How the Amazon factor is forcing businesses to take risks like never before
By Richard Siddle
Now I have a confession to make. I don’t like musicals. At least not the live versions when what seems like a perfectly good play is ruined when one of the lead actors breaks into a highly tenuous song roughly related to what’s going on in the main plot.
But I do like some of the songs. In fact I struggle to get some of them out of my head, particularly when they pop into my mind when I’m researching a particular story.
Like Amazon and its ever increasing power over not just the internet, or the high street, but seemingly any business looking to sell goods or services.
It really is becoming a bit of a problem. Which for me immediately sparks a musical classic into my mind: “How do we solve a problem like Maria?” I know. It’s annoying.
It’s also a dilemma that is forcing competitors and staunch rivals to do things they would never normally consider if there was not the threat of Amazon hovering over them like the Death Star.
Across the grocery and drinks industries we are seeing some strange and left field alliances taking place as major companies are prepared to step into the unknown and team up in ways we have not seen before. Particularly if they have to find new ways to keep their shareholders happy.
Technology first in the US
Let’s first look in the US. Here major traditional retailers like Walmart and Kroger have made a number of strategic alliances with technology companies to help them change their business models, particularly when it comes to online and home delivery. Alliances they have admitted are about protecting themselves from the advances of Amazon, as well as making their businesses better.
Wal Mart, for example, has forged links with Japanese technology company, Rakuten, to enhance its e-commerce skills both in the US, Japan and Asia.
A deal that Walmart’s chief executive, Doug McMillon said was part of its desire to “make every day easier for customers by offering great experiences in stores, online, via mobile—no matter how customers want to shop”. A mantra that could have come straight out of Amazon itself.
Kroger is the latest international retailer to sign a technology deal with UK home delivery grocery business, Ocado. Now Ocado’s basic home grocery delivery service may not be particularly exciting or cutting edge, its technology, however, is. Particularly in how it has developed automised warehousing, logistics and picking services.
Ocado has recently signed deals with Group Casino of France, ICA Group in Sweden and Canada's Sobeys where it will build them one automated warehouse each. Kroger’s Ocado deal could see up to 20 automated warehousing sites built in the US over the next three years, allowing Kroger to be ready and waiting once the big on demand push comes in America.
All these chains see technology as a key tool to help them fight back against the power of Amazon.
Consolidation in the UK
It’s the same in the UK where there has been a whole host of odd partners getting into bed with each other in a bid to keep Amazon at bay.
We’ve seen Tesco buy up Booker, the major cash and carry and convenience retail group. Giving Tesco, in one swoop, the opportunity to supply catering businesses and the mass volume on-trade, whilst also giving them a large footprint across the c-store sector. Arguably it’s the c-store angle that makes the Booker deal so strategically important as it gives Tesco the opportunity to use that hub of local stores to better manage fast, within the hour, on demand deliveries that Amazon currently beats it hands down with.
Then there is Asda’s proposed merger with rival Big Four retailer, Sainsbury’s, that will potentially leapfrog the current numbers two and three in the market into being the number one supermarket group with enormous buying power.
A move that has even raised an eyebrow or two at Amazon and ramped up speculation that it will step up its attempts to buy its own share of the UK grocery sector with Morrisons, which already supplies goods to its new ‘Fresh’ grocery online service in the UK.
Just this week we have seen Europe’s biggest retailer, and a major global force, Carrefour, the French supermarket chain, announce a strategic alliance to source products with Tesco.
Again a deal that has to be seen with the spectre of Amazon lurking in the background very much influencing their collective need to do things differently and disrupt their own business models, rather than wait to be disrupted by whatever Amazon chooses to do next.
Carrefour and Tesco say the alliance will see the two combine their considerable buying forces to get better terms with major suppliers to supply their combined 19,000 stores. Now Amazon may be big, but it can’t just rustle up 19,000 stores overnight.
Sourcing private label and gaining better deals from their multinational supplier base of Nestle, Procter & Gamble and Unilever is a real statement of intent to act and work differently.
It also comes in the wake of Amazon’s own move into bricks and mortar grocery retailing with its $13billion acquisition of upmarket chain Whole Foods last summer. This is very much part of Amazon’s own clear strategy to diversify its own offer away from purely online to having a high street, retail presence where it can put its offer and unique way of doing things directly in the face of more well heeled consumers.
New supplier demands
All of which means food, drink and wine suppliers are all now having to operate in a very different retail landscape than they were at the beginning of the year, never mind three to five years ago.
Wine producers and distributors should expect the demands placed on them from retailers across all sectors to be different in the future. They need to be flexible and adaptable enough to step up.
Now in what direction those demands are going to change is not yet known. But if traditional retail models are being transformed in front of our eyes then the businesses supplying them need to be changing at even a greater pace to ensure they are even more relevant, effective and efficient to work with in the future.
One obvious way is to fight power with power. Just as the big retailers are combining to make themselves more powerful, then so are the major drinks companies.
Leading the way are the big multinational brewers, like the $52bn deal in 2008 that saw Inbev buy rival brewer Anheuser-Busch. All the major brewers, particularly Molson Coors, Heineken and Carlsberg, have all gone on major acquisition drives since to build up distribution deals and partnerships. Deals that help them protect not only their market share, but also gives them clout when negotiating with the giant retailers and likes of Amazon.
The wine industry is perhaps not as bullish as the beer sector, but again we are seeing bigger businesses join forces to create larger, more powerful alliances.
Only this week we have seen the Carlyle Group that already has Australia’s Accolade Wines in its portfolio take a €390m majority stake in Spanish Cava giant, Codorniu.
Henkell, the giant German sparkling wine business, is finalising its deal to bring in Freixenet, another major Cava player into its growing empire, that already includes premium Prosecco brand, Mionetto, and UK drinks producer and distributor, Copestick Murray.
As the world becomes an even smaller place, dominated by major powerful bodies such as Amazon, then it’s the suppliers prepared to take the biggest risks, backed up by the largest, most innovative resources, that are set to benefit the most.