We're in the business of knowing Amazon. With the world’s most comprehensive digital retail performance tools and intelligence at our disposal, understanding the past, present and future of ecommerce is one of our most important assets.
Now in the first days of the new year, we can't help but look ahead. And we must admit (whether it fills you with hope or with dread) that Amazon will be a big part of all of our lives in 2019. The question is: what does the retail and technology juggernaut have planned? What has Amazon been up to at the turn of the year and how will those plans come to fruition in 2019 and beyond?
Here at Edge, predicting Amazon's next moves is a big part of our job. But the complex and subtle forces applied by competing channels, supply chains, regulations and consumer interests – each of these factors subject to rapid and surprising changes – makes prediction a broad and long-term game. So to inform brand manufacturers and other stakeholders, we're not going to limit ourselves to Amazon's short term goals. Instead, we're going to break our predictions out by distance: what's a hand's breadth away, what's 10k feet away and what's 40k feet away.
Part 2 – The Medium Term
We're now going to offer some predictions that may be less immediately impactful than our short term predictions but which brands should begin preparing for in 2019.
1. Grocery Finally Hits
In 2018, grocery sales on Amazon.com grew by about 45% compared to 2017. That's nothing to scoff at, but it is a drop from the 2016-2017 growth rate of nearly 60% and Amazon is still a long way off from where they had hoped grocery sales would be by now.
Of the roughly $3 billion in sales on Amazon.com, nearly half fell under the coffee or cold beverages category and most other sales were for non-perishables like snacks and cereals. Amazon has spent years trying to expand grocery beyond these limited categories and get fresh food off the ground, but with little success. Programs like Prime Pantry and Amazon Fresh have failed to convince shoppers to turn to Amazon for their fruit, vegetables, meat and other perishables.
But Amazon has no intention of giving up on fresh food, they just need to change their strategy. We predict that Amazon is finally going to discontinue the sub-par Pantry service – or at least merge it into another program like Prime Now or Fresh – and go all in on brick and mortar grocery sales. Consumers still value their ability to see, touch and smell before buying, so why not give them what they want?
On Monday, the Wall Street Journal reported that Amazon plans to add more Whole Foods stores across the US including many in suburban areas, putting more customers within range of the retailer's two-hour grocery delivery service. Earlier in December, Reuters reported that Amazon was exploring the possibility of introducing the checkout-free Amazon Go stores into several top US airports. These moves underscore the ecommerce giant's understanding that brick and mortar retail is key to winning the grocery market, and Amazon is committed to doing so.
Brand implications: Fresh food is at the heart of shopping. When Amazon Grocery finally hits, it will mean consumers are spending even more time with Amazon's properties – both online and offline – and brands will need to do the same. Out of stocks are one of the biggest issues for grocery delivery, with substitutions often made with store brand or competitors. Brands will need hyper local monitoring capabilities to forecast inventory as well as to monitor regionalized pricing and promotions.
2. Doctor Bezos
Amazon is making a major bid on health care. In January 2018, Amazon, Berkshire Hathaway and JPMorgan Chase & Co. announced the formation of a health care company with the goal of providing affordable health insurance to their employees in the US. It's not such a stretch to think that it's only a matter of time before this health insurance is made available to the general public as well.
There's also the mid-2018 acquisition of PillPack, an online full-service pharmacy specializing in ongoing and chronic prescription medications. PillPack simplifies medications by sending customers a 14-day supply of prescriptions divided into daily packets. This acquisition, which follows the launch of the Basic Care over the counter medication brand produced by Perrigo exclusively for Amazon, solves one of the retailer's key barriers in this space – the challenge of acquiring pharmaceutical licenses to sell online in all 50 states. We predict that Amazon will soon integrate the PillPack pharmacy services with the main marketplace. When that happens, this new flow of medically-motivated consumers will pose an opportunity for Amazon to upsell other health care items, including its private label OTC medications but also medical equipment, supplements, and nutrition and wellness products.
Brand implications: Amazon growing into a major health care destination will seriously disrupt the drugstore sector, with potential to shift event more share from brick and mortar to online. Impulse categories will be particularly impacted as impulse behavior does not translate well online.
3. Acquisitions, Acquisitions, Acquisitions
The two previous predictions both used acquisitions as evidence – Whole Foods and PillPack respectively – but we also predict that there are a lot more where those came from. Amazon's aggressive acquisition strategy will continue through the next few years at least, with criteria varying based on region.
In the US, look for Amazon to go after more physical presence. The retailer will target gaps in its current coverage, such as regions and shopper segments untapped by Whole Foods. Amazon has already announced the building of new Whole Foods stores, but they will also want to appeal to demographics which are less likely to shop at that particular chain. The apparel category seems like a logical next move and we need to look no further than Kohl's for a likely suspect. In 2018, Kohl's partnered with Amazon to begin accepting returns and to open Amazon smart-home boutiques, so a takeover bid would not come as much of a surprise.
Outside of the US, Amazon will be targeting the grocery category, likely with an acquisition reminiscent of Whole Foods in the US. Europe may be a challenge due to recent European Commission attention on anti-competitive grounds, so we expect the next major international acquisition to take place elsewhere. For contenders, look for the most innovative and capable ecommerce platforms in emergent regions; one possibility is Rappi, an on-demand grocery delivery startup in Latin America with ambitions to become an 'everything store' – sound familiar? China continues to elude Amazon while India is regulating foreign companies like Amazon creating barriers to growth – further acquisitions will be necessary in these very large growth markets.
Acquisitions outside of traditional retail are likely as well. Amazon has continuously strived to outdo itself in fulfillment capabilities, so as USPS, UPS and FedEx costs continue to rise, look for Amazon to acquire a logistics player. Days ago, investment firm DA Davidson suggested that gas stations would be a smart investment, and though we doubt this is currently in Amazon's plans, an acquisition in this space could be a boon to the retailer's distribution network. We know more major purchases are coming, but there's certain to be some surprises in the bunch.
Brand implications: Amazon's acquisitions have a tendency to cause a major disruption in the relevant sectors – nothing is Amazon-proof, so brands need to be careful not to underestimate the retailer.
Stay tuned for Part 3 - Long Term predictions - coming soon!