Final debriefing about case n. 16 “.com, Inc.: Driving Disruptive Change in the U.S. Grocery Market Analyzed by Valentina Palmerio

Scientific articles/papers

State at least n.1 scientific article/paper you selected to support your analysis and recommendations

N. Title Author Journal Year, Link 1. Competing with Zhu, F., & Liu, Q Strategic Management 2018 complementors: An Journal empirical look at Amazon. com 2. Guidelines for Dobbs, M. Competitiveness Review 2014 applying Porter’s five forces framework: a set of industry analysis templates 3. Fathoming Porter’s Karagiannopoulos, Fathoming Porter’s five 2005 five forces model in G. Georgopoulos, forces model in the the internet era N., & internet era Nikolopoulos, K

Describe the company’s strategic profile and its industry Applying the tools of analysis covered in the whole textbook, identify and evaluate the company’s strategic profile, strategic issues/problems that merit attention (and then propose, in the following section, action recommendations to resolve these issues/problems). Amazon.com, Inc. is an American electronic commerce company based in , , it is the largest Internet company in the world. Amazon was begun in 1994 in Seattle Washington by and was initially little more than an online bookstore. From those humble beginnings, Amazon has become the largest online ecommerce retailer, and one of the most powerful brands in the world. Not only has it expanded its offerings of goods and services, but it also participates in the streaming video marketplace, the cloud computing marketplace, and most recently Amazon has entered banking.

Amazon.com Inc. competes against a variety of firms, including smaller online stores and large firms like . The global scope of the e-commerce business also exposes Amazon to a diverse set of external forces. Thus, the company must ensure that it remains resilient amid changes in the conditions of the online retail industry environment.

Following is a detailed Porter Five Forces Model Analysis:

1-Competitive rivalry (high force): the rivalry in the online retail industry is very high. This is because the number of players in the recent years has grown. Secondly, traditional brands are also offering online sales giving further competition to these online retailers. The competitors of Amazon are eBay, Alibaba, Flipkart and other. For Amazon, it’s not just these other giants that are giving it a tough time: many small-

1 scale retailers that are specifically targeting particular products such as electronics, apparels, auto parts etc. all of this has lead to intense rival competition for Amazon.

2-Threat of New Entrants (low force): although is not difficult to create an online retail store but to reach the level of Amazon would take a lot of investment, time, and efforts. The expansion and growth of the digital technology has brought several changes in the retail industry. Many new brands have entered the e-retail segment. Many international and domestic brands have emerged, all these brands can enter but will not be able to take on a giant such as Amazon. It would require extensive investment in warehousing distribution, logistics, marketing, and other factors. Similarly, there are many other factors like time and brand reputation that market difficult for new entrants to challenge Amazon or attempt to market share form it. Thus, the threat of new entrants its low for Amazon.

3-Bargaining Power of Suppliers (low force): being such an established player in the industry, Amazon always has the upper hand over the suppliers in the supply chain. Although the number of suppliers to Amazon is very large, they must follow a certain set of rules and regulations laid out by Amazon. Amazon ensures that the suppliers it is purchasing are following ethical working principles at their work locations. No supplier can even think of forward integration. The switching cost for supplier for Amazon is almost negligible. Due to its large sales for every item, there are many suppliers that are ready to supply Amazon with the required products. Therefore, no supplier can attempt influence the product prices of Amazon. So, the bargaining power of suppliers against Amazon is low.

4-Bargaining Power of Buyers (high force): Amazon lays a lot of stress on customer satisfaction and product quality. It ensures that the products are received on time and any returns or replacements are properly handled to convert first-timers into repeat customers. The buyers switching cost is low. Also, buyers are well informed and due to increasing trend of online retailing, buyers have several options to go to. Buyers have a strong bargaining power against Amazon due to the number of competitors it has.

5-Threat of Substitutes (high force): the substitution to Amazon are retailer like Wall-mart, branded outlets, online stores of brands that Amazon also sells, small markets in cities and soon. Since Amazon does not sell anything unique, it faces very high threat of substitution. A single bad experience will drive a customer away from online retailers. At the same time, there are still many people today that prefer to visit a retailer rather shop online for their needs. This all creates high threat of substitution for Amazon.

In the world of the Whole sale market there is a lot of competition, Amazon is among the strongest in the market but not the only one:

In the top position of the strongest there are Amazon, E-Bay and Walmart, they rank among the most used and well-known online retailers with a high reputation. Below the position is an American company in the retail sector. It is the eighth retailer in the and Co, Inc

2 is the largest retailer of in the United States and among Fortune’s 500 companies. Also operates in , Mexico, and . Of smaller dimensions there are Macy’s is a chain of the great American distribution and J. C. Penney Company, Inc NYSE: JCP is an American chain based in Plano, Texas.

Jeff Bezos, CEO of Amazon, realized that e-commerce giant could not win the grocery game with its pure online format. He saw brink and motor stores playing a key role and hence acquired Whole Foods. In addition, by early 2018 Amazon also rolled out a high-tech format sans cashiers or check-out lines called and Store Pickup Services.

According to some analysists, while grocery was a huge opportunity for Amazon, operating in this new business might pose some new challengers including intense competition, razon this margins, delivery of perishables and bringing the convenience of digital shopping to the grocery business.

Amazon Go

Through the acquisition, Amazon immediately assumed not only a network of 480 top-notch retail spaces, but also access to a complex network of multiple partners within the supply chain. The acquisition will also shape the design of how the customer will be exposed to Amazon’s grocery products. This design will constantly be improved over time as Amazon also implicitly acquired valuable customer data of buying habits and patterns that will help tailoring the grocery shopping to the individual. Another enabler that can be identified is the focus on the non-consumer, the offline shopper, for whom well- located physical retail spaces were immediately established, which also impacts convenience positively. In general, the disruptive power of this acquisition is given through the fact that acquisitions of this size are only feasible for a very limited number of industry incumbents.

