Category Archives: Consumer

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On-Demand Work

The New York Times article below refers to a mega-trend: on-demand work. The author refers to it as a “tectonic shift in how jobs are structured“.

The focus of the article is Liveops, but this is only illustrative of this larger trend. https://www.liveops.com. Their competitor is https://workingsolutions.com .

On their front page, LiveOps says: “It’s a highly skilled workforce of virtual agents who flex to meet customer needs.”

On-demand work is exploding in customer service call centers and sales.

Some points I found interesting:

Roughly 3,000,000 Americans find work this way – as independent contractors working on a virtual basis.

Since 2001, apparently the move to outsource call centers to India has reversed. Today, the focus is on quality, and so the new trend is toward employing American workers, on a contract basis, and on a virtual basis.

They are only paid while on the phone. This is roughly 75% of the time they “commit” (“commits” are made in half hour blocks)

Top performers get the first call. “Performance-Based Routing, so the top-performing agents on your programs get more calls. By aligning our agents’ incentives with your goals, each agent who answers the call will be invested in your business objectives. What’s more, you won’t be paying call centers for idle time.”

Clients hire LiveOp. In this article, TruStage Insurance is the client.

Liveops CEO is Greg Hanover. Their competitor, Working Solutions, was founded in 1996. LiveOps says they have 20,000 agents, which they refer to as “Liveops Nation”.

“We hand-pick our agents for their great phone voices and warm and friendly personalities.”

“Scalable and flexible contract center outsourcing – leveraging an on-demand distributed network.”

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CREDIT: https://www.nytimes.com/2017/11/11/business/economy/call-center-gig-workers.html?smid=nytcore-ipad-share&smprod=nytcore-ipad
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Plugging Into the Gig Economy, From Home With a Headset

A company called Liveops has become the
Uber of call centers by doting on its agents.
But is the work liberating, or dehumanizing?
By NOAM SCHEIBERNOV. 11, 2017

DURHAM, N.C. — The gathering in a private dining room at a Mexican restaurant had the fervent energy of a megachurch service, or maybe an above-average “Oprah” episode — a mix of revival-style confession and extravagant empathy. There were souls to be won.

“By the end of the day, Kelly’s going to be an agent,” the group’s square-jawed leader said. “Kelly went through the process a while ago, then life happens, now she’s back. Her commitment to me that she made earlier, she looked me right in the eyes and told me she’s going to be an agent.”
Paradise, for these pilgrims, lies at one end of a phone line.

The company behind this spectacle, Liveops, had invited several dozen freelance call-center agents to a so-called road show. Some of them may have answered your customer-service calls to Home Depot or AAA. All were among the more than 100,000 agents who work as independent contractors through on-demand platforms like the one Liveops operates, which uses big data, algorithms and gamelike techniques to match its agents to clients. What Uber is to cars, Liveops is to call centers.

The agents are part of a tectonic shift in how jobs are structured. More companies are pushing work onto freelancers, temps, contractors and franchisees in the quest for an ever more nimble profit-making machine. It is one reason a job category seemingly headed offshore forever — customer service representatives — has been thriving in call centers and home offices across the United States, supporting roughly three million workers.

While critics of the arrangement cite rising insecurity, some of Liveops’ star agents — like Emmett Jones in Chicago, who knows of his rivals primarily as numbers on a leader board — say the opportunity has been transformative.

The earnest gratitude of the agents assembled here, not far from the Raleigh-Durham Airport, affirmed that. To them, Liveops is a sustaining force, a way to earn a living while being present at home. A few had driven hours to attend. Many brought friends and family members who were considering joining “Liveops Nation,” too.

There were icebreakers (“Liveops Nation Bingo”). Gift-card raffles (“$150?” the chief executive quipped. “Who approved these things?”). Free enchiladas. Everyone was invited to schmooze.
“John, I heard your story about how you got to us is pretty great,” said the master of ceremonies, an impossibly sunny woman named Tara. “Would you mind telling all these people?”
When the mic came to John, a former insurance claims adjuster with a gray beard and several earrings, there was a sense of imminent revelation.

“I was working in another glass box over near here for six years,” he began. “I reached the point where it was either jump off the roof or walk out the front door.” The other agents laughed knowingly.

He continued: “My commute now is I walk down the hall, close the bedroom door behind me.” More laughter.
Then John’s voice softened: “This is good, this is good. I get paid for when I’m working, instead of souring when you get paid for 40 hours and work some more. So, I’m here.”
“Awesome,” Tara said, applause drowning her out. “I feel like John’s story mimics a lot of what we hear from people.”
According to Greg Hanover, a longtime Liveops official who became chief executive this summer, the company’s goal is to make agents feel as if they’re part of a movement, not just earning a wage.

“Where we want to be with this is what Mary Kay has done, multilevel marketing companies,” Mr. Hanover said, referring to the cosmetics distributor and its independent sales force. “The direction we need to head in for the community within Liveops Nation is that the agents are so happy, so satisfied with the purpose and meaning there, that they’re telling their story.”

It’s an ambition that feels almost radical compared with Uber, whose best-known exercise in worker outreach is a video of its former chief executive berating a driver. It was heartening to discover that on-demand work could be both financially viable and emotionally fulfilling.

That is, until I began to speak with Mr. Jones and some of his Liveops competitors. The more you talk with them, the more you detect a kind of Darwinian struggle behind the facade of community and self-actualization. You start to wonder: Is there really such a thing as a righteous gig-economy job, even if the company is as apparently well intentioned as Liveops? Or is there something about the nature of gig work that’s inescapably dehumanizing?

Just the Right Tone
Mr. Jones, who lives in Chicago, was the top rated Liveops agent for an insurer called TruStage for much of this year.
An AT&T technician for decades, he decided that he needed to be at home not long after his wife was diagnosed with vertigo in 2008. “I can’t work and be worried about how she’s doing,” he said.

A few years later, when his daughter told him of a friend who worked with Liveops, he was eager to sign up — but refused to send in his required voice test until it was close to perfect. “I must have did the voice test four or five times,” he said. “I wanted to make sure I gave the right tone that they were looking for.”

As a Liveops agent, Mr. Jones sells life policies to callers, often those who have just seen a television commercial for TruStage insurance. He estimates that he works roughly 40 hours each week, beginning around 8 most mornings, and that he makes about $20 an hour. He is such a valued worker that TruStage invited him to its headquarters earlier this year for a two-day visit by an elite group of agents, in which executives pumped them for insights about how to increase sales.

Roughly two decades ago, Liveops and its competitors typically connected callers to psychic hotlines, and in some cases less reputable services. Such businesses had frequent spikes in call volume, making it helpful to have an on-demand work force that could be abruptly ramped up.

“The only thing people were interested in was the abandonment rate” — that is, the number of people who would hang up in frustration from being kept on hold — said Kim Houlne, the chief executive of a Liveops rival called Working Solutions, which she founded in 1996.

The call center industry took a hit during the 2001 recession, when cost consciousness unleashed a wave of outsourcing to India. But within 10 years, many companies decided that the practice, known as offshoring, had been oversold. The savings on wages were often wiped out by lost business from enraged customers, who preferred to communicate with native English speakers.
“People don’t feel comfortable,” Ms. Houlne said, alluding to the