting product to Amazon is only one part of the equation. Another aspect is marketing products on the retailer’s various platform sites.
“On the digital shelf, when you are looking at a screen, the first things you see are what Amazon calls ‘A+ content,’” Mr. Black said. “It is ‘above the fold’ and is hard hitting selling information. It is there to aid in driving the conversion and aid in search results. It is there to drive search-engine optimization. You can’t trick the system. Content has to be relevant and you must monitor how this is working for you.”
Mr. Black said companies have to think about this as a brand building investment, because it is where consumers are going to go to better understand a company’s product.
Gabrielle Novacek, a partner with The Boston Consulting Group, said that as the industry looks at media spend, it only will increase as the business moves to the digital side.
“Even a few years ago what did your media strategy look like?” she asked. “It was probably TV, billboards, etc. Now we have to figure out how to talk to our customers through different mediums and what to do when they talk back to us.”