The fact that an existing offering (a convenience store) is equipped with new technological innovations to make cashiers redundant shows that Amazon uses the transformation vehicle that focuses both on convenience and speed within the distribution, technology and design category. Amazon Fresh, e-commerce platform

In 2017, an online grocery deliver service that allowed customers to order fresh produce and grocery online. But Amazon faced problems inherent in the home delivery service including excessive wastage of food, management of refrigerated warehouses, hiring additional delivery people in each new market and logistical complexity. The high cost of the losses caused by food spoilage was an issue with Amazon Fresh that the company had never faced with its other businesses. In 2013 Amazon Fresh expanded to and and continued to experiment in these new cities in different way: with free loyalty program offered free or discounted delivery based on customer’s total spending within a certain time period (called Prime Fresh). In 2014 Amazon launched Amazon under which items were delivered to the customers within two hours of ordering without any shipping cost. Exclusively to customers, Amazon further expanded the offering to include one-hour delivery from local stores offering items such as grocery, prepared meals, and bakery items. The war to conquer the scepter of online retailers has started for a long time and Amazon is not only leading but is also gaining more and more ground, especially compared to the competitor par excellence of the creature of Jeff Bezos in the market stars and stripes, namely Walmart, which on line holds only 9% of market share against 18% of Amazon. USA: the best-selling coffee, but perishables are growing

The most popular foods sold by Amazon in the United States are: top drinks, especially coffee, always the category of food sold by Amazon. And although this category will certainly remain for a long time

3 the most acquired, according to the analysis we must not underestimate other categories that are already giving very interesting signals, anticipating a change in progress. According to the report, in fact, the fact that milk and cream is the food subcategory with the highest growth (+152%) is a symptom that consumers are beginning to give confidence to Amazon in the daily purchase of perishable foods, I thought of it as a regular . In conclusion, Whole Food Market is potentially combination because has the power and all the possibilities to change people’s lives and habits in shopping.

Your action recommendations Write your recommendations and be critical not descriptive. Quote the references you accessed to let the reader understand how you used them to prepare the answer: you will have to justify and reinforce your suggestions even to actualize problems and solutions to the current scenario (that could be different than the one descripted in the reading).

Whole Foods gave Amazon the brick-and-mortar platform that many internet retailers have begun to realize is essential to minimizing the costs of returns, delivery, and marketing — not that Amazon needs much of the latter.

Whole Foods, AmazonFresh Pickup and AmazonGo is the ideal combination of formats to meet customer demand for groceries. As the online demand for food has yet to be a big success, Amazon has turned toward a multi-channel offering, expanding from e-commerce to investing in brick-and-mortar stores. A particularly innovative example is AmazonGo. Using artificial intelligence and RFID – what Amazon has dubbed the “just walk out technology” – customers with the AmazonGo application simply enter one of the stores and select the items they wish to buy. Every time a product is taken, it is automatically added to the customer’s personal Amazon account – no more need to wait in line or go through a physical checkout.

The acquisition of Whole Foods by Amazon makes it possible to combine two leading brands, both focused on a customer-centered approach. Partnering with Whole Foods will allow Amazon to expand its multichannel offering and further enhance the customer experience. The potential for development is enormous because is mainly present in the United States today, but the concept could be extended to other countries.

A strong point is that Amazon is becoming so big and financially powerful that it can afford price cuts, a model that may not be sustainable for other food retailers.

With its strong foundation in online retail, Amazon is now looking to fuel its future growth through new channels, as shown by the Whole Foods acquisition. The grocery industry is a particularly attractive new market for Amazon’s loyalty-driven strategy, as grocery shopping is one of the most regular and predictable retail behaviors. This creates a recurring customer touchpoint that gives frequent opportunities to build strong and long-lasting relationships. 4

With this new approach Amazon meets the customer, making his life easier and more comfortable, but at the same time it goes against small retailers who are penalized for not being considered by the big giant.

I think that Amazon is crazy successful because of the emotional resonance it has been able to achieve in the hearts and minds of people… yes, partly because of Prime shipping, and the quickness and easiness to purchase something. People have grown attached. It is hard to beat that once they have gotten used to buying from a certain place. Amazon’s super-innovative strategy, as we can see, is working well, but as far as the market is concerned, we should consider small food retailers. In this way Amazon will be appreciated and used by everyone.

Jeff Bezos to improve its diversification strategy and expand the range of customers should consider not only the giant of the market but also collaborations with small food retailers.

Optional section: additional sources (company disclosures, web pages, video etc) N. Title Author Journal Year, Link number 1. Amazon Carlo Investire 2017 https://www.investireoggi.it/economia/la-spesa-breve-amazon-la- rivoluziona Pallavicini oggi il mercato rivoluzione-nel-mercato-alimentare/ alimentare: ecco come faremo la spesa e perché negli USA è già guerra

2. Amazon's Forbes 2017 https://www.forbes.com/sites/jasonbloomberg/2017/06/23/amazons- Whole Foods whole-foods-strategy-its-not-what-you-think/#7cd6a09ea822 Strategy: It's Not What You Think

3 Introducing YouTube 2016 https://www.youtube.com/watch?v=NrmMk1Myrxc#action=share Amazon Go and the world’s most advanced shopping technology

4 How Nick The 2018 https://www.theverge.com/2018/10/23/17970466/amazon-prime- Amazon’s Statt Verge shopping-behavior-streaming-alexa-minimum-wage retail revolution is changing

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the way we shop

5 https://ecommerce-platforms.com

6 https://it.investing.com/equities/amazon-com-inc-earnings 7 https://www.marketwatch.com/

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