CANADIAN BUSINESS - BUS 5100 CASE STUDY PRESENTATION Instructor: Kathryn Djordjevic Team members: Bhakri Twinkle, Shah Bhumi, Agrawal Vaibhav, Malhotra Himani, Rasadiya Nirman, Batra Zubin AMAZON.COM, INC. DRIVING DISRUPTIVE CHANGE IN THE U.S. GROCERY MARKET Term - May 2021 Team 4 CONTENTS ⮚ ⮚ ⮚ ⮚ ⮚ ⮚ ⮚ ⮚ ⮚ ⮚ ⮚ Company Profile Company’s Timeline Key drivers of change in the U.S. grocery retail industry Amazon, Inc.’s evolution in the U.S. retail grocery industry Amazon Inc. / Whole Foods Market combination Macro-environmental forces Five-forces Analysis SWOT Analysis Key factors for Success Challenges Recommendations AMAZON: PROFILE ⮚ Amazon- an e-commerce company. ⮚ One of the world’s largest online retailers. ⮚ Tech giant: one of the Big-5s along with Apple, Google and Facebook. ⮚ Mission: “to be Earth’s most customer-centric company”. ⮚ Awarded as America’s Most Trustworthy Brands in 2017-2018 ⮚ Headquartered at Seattle, Washington. ⮚ 2nd HQ at Arlington, Virgina. TIMELINE 1994: Born as an Online Bookstore 2001: First 5 Million dollar Profit Cap 1999: 1-click patent, Introduced 3rd party seller marketplace Time’s Person of the Year: Jeff 1997: Bezos Goes Public, Opens 2nd distribution facility 2013: Introduced Prime Air drone delivery service 2000: Amazon’s launch of New Logo 2014: Launched Amazon Echo & Alexa 2015: Amazon’s 1st physical Book store 2005: Launched Amazon Prime 2002: Started selling clothes 2018: $1 Trillion Market Cap 2007: Kindle Release 2006: Introduction of Amazon Web services 2019: 25 Years in Business 2011: Kindle Fire Release 2021: Jeff Bezos announced to stepped down as CEO ACQUISITIONS ⮚ 2008: Amazon acquired Audible, an audiobooks company. ⮚ 2009: Amazon acquired Zappos, an online shoe shopping website. ⮚ 2012: Amazon acquired Kiva Systems, a robotics company. ⮚ 2014: Amazon acquired Twitch, a social video-game streaming website. ⮚ 2017: Amazon acquired Whole Foods, a supermarket chain in America. KEY DRIVERS OF U.S. GROCERY RETAIL INDUSTRY CHANGE ⮚ keep prices low ⮚ Wisely chosen location to ⮚ Less time consumer tackle competition ⮚ Strengthening customer relationships ⮚ advantage of advanced business data analytics ⮚ Convenient and time ⮚ Change in eating habits saving ⮚ User friendly ⮚ From anywhere and at any time ⮚ Overall shopping experience ⮚ Change in cooking habits ⮚ Efficient food spoilage Management ⮚ Effective Control to increase turn over rate Blue Ocean Strategy: Amazon, Inc.’s evolution in the U.S. retail grocery industry STEPPING INTO THE GROCERIES RETAIL MARKET THROUGH ONLINE STORES ⮚ Groceries Retail Market is the second largest category of retail sales after general merchandise in the United States ⮚ Bezos wanted Amazon to establish its presence in the grocery sector as he sought to make his company the “everything store.” ⮚ Amazon forayed into the grocery business in 2007 by launching AmazonFresh, an online grocery delivery service that allowed customers to order fresh produce and groceries online. ⮚ Customers could order from more than 500,000 items for same-day and early morning delivery. ⮚ The AmazonFresh service was available exclusively to Prime members in select cities in the U.S. for an additional monthly membership fee of $14.99. FROM CLICKS TO BRICKS ⮚ Though Amazon has been building online delivery services, grocery sales were limited to only 4.5% of the total grocery market, i.e $9.7 billion out of $781.5 billion in year 2016. ⮚ Many people were reluctant to online shopping. ⮚ New Grocery experiment started with a convenience store like format in December 2016. ⮚ A check-out free convenience store was opened at Seattle on Jan 22, 2018 for public. ⮚ In March 2017, Amazon opened its first “click and collect” grocery pick-up store exclusive for prime members at two locations in Seattle also known as AmazonFresh Pickup. Amazon Inc. / Whole Foods Market combination AMAZON ACQUIRES WHOLE FOODS ⮚ Declining sales for organic retail chain, since the beginning of the year 2016. ⮚ Whole Foods was also struggling due to its “pricey image”. ⮚ Hence in June 2017, Amazon acquired Whole foods at approximately $13.7 billion. PARTNERSHIP POTENTIAL ⮚ Amazon Market valuation increased by $14.27 billion, while Walmart, Kroger and Costco together lost $ 18.8 billion in market capitalization on June 16, 2017. ⮚ Many Whole Food in-house brands such as 365 