The threat of Amazon

This article originally appeared in Propel Friday Opinions March 2016

 

Should we, in the hospitality sector, be worried about the deal between Morrisons and Amazon? Or is it something that only the other major retailers should be concerned about?

The FT said on Wednesday (2 March), the day after the announcement: “Amazon has been struggling to make a grocery delivery business work for most of a decade, with limited results. It is fine shipping bulky, long-lasting consumables such as nappies, kitchen towels and detergents. Fresh meat and fish, fruit, eggs, milk and all the rest that makes up a family shopping trolley has proved much harder. It spoils. It is difficult to return. Some of it has to be refrigerated in transit.”

Amazon has promised to deliver fresh and frozen goods to customers within an hour in some places. I am fascinated to see how it is going to make this work. My Amazon parcels are left in my porch (sometimes overnight) and I can’t be the only one who never gives a thought to my frequent book deliveries – how is that going to work with frozen or chilled products? The only thing for sure, is that Amazon will sort this out.

So should we be worried? Well, perhaps not worried, but the deal should cause us to stop and think for a number of reasons.

 

1. The power of strategic planning

Jeff Bezos has stuck by the strategic plan he presented to shareholders in 1997. That is: “Amazon.com uses the internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets.” He has been determined, focused and single minded. His strategy has been clear from day one. He has been prepared to try to fail but he has never rescinded his initial vision for the business.

 

2. The hedgehog principle

Amazon totally embodies the “hedgehog” approach discussed in the seminal book “From Good to Great” by Jim Collins. It has created complete dominance in its marketplace and been totally focused on what it does well. This reminded me of a presentation at a Numis conference (last year I think) when I asked the chief executive of Domino’s to name his key competitors. “Amazon and Asos,” he replied. Of course Domino’s sell pizzas but fundamentally it is an IT/digital company and wants its customers to be able to order pizzas with one click. Not very different from Amazon in that respect. Knowing what drives its economic model, knowing what it is passionate about and knowing what it can be best at in its markets, has made both Domino’s and Amazon live demonstrations of the hedgehog principle and the power of having a core business purpose.

 

3. 100% customer focus

I learnt a massive amount from the book by Brad Stone called “The Everything Store: Jeff Bezos and the Age of Amazon” – in particular how a 100% focus on providing value to the customer dictates Amazon’s approach to everyone, particularly its suppliers. It is completely ruthless in doing this. It doesn’t accept cartels, long standing agreements, old ways of doing things – it breaks down all barriers in its search for customer value. It’s not nice to read (a bit like reading about Jack Welch’s way of doing business) but you can’t help but admire them. I think we will see the customer apprising Amazon more and more as the supreme example of outstanding customer service – quick, innovative, personal. These are the principles it may be looking for in its other food (including restaurants?) providers.

 

4. A relentless pursuit of innovation and ‘out of the box’ thinking

Who would have thought Amazon and Morrison’s would partner up? According to the Guardian on Wednesday (2 March): “Online accounted for 6.7% of grocery sales last year. However, the category grew by 9% year-on-year at a time when the wider market is in decline.” Amazon needed a way to make this growing grocery market work for it in the UK. This deal is ground-breaking and demonstrates Amazon’s ability to consider non-conventional routes to achieving its objectives.

I think the deal is audacious and brave and I hope it works for both parties. Not a time to be worried – more a time to learn I feel.

 

Written by Ann Elliott, CEO

By | 2017-06-20T16:49:33+00:00 March 4th, 2016|Insight|Comments Off on The threat of Amazon

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