In short, Amazon bets on Whole Foods to deliver groceries and events like its Amazon Prime Day on July 11.
Walmart (the world’s number 1 retailer) bought Jetcom and now Bonobos to further reduce prices and compete with Amazon.
Carrefour (the world’s number 2 retailer) left growing markets such as Colombia or Thailand. It also seems a bit too reliant on a business model developed in the 1960s.
Aldi and Lidl just opened plenty more stores in the US, UK and elsewhere.
We discuss this a bit further and wonder, who of the three famous gladiators will win… or will it be Tesco, Lidl or Aldi?
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We discussed how increasingly challenging e-commerce is becoming in several previous posts:
- Booking.com, Yeego: NH Hotel Group #epicfail
- Steve Jobs and great customer service: 3 keys to success
- Digital Marketplaces: German Marketing Association’s Competence Circle #CCdigitalM with #MCLago
1. Are we profitable?
Which of these companies is the most profitable? Considering the news coverage it gets, one would think the answer is Amazon. I was surprised when it set out to purchase Whole Foods, an upscale food store chain in the US, for US$13.7 billion.
Of course, analysts may feel that this could help its nascent grocery business, Amazon Prime Pantry. In other words, it might allow this online supermarket to acquire enough local brick-and-mortar points to deliver perishable and staple household goods to its clients – one of the challenges it tries to overcome with its Amazon Pantry service in Germany.
But Amazon is spending less (US$500 million) while taking on more risk in India right now for its grocery business there. Here, the biggest challenge is the heat, so a large fleet of refrigerated vans is a must. It might even buy India’s largest online grocer Big Basket, which is heavily invested in Asia and poised to move into Australia.
But in India, roughly 1 percent of total grocery sales (about US$150 million) is done online. Compare this to the UK’s 5 percent… It’s no wonder the UK is considered the most advanced online market for consumer staples.
Jeff Bezos founded Amazon in 1994. In his first letter to shareholders in 1997 he pointed out the following:
… Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive competitive entry.
But this is Day 1 for the Internet and, if we execute well, for Amazon.com.
Takeaway: Some CEOs’ performance is measured differently
It shows that Jeff Bezos took a risk launching Amazon. But he was also at the right place at the right time.
Similarly, the touchscreen era began 10 years ago on June 29, 2007 when Apple’s iPhone first went on sale. The iPhone’s timing was impeccable. Google Maps and YouTube use were on the rise and, most importantly, the emergence of affordable mobile data contracts happened shortly afterwards.
If we had invested US$1000 on May 15, 1997 in Amazon shares, they would be worth about US$666,000 today. But Amazon has yet to pay dividends. Understandable, considering Amazon has a US$136 billion turnover, but made just US$2.6 billion net profit last year.
Hence, my profits come from the rise in its share price – nothing more, nothing less. But my banker would probably not give me a small business loan based on such low profitability, would they?
Jeff Bezos’s success is measured on entering new markets both geographically and businesswise. Walmart’s CEO Doug McMillon’s success is measured based on profits.
Fair? Maybe, maybe not – but investors are not always rational…
So are Walmart, Carrefour, Tesco, Lidl and Aldi doomed?
2. Where is brick-and-mortar going: Doomed?
Well, considering that Credit Suisse (mentioned in FT article) estimates that 8,640 brick-and-mortar outlets in the US will close their doors this year alone, tough times are coming for Aldi, Walmart and co… Maybe.
By the way, the Credit Suisse study mentioned in the FT article cannot be found on the bank’s website. This illustrates how Credit Suisse fails to understand the digital age as far as communicating their research is concerned :-(
Brick-and-mortar businesses have tried hard to fight the onslaught of digital vendors. For instance, former Carrefour CEO Plassard restored workers’ pride in being part of the French retailer’s staff. He came in 2012 and made a lot of changes to the 12,000-outlet strong retailer doing business in 30 markets.
Unfortunately, the company still lacks a clear vision on how retail will be shaped within the next 10 to 15 years. Its challenge is that:
- nearly half of its sales are generated in France,
- its online reach is limited, AND
- its hypermarkets are challenged by discounters like Leclerc and Aldi, both of which are nipping at its heels.
