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What the first Amazon grocery store means for established retailers

Amazon recently confirmed that it will launch its first Amazon-branded grocery store, highlighting the digital native’s ambition to dominate store retail as well as e-commerce.  

Established Australian retailers have not taken the threat from Amazon lightly, and are increasingly building out their own in-store digital capabilities.

Recent examples include Woolworths’ trial of ‘Scan & Go’ checkout-less shopping in several Sydney stores and Coles’ partnership with Microsoft. Coles will use artificial intelligence and other digital technologies to transform the in-store shopping experience, from ranging through to workforce planning.

These dramatic changes in Australian retail demonstrate the strategic challenge facing omnichannel retailers throughout the world – how to create create winning stores in a digital world?

Unless retailers with large networks of stores solve this challenge, the likes of Amazon and Alibaba will take an increasing share of the 90 per cent of retail sales that still flow through physical stores.

To understand the challenge facing established retailers with stores, consider the matrix below which looks at two key building blocks of retail success in a digital world:

  • Ability to master traditional retail skills such as merchandising, marketing, supply chain, etc.
  • Ability to master emerging digital skills, such as personalisation, artificial intelligence, robotics, etc.

The race between established retailers and digital natives

Framed in this way, the challenge for traditional retailers is this: can the likes of Walmart, Coles and Woolworths master these new digital skills faster than the digital natives can learn to become effective store retailers? 

When we posed this question to audiences at events we held recently in Australia and New Zealand, the majority backed Amazon to win. We’re not so sure, probably because many of us were previously store retailers and know how tough it is to build a successful proposition in categories like meat, produce and bakery.

Amazon’s 10-year struggle to grow AmazonFresh (before it acquired Whole Foods) illustrates the difficulty of mastering store retail, even for well-funded digital players.

However, store retailers also face a huge challenge if they are to compete on a level playing field with the likes of Amazon. The majority of retailers are missing a critical building block of retailing in a digital world – a digital connection with the customers who walk into their stores.

The e-commerce pureplays take a digital connection with every customer for granted. In fact, in Amazon’s grocery format, Amazon Go, it is a condition of entry that customers shop using its app.

Amazon’s approach to store retailing highlights its radically different mindset – Amazon sees individual customer data as a non-negotiable for a store retailer. In comparison, many traditional retailers with stores may not even know the names of their most loyal customers.

So, there are exciting times ahead for retail. In my view, the decisions retail leaders take about how to integrate digital into the store shopping experience will play a large part in determining whether they survive the threat from Amazon’s increasingly bold moves.

Jonathan Reeve is general manager ANZ for Eagle Eye, a SaaS platform that enables retailers to digitally connect with their customers through promotions, loyalty, apps, and gift services.

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