Everyday Value products were made available on Amazon’s Website, AmazonFresh, and prime pantry. ⮚ Hence based on the research conducted and the analysis made of the industry’s key drivers of change, we believe that the Amazon/Whole Foods Market alliance has a powerful potential to disrupt the US grocery retail industry. ⮚ There are many factors and advantages that their combination presents that will allow them to have an edge over their competitors. Macro-environmental Forces MACRO-ENVIRONMENTAL FACTORS To analyse Amazon’s macro-environmental forces, we will use the Pestle Analysis tool: ⮚ Political Factor ⮚ Economic Factor ⮚ Socio-cultural Factor ⮚ Technological Factor ⮚ Legal Factor ⮚ Environmental Factor POLITICAL FACTORS ⮚ Political stability of developed countries, especially the U.S.A. and European countries ⮚ Governmental support for e- commerce ⮚ Increasing governmental efforts on cyber-security ECONOMIC FACTORS ⮚ The organization has economic stability in the developed markets ⮚ Increasing disposable incomes in developing countries SOCIO-CULTURAL FACTORS ⮚ Many people around the world now emphasise on healthy lifestyles ⮚ Increasing online buying habits Survey of Consumer Barriers to U.S online grocery purchases, 2015 TECHNOLOGICAL FACTORS ⮚ Rapid technological obsolescence ⮚ Increasing efficiencies of IT resources ENVIRONMENTAL FACTORS ⮚ Rising interest in environmental programs ⮚ Rising emphasis on business sustainability LEGAL FACTORS ⮚ Rising product regulation ⮚ Changing import and export regulations ⮚ Rising environmental protection regulations on businesses Five-forces Analysis COMPETITION IN THE GROCERY RETAIL INDUSTRY To analyse Amazon’s competition in the grocery retail industry, we will use the Five-forces Analysis: ⮚ Have to Face very stiff competition between the established players like Walmart, Kroger, Costco, Target, etc. ⮚ The Strongest of all among the Five forces is Rivalry between existing and Bargaining power of buyers: Medium to high force. ⮚ Threat of New entrants: Low ⮚ Threat of substitute in terms of service: Low to Moderate. ⮚ Bargaining power of Suppliers: Low COMPETITION IN THE GROCERY RETAIL INDUSTRY (CONT…) After merger with “Whole Foods” stocks of other competitors. GREATEST EFFECT ON INDUSTRY & PROFITABILITY OF NEW ENTRANTS ⮚ Logistic infrastructure ⮚ Leverage with suppliers, supply chain which is expensive and complex ⮚ Expertise in distribution and delivery ⮚ Thin margin ⮚ High capital investment SWOT Analysis Strengths • • • • • • • • Weaknesses Strong distribution network Highly skilled workforce Strong Brand Portfolio Reliable suppliers Online Stores Technology Synergies: Its services compliment each other. Customer Experience • • Low Profit Margins Days inventory is high compare to the competitors SWOT Threats Opportunities • • • • Developing Markets Eating healthy habits Expansion of physical stores Services provided like online stores, pick-up services from stores, home delivery during pandemic. • • • • Intense Competition Rising product regulation Changing import and export regulations Amazon is under multiple, possibly overlapping investigations by the U.S Department of Justice and FTC on past acquisitions. Amazon SWOT Analysis Conclusion: ⮚ Amazon is growing beyond its original online retailer and enters into other growing industries that, with proper investment, will definitely become profitable. ⮚ Amazon needs to develop proper inventory management system to minimize the food spoilage issue. ⮚ The company has enough resources to discourage competitors in every industry it participates in, nevertheless, Amazon has to watch out for possible antitrust litigations from the Department of Justice. Key Factors for the Success KEY FACTORS FOR SUCCESS ⮚ Various Unique Features ⮚ Maximising Product Quality ⮚ Good Supply Chain Whole Foods Store in North America, June 16, 2017 Challenges for Amazon CHALLENGES ⮚ Delivery of fresh food to customers ⮚ Refrigerated warehouse management ⮚ Overcoming the wastage of food items ⮚ Reluctance of customers to adapt online system ⮚ Tough competition from rivals © American Customer Satisfaction Index. All Rights Reserved. RECOMMENDATIONS ⮚ Balancing the Whole Foods culture and Amazon’s aim of uniformity. ⮚ Overcome supply chain challenges by deploying own delivery units. ⮚ Keeping a check on turnaround plans. QUESTIONS