New CEO Alexandre Bompard is supposed to fix the problem. He was hired based on his success with Fnac Darty, France’s largest brick-and-mortar chain. He has quite successfully fought off Amazon in France:
Takeaway: Expansion can help
In 2016, e-commerce accounted for just about 1 percent of sales for Carrefour.
Walmart went a different route by pursuing deals to improve its online reach. It paid US$3.3 billion for internet retailer Jet.com in 2016, resulting in online sales increases of 63 percent in the first quarter of 2017 in the US alone. Its challenge is to integrate key elements of its e-business with Jet.com. This also goes for 10-year-old Bonobos, a digital-focused men’s apparel group that was bought for US$310 million in cash in June 2017.
Aldi’s planned US expansion from 1,600 to 2,200 stores will make it the third-largest grocery chain operator in the country behind Walmart and Kroger.
But neither Aldi nor Lidl have a great web presence and apparently have no plans to change that any time soon.
- Do they know something investors in Amazon may not?
- Are they wrong to expand so much with brick-and-mortar instead of in the digital marketplace?
3. Who is the winner? Growth versus profit
We do not know for sure. One reason is that we seem to be comparing apples to oranges. Amazon is growth-hungry, while Walmart is fighting for market share, but continuing to be far more profitable than Amazon (see also income statement).
Of course, the question is which of the two businesses will be healthiest in ten years’ time.
Both companies need to strive for excellence. Amazon will succeed as long as its shareholders value growth more than profitability. My bet is on Walmart staying ahead by continuing to strive in optimising its:
- Strategy: How do we assure the strengthening of our Unique Selling Propositions (USPs) by using offline and online sales channels?
- Best Practice approach: How can we strengthen our USPs… by doing what exactly?
- Synergies: How can we better leverage offline and online activities, infrastructure, and logistics to optimise revenue channels?
- Market Positioning: How can we use our online e-commerce insights smarter in our offline business and vice-versa, as well as selling B2C (business to customer) versus B2B (business to business) in more markets?
Of course, economies of scale will continue to play an important role. Moreover, dynamic pricing might play a bigger role in the near future.
Nevertheless, the last word has not been spoken. I, for one, do not appreciate Amazon’s smart attempts at dynamic pricing when selling me print books, for instance (see below).
As the above example shows, value-pricing used in combination with dynamic-pricing succeeds with me, sometimes. Some brick-and-mortar businesses have started to do the same in-store such as Fnac Darty and Migros. So far without a big backlash from their clients. But once they realise what is happening… who knows what could happen?
[su_box title=”Table 1: Dreaming together” box_color=”#86bac5″ title_color=”#ffffff” radius=”5″ width=”px 700″ ]
While Tesla and Amazon’s share prices continue to go up, if not soar, investors continue treating traditional carmakers and brick-and-mortar businesses as if they were seriously ill.
But the gloom surrounding the incumbents, which still have strengths the upstarts lack, seems overdone.
See also: Together in electric dreams
By the way, since their record-high price in June, Tesla shares have fallen by 18 percent. The Insurance Institute of Highway Safety (IIHS) conducted a crash test with the Tesla S and did not give it the highest rating. The research arm of the insurance industry, the IIHS’ crash tests are increasingly influential in guiding vehicle safety design.
4. Have your say – join the conversation
What is your opinion?
- Do you think Walmart will continue to be number 1 or be taken over soon by Amazon, Aldi or Lidl?
- What do Aldi / Lidl seem to know that Tesco, Walmart or Kroger do not?
- When will Amazon pay its first dividend – care to guess? For its 25th anniversary?
The author declares that he had no conflict of interest with respect to the content, authorship or publication of this blog entry (i.e. I neither got a freebie from any of the mentioned companies nor are they our clients to the best of my knowledge).
Final remarks – July 11, Amazon Prime Day
Being a member and paying €69 or US$99 a year gives you faster delivery and allows you to shop and get exclusive deals during Amazon Prime Day. This year Amazon announced on June 30 that the big day will be July 11.
This Tuesday, clients get access to hundreds of exclusive deals, not for the usual 24 hours, but 30 hours. The digital marketplace giant bought TV spots for the event on various channels and in several time slots in the US (see below).
This reminds me of Christian Meyer from müllermilch (responsible for much of their marketing). In his talk at the #MCLago event in Constance (Lake Constance), he explained why his company prefers TV advertising over digital. Seems he is onto something, considering giant Amazon also uses TV to get people’s attention.