Why did Amazon buy a grocery retailer? The real question is, what capability did Amazon just buy?
Last Friday Amazon acquired high-end grocery retailer Whole Foods. This move was so over the top brilliant, that it immediately drove down the stock of Walmart and other food retailers by as much as 10%. Apart from the potential affect of how this might change where you buy groceries, I immediately thought that if Amazon can make that kind of purchase, could and should they do the same in our industry by purchasing a product company like HP?
Why did Amazon buy a grocery retailer? You have probably seen that Amazon has been testing stores that allow users to grab products and pay without going through a traditional checkout. View video here. Amazon is the world’s largest e-tailer, but for some items like food, they recognize that having brick and mortar locations are essential. The real question is, what capability did Amazon just buy? You should not think of Amazon as an e-commerce company: they are a technology and logistics company. In buying Whole Foods, they bought:
1. Product Knowledge.
Amazon did not know what country to buy avocados in depending on the month, or how much hamburger customers buy in July instead of November. Now they do.
2. Location/distribution points closer to customers.
If it’s 4PM and I don’t know what’s for dinner tonight, I’m not going to buy something online.
They also bought a company that sells high value-added products. Customers are prepared to pay premium prices for differentiated products. You would do well to go into a Whole Foods to see their product assortment. They have all the common products you are familiar with, but in many cases they have different brands, often organic, with a much higher price point. This approach is exactly why Amazon will not likely buy HP.
Check out this example of a popular HP supply the HP 970XL. I am willing to bet you can buy this for a bit less than $100. Here’s pricing on two sites:
On the face of it, you can compete with Staples “base level” pricing of $119.99. You cannot make much margin selling OEM supplies competing with Amazon. It offers $98.24—and free shipping!
Forget Staples for a minute, if you are a good Staples customer you will also get aggressive pricing. Why is Amazon pricing this product at such a low price? Because they know they offer no value add—beyond an excellent online shopping experience and great logistics. In other words, Amazon keeps prices low on popular technology items like supplies, laptops, and printers, because they need to be much lower than local resellers in order to win the business. Amazon prices are less than 10% over their cost.
This is a representation of how much they value a local dealerships customer relationships. In most cases, dealers today fixate on pricing but do not consider their substantial value-add. If dealers could combine their local advantage, AND have an e-commerce workflow that can match or exceed that of Amazon, sales could skyrocket.
What’s Better Than Amazon?
How about the ability to pick the equipment that matches your needs?
How about the ability to type in a product and search for a price?
How about a sales rep quoting a new product while chatting to a client online, like this?
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I don’t think Amazon will ever buy HP. Their current strategy is to try and choke off the value add of the reseller channel. That’s you. It’s time to fight back.