Amazon’s Prime membership service is wholesalers’ biggest challenge, writes Nick Shanagher
“Twenty years ago I was driving boxes to the post office in my Chevy Blazer and dreaming of a forklift,” says Amazon’s Jeff Bezos in his most recent letter to shareholders.
A blink later and he points out that the company has grown from 30,000 employees in 2010 to 230,000 now. But his ambition is the same.
“We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness and risk-acceptance mentality that is normally associated with entrepreneurial start-ups.”
Amazon is great at disruption because of its customer-focus and the fact that the internet means it needs no (or very few) people between its warehouses and the shopper.
The threat of Amazon Prime, its membership service, is the biggest challenge facing the UK retail market and the wholesale market by extension. It is both a direct threat and an indirect threat in that it is inspiring countless numbers of other digital disrupters.
How has Amazon Prime advanced?
The problem that supermarkets are facing from the discounters is not a retail-led problem, says Toby Desforges, co-author of The Shopper Marketing Revolution, but ‘a shopper-led problem’.
But returning to Bezos and his shareholders’ letter, “We want Prime to be such good value, you’d be irresponsible not to be a member,” he says. “Prime has become an all-you-can-eat, physical-digital hybrid that members love. Membership grew 51% last year and there are now tens of millions of members worldwide. There is a good chance you’re already one of them, but if you’re not… join Prime.”
The threat is clearly spelled out and the shareholders letter illustrates the speed of the change. “We’ve grown Prime two-day delivery selection from one million items to over 30 million, added Sunday delivery, and introduced Free Same-Day Delivery on hundreds of thousands of products in more than 35 cities around the world,” says Bezos.
Prime Now, which offers one-hour delivery on an ‘important subset of selection’, was launched 111 days after it was dreamed up. In that time, a small team built a customer-facing app; secured a location for an urban warehouse; determined which 25,000 items to sell; got those items stocked; recruited and brought on board new staff; tested, iterated and designed new software, including a warehouse management system and a driver-facing app; and launched.
What is the good news in the wholesale world?
Today, 15 months later, Amazon Prime is up and running in more than 30 cities around the world.
That is pretty awesome. It is part of the reason why Bezos was able to boast about being the fastest ever company to reach US$100bn in annual sales.
He attached his 1997 letter to the 2016 letter and it is worth a read, too. “We will continue to focus relentlessly on customers,” Bezos promised way back then after a year in which sales had grown 87% to US$148m.
The good news in the wholesale world is that relentless focus on customers exists. After the FWD Awards last year, I strolled around London with one executive, who pointed out all the trucks delivering to all the city’s foodservice and retail outlets. There is still a big market to shoot for.
However, disruption is coming. Booker’s CEO Charles Wilson says that the company’s biggest competitor is a man in a van. That is the threat today’s wholesale winners are well equipped to win. The strategic challenge is if the man in a van is another Jeff Bezos.