Bryan Gildenberg Part II of VI Amazon Transformation

1)     Should Amazon even be considered an omni channel retailer? And does it even matter?

I'm not sure it matters. I think in reality, if I were forced to write this down as the my final answer on Who Wants to Be a Millionaire, I would probably describe Amazon as an e-commerce retailer that happens to run a brick and mortar retail chain, as well as a curiosity shop of retail formats. I think Whole Foods is becoming a more omnichannel retailer through both home delivery and click and collect. That might be the way I would probably describe it best which is: Amazon, which is a pretty much pure play e-commerce player, is starting to turn Whole Foods into an omni channel food retailer.

2)     Is e-commerce home delivery its strength and did Amazon even enter omnichannel?

I think it's pretty simple, in the end, you can't sell food without a distribution network that gets food relatively close to American homes and allows a disproportionate number of Americans the opportunity to pitch that food up rather than have it in the in the end. The reason they're doing this is “because ice cream melts” and you can't do a home delivery model in American virtually given how temperature variance a country is leaving stuff on people's doorsteps and hoping that'll work and then expecting Americans to be home to receive groceries. But assuming the world gets back to something like what it used to be like, home delivery in America really isn’t convenient for many people. America's a car-based convenience country. We invented the drive in movie. We invented the drive thru wedding. So, the notion that people are going to want to drive to get their groceries as a primary means of convenience just seems really misguided. Most of the people who write about eGrocery live in cities while most of the people who buy food do not. So that's always been a misalignment in terms of what actually what actual Americans with kids who live in suburbs find to be convenient, which is not trying to identify a two hour window, which I'm going to be home on a Saturday, but rather I know when I'm going to be driving my car past some place I can pick up groceries. Ultimately, I think Amazon had to get involved in a retail business in order to sell food effectively.

3)     What are Amazon’s weaknesses in trying to be omnichannel and how can competitors take advantage of them?

The biggest challenge Amazon has is selling more than one item at a time. It takes ten times longer to buy 10 things on Amazon that it does to but 1 item. Until that changes, they're going to struggle in shopping occasions where buying more than one thing is the object…that's largely grocery shopping. But it's also, as we talked about in the last podcast, seasonal shopping as well. This is one of the reasons why Amazon tends to underperform brick and mortar retailers in key seasonal moments, because it's just easier to go Target and get everything you need for the summer time, rather trying to figure out how to do it one item at. Time on Amazon’s platform. So I would say that basically the chink in Amazon's armor is really simple. It's two plus items. But the brick and mortar retailers that can figure out how to sell you more than one thing and put value behind that proposition are going to do pretty well versus Amazon. And I think this is particularly relevant for food retailers. The other area for Amazon, that continues to be a challenge is any category like apparel that requires intelligent curation to be sold effectively. Those are the two big ones. So when I look at a time and intelligent curation, Amazon's not particularly great either of those.

4)     What is this spark and how does Amazon the force that retail transformation if despite being the master of individual purchase only?

Yeah, I'm pretty sure Amazon would be the first to tell you that if they had stumbled into something about their proposition that made them Earth's most customer centric company, they wouldn't have gotten anywhere. I think they wandered into a unique confluence of the advancement of digital technology and the exhaustion of the American mom. You know, moms are too tired to go shopping, and when you at nine thirty at night phone open, semiconscious on the couch. Mom discovered that through Amazon Prime, she could buy stuff and get it delivered to her house in one or two days for “free.” That's the need state for solving for you when it's really not about money per say. What Amazon has done is they've solved the American energy crisis, particularly the energy crisis of the American mom.

In a way just fundamentally different than I tried to solve before. So, if I'm spending five minutes to buy seven things on Amazon that would have taken me two minutes to buy Target. I'm doing that sitting on my couch watching “Chopped.” That's a win, right? I mean, rather than haul myself to Target 9:30 at night. That's the key. 

5)     What's the role of digital media in this journey and is it transforming rapidly because of omni channel transformation?

I think it is transforming a fair amount. I think the question you're trying to get at without putting words in your mouth is digital retail media. I think the role of retail media is varied right now. If you look at like what Walmart, Target and Kroger are trying to do as the three biggest non-Amazon players in the ecosystem, they're trying to do pretty different things. Walmart's trying to create its version of Amazon. Target's really selling you access to its guests through its audience that work. And Kroger is really trying to sell you the ability to effectively measure campaigns based on a loyalty card data systems. So I think it's still pretty nascent in terms of what that does. I would say in the end, I think that retail media is going to play a very specific role, occupying the space between sort of brand consideration and brand conversion in other words between demand creation and demand conversion. 

6)     How has the supply chain ecosystem changed for manufacturers?

I'm old enough to remember the conversations that people were having, especially the grocery industry, about whether the grocery industry would ever change because Walmart wanted to sell groceries differently than Kroger or Albertsons. Yes, if you change your system to do it, you know, Moses didn't wander down from the mountain with a tablet inscribed with “thou shalt be able to achieve the lowest possible cost per unit through mass production and highly efficient scale logistics.” That's how Walmart created a point of difference and that the ecosystem built behind Walmart was one that emphasized low unit cost over flexibility and scale over batch processing. And in the same way that Walmart wasn't interested in any of the allowance-based discounting goofy that the supermarket industry used and all that stuff went away, too.

7)     How has the supply chain ecosystem changed for retailers?

So, as I said, some good stuff happening. Well, I mean, yeah, I think that the easiest way to think about this is that. If you think about the assets that are involved in the delivery of value to a shopper from a retailer, it's just those assets are the role of those assets as is changing. So now stores are going to be DCs as well as stores. These DCs are going to be direct ship centers as well as DCs. You know, you're going to have yeah, you're going to have the store as a returns platform, not just to someone, but the store is going to act as a provider of other services that aren't retail centric. So if you just look at Walgreens right now in terms of the number of different partnerships that they're engaged in to be able to do that. So, yeah, I would just say, yeah, I just think you're going to you're going to see assets deployed more flexibly in terms of what their role is within the captive value chain of the retailer and also more diversely in terms of figuring out what other value propositions we can bring to the table to provide a more holistic solution than the one I the relentless efficiency of one item at a time transaction think that Amazon is excellent at. And that's where. So, yes, I think you'll see I think you'll see a significant reconfiguration of the assets that drive retail over the next five years.

8)     Will innovation launches transform? How about consumer value or targeting?

It is. And yeah, I think the. I think there's a lot of questions that come into this which, again, you know, get to know the second commandment on the tablet is not thou shall only allocate capital to driving the lowest cost, lowest cost possible unit for the fewest number of things. Right. And I think this is one of the big questions that if you're the CEO of a company today, this is probably the thing I think you've got to be most focused on, which is teaching your board that the long term survival of your business may require a more flexible capital base than the one that they grew up thinking was the definition of efficiency.

So, you know, the way I sometimes put this to people is that I think the companies that are winning in the market today are the ones that understand that it's not just the optimization of capital that's the game. It's the allocation of it.

And how and how and where capital gets allocated is a big part of that conversation because, yeah, I think if you're if you're trying to optimize a PNL and you don't have the mechanical ability to walk and chew gum at the same time, you have a problem. And that's going to require a series of partnerships as a bridge to or towards just a different capital allocation model that builds flexible flexibility and responsiveness into mass production and high velocity. I mean, that's just that's just where the world's going to end up going.

And I think in the end, it probably does change the launch strategy for new products for a CPG company or branded company in terms of. Yeah, if you're going to go big, go big. I mean, you know, you have to go bigger, go bigger, go to each. I mean, a lot of what passes for innovation today is small ideas off big brands. And that's the part, I think that gets really problematic. If you're going to devote your resource chain to massive blockbuster style innovations that can truly change a category globally and niche opportunities that spring up because you know something about a specific set of consumers and can sell something.