Amazon Positioned to Use Data to Dominate Where It Wishes

For those who think Amazon is a mildly successful, online retail sales machine, consider this: Forrester Research has concluded that Amazon's $13.7 billion acquisition of Whole Foods should "raise a red flag for all retailers."

In a quick report issued shortly after Amazon's announcement of the Whole Foods deal last month, Forrester analysts illustrated how the acquisition of a minor U.S. grocery chain may overturn the shopping cart in supermarkets. Groceries amount to an $850 billion business and it's ripe for disruption.

Shoppers have been going to the grocery store for decades to employ their personal taste in the types and condition of food they want to take home. The success of smaller supermarkets with more of an individual touch, such as Whole Foods, Mollie Stone's and Trader Joe's, has already illustrated how grocery shopping can be disrupted by a new approach.   

The German-based Aldi chain wants to grow from 1,600 stores in the U.S. (Trader Joe's is an Aldi brand) to 2,500 by 2022, requiring a $3.4 billion investment. Another German brand, the Lidl chain, wants to open 100 stores in the U.S. in 2018, bringing "delicacies from around the globe" into daily shopping, according to Forrester. Double-cream brie, anyone?

Want to learn more about Amazon's disruptive force? See Can Amazon Disrupt More Markets? Let Me Count the Ways.

If these chains can create a new grocery shopping "experience" and make consistent quality and online ordering part of that experience, the more traditional, check-out line supermarkets may find themselves in the modern consumer's rear view mirror.

Not that many people order their groceries online for home delivery just yet – about 12% of existing online shoppers, according to the report by analysts Brendan Miller, Brendan Witcher and Fiona Swerdlow. But another 11% order electronically and go to the store to pick up their orders themselves, their report said. It's available here with registration.

It's that combined 23% that Amazon threatens to rapidly expand with Amazon Fresh and the Whole Foods acquisition. Whole Foods gives it 450 business points with an existing culture of healthy food offerings, and the same number of package pickup locations.

Those who do use online ordering systems are getting less than half – 41% -- of their groceries through that process. Predictable, non-perishable, packaged goods are the typical target of an online order. Amazon is seeking to add fresh and perishable foods to that list through its same-day delivery capabilities.

In San Francisco, Trader Joe's shoppers fight to get in and out of its stores' parking lots, a sign of the degree of engagement that the chain enjoys, compared to Safeway, Lucky or Andronico's (recently acquired by Safeway). Amazon is seeking to become the vendor with a similar high degree of customer engagement.

Thinking about Amazon expanding into groceries is beside the point. What it does with Whole Foods, it could repeat across almost any sector of retail it chooses.

What's more, it's shown that it's skilled at mining customer data and reading customer intentions as they arrive at its website. If Amazon affinity engines already know a lot about you from your book and clothing purchases, for example, think how much more depth of knowledge they'll gain by watching your food purchases. And that puts Amazon in a better position than anyone else to offer drugs and pharmaceuticals, vacation travel, movies and music and other goods.

Amazon is not just in a position to know what categories of goods you like to buy but also at what level of brand you prefer to spend. Are you a bargain basement or luxury goods shopper? It can tailor its retail presentation to appear to be a cost-saving approach for one consumer, a luxury goods provider to another.

Or consider this level of engagement as cited by New York University market professor, Scott Galloway, in the Southeast Asia ecommerce retail portal, ecommerceiq: In 2-3 years, Amazon will take "your purchase history, your credit card history, these (Echo) dots you have around your house and say: 'Tell you what, we'll be your only retailer. You don't ever need to go shop anywhere else. We're going to send you two boxes, twice a week…. One's going to have the stuff in it we think you want, and the second box is going to be empty for you to just put the stuff you don't want back in and send it back."

Amazon will use the send-it-back box for more direct data on what you want and recalibrate the Echo dot system to come closer next time. Now that's customer engagement. If there's some way to combine it with a pleasurable, in-store shopping experience, where consumers go to learn something new, see the latest trends, sense what others like themselves are buying, then Amazon will be a formidable force in whatever area of retail it chooses.

The Forrester analysts urged retailers to think of their future competition in such terms. "Playing defense will just prolong your demise," they warned.