The future of convenience shopping is here and its called Amazon Go.
Amazon is one of our top technology holdings and we continue to be very bullish about the future of Amazon.
Amazon Go allows the vision of the future with no checkouts, no baskets, no staff, just great technology. All you need to get access is a simple barcode on the app. Everything else is done automatically.
Grocery shopping will never be the same – launching in Seattle in early 2017 this leapfrogs most other convenience retailers.
Asda has reported the worst quarterly drop in sales a massive 7.5% in the last 3 months.
Let’s just sit back for a moment or two and think about this. All the major “multiple” retailers are in decline apart from Waitrose. That is a seismic shift in consumer behaviour, multiple retailers are being attacked by discounters, convenience and online in one of the biggest shift in consumer behaviour since supermarkets first appeared and impacted local high street stores.
Change in market share
So if you are an FMCG brand trying to find growth the worse place to be is within multiple retailers. Your choice is the unpredictability of discounters (smaller range) or stick with volume in multiples and expect exceeding price and margin pressure.
Sainsbury’s has become one of the first UK multiple grocers to move to compete with Amazon – as reported on Friday by Reuters
There are some fundamental issues around this strategy. One company I would not have a price war with is Amazon!
Amazon traditionally operate on around a 15% margin from suppliers. Not all categories work within this margin structure but in comparison with UK retailer margins of between 30-40% a price war at this level would only suggest one winner.
Some interesting stats within this report though also point to a doubling of the online grocery market by 2020
Britain’s online food market is expected to nearly double to 17.2 billion pounds in the five years to 2020, according to industry research group
The supermarket landscape in the UK isn’t looking great just now. All well known retailers such as Tesco, Asda and Morrisons are really struggling with a pincer movement from heavy discounters (Aldi, Lidl, Poundshops etc) and e-commerce (If you have a retail week subscription check out the winners and losers over the 2014 Christmas period)
So as a FMCG brand it continues to get harder and harder to even get listed in a large volume retailer. The fight for the consumer is driving margins down and every square foot of a retail outlet has to deliver.
I have kept on banging on about this for a few years as we have seen a move to online retail in most categories – it just seems to make sense we are going to see that in Grocery.
There is a strong manufacturing base in the UK and US, but they struggle with distribution – having depended on supermarkets for 20 years, why invest in anything else.
So I really do believe that the time has come to drive FMCG brands online, but the skill set to do this does not really exist in food manufacturers.
That is why we have formed Move Fresh. A group structure that will hold a number of brands and investments in the eFMCG space.
The group has a long term strategy and will utilise the shared IT, logistics and brand management infrastructure to grow over the long term.
It seems more and more evident to me that one of the last areas of traditional e-commerce to go mainstream is Grocery.
Most FMCG (Fast Moving Consumer Goods) brands are hugely dependent on the retailer (Multiple or otherwise) to drive volume in terms of sales. Anyone launching a consumer product first thinks about selling it to Tesco, then once this doesn’t work thinks about selling to independents (usually with an excuse about not wanting to work with Tesco!).
Apart from Diet Chef there are some great examples of brands that have grown online and are potentially looking to drive into retail as a secondary activity. Selling online has it’s advantages but also makes things hard. Delivery and distribution costs are pretty fixed no matter if you are sending 1KG or 30KG, costs of warehousing, staffing and IT are the same.
Many existing FMCG brands play at selling online. They think it will be the solution to the problems they encounter with retailers, it isn’t. On many occasions it causes massive conflict. A retailer is in control of the price that they sell the product to consumers at, you cannot specify exact retail prices – just suggest them. If you start to sell online at a lower price than the retailer they complain, if you sell at a higher price – the consumer heads for the retailer.
The advantage of selling online is not about improving margin but having a direct dialogue with the consumer lets you understand problems with your products on a daily basis. This feedback is invaluable to any FMCG brand and most spend thousands of pounds a year to get this level of insight.
There are a number of companies popping up using the Internet to sell directly to consumer but I have some simple rules and guidance that I follow to make it work.
I will cover some of the pitfalls of FMCG brands selling online in the next few blog posts.