Commerce's New World Order

Oct 3, 2017 | Back to News
Amazon’s buyout of Whole Foods Market represents more than just a tectonic shift in our retail landscape: It marks the beginning of a new world order for commerce.
 
Consumer packaged goods (CPG) companies must now rethink their approach to doing business — not just with Amazon, but with all current and emerging retail partners. New structures, processes and strategies demand consideration by CPG companies to address these seismic changes and reverberations.
 
First and foremost, Amazon moves to the front of the line. CPG companies that have long resisted an Amazon partnership need to immediately adopt a more proactive stance toward engagement with this retailer. They could perhaps take a cue from Nike, which just reportedly agreed to start selling its products directly on Amazon.com, countering the efforts of third-party sellers. CPG organizations need to evolve and create a strategic leadership team across brand, shopper, sales, category and operations practices as the foundation of an indispensable partnership with Amazon. That includes meeting with its key teams at least quarterly as part of a strategy to bring forth innovative ideas and relevant programs.
 
CPG marketers must also prepare for major changes to the Whole Foods in-store experience. For example, Amazon may use consumer purchase data to maximize inventory control, creating space for showrooms for Amazon products (Alexa, Kindle, etc.) and pickup locations for Prime purchases. With this in mind, CPGs would be wise to prepare for tighter inventory management, faster shipping and possible packaging changes as the new store format takes shape. In addition, companies can expect significant pricing adjustments to counter Whole Foods’ price perception challenges. The retailer will likely begin to treat center store with the same consideration as the margin-rich perimeter, strengthening its position in staples and the health and wellness category.
 
Reshuffling the Deck
Amazon’s bold move has necessitated a reshuffling of the deck across retailer prioritization. Brands will need to reassess their retailer segmentation prioritization and likely make some timely, yet difficult, choices. In this new world of retail, those who were once valuable, demanding key resources, may now need to be reprioritized to make way for new and emerging retailers, based on new measures.
 
That could mean reducing the role of Albertsons Safeway (whose e-commerce and operational capabilities lag well behind) and Target (whose former relevance and merchandising strength may not be enough to offset losses from its grocery operation, which at a minimum, is in real danger); increasing or staying the course with Kroger, Meijer and Publix (all of whom have strong branding, shopper data/insights and offerings in natural and organics); and significantly increasing support for Walmart and Amazon. Brands must also re-evaluate their resource support of value retailers. This class of trade is growing rapidly beyond Family Dollar and Dollar General, thanks in large measure to Aldi’s continued expansion and Lidl’s highly anticipated launch into the U.S.
 
How we as marketers describe this new organizational approach is also significant. It is time to do away with antiquated notions like “above the line” and “below the line,” and dispense with even relatively recent terms like omnichannel. Consumers don’t live, work, play or shop in “channels” or adhere to such arbitrary lines; neither should organizations limit themselves to operating in outdated silos. Instead, it is best to realign resources and create a strong “behind the firewall” total shopper commerce practice that includes strategy + insights; category management; and retail/shopper marketing experts — and cross-pollinate across disciplines and retail teams.
 
Retail Shakeout
What might be next for Amazon? To complement the Whole Foods’ acquisition, and to bolster its strength in beauty and health and wellness, it could look to purchase a service such as Express Scripts or even a drug chain like CVS (even as consolidation in the channel accelerates, pending the FDA’s approval of Walgreens' merger with Rite Aid). It might also consider a value retailer, specialty retailer such as Sephora or perhaps Target for an even greater footprint.
 
Walmart, meanwhile, is prepared to defend its position and optimize its power in e-commerce, which includes leveraging acquisitions ranging from modcloth.com and bonobos.com, to Moosejaw, ShoeBuy and jet.com, and others. The future for Target is cloudy at best, as the efforts to return its boutique brand aura and corner on seasons have largely failed. Hyper growth of coffee shops offering small batch brands and the much desired “Third Space” will continue, as will Millennials’ love and demand for all things local. Dunkin' Donuts and Starbucks should continue to thrive, as long as they keep pace and place an even greater focus on locally sources products and suppliers.
 
In this new era, only brand marketers that can accomplish a rapid repositioning — those who possess the resilience and agility to enact change through innovation — will fulfill the demands of today’s shoppers and ensure the company’s growth. The time is now.
 
Heidi Froseth is EVP, national shopper commerce practice leader at Catapult, a conversion marketing agency where branding and buying are part of a total solution. For more information, visit www.catapultmarketing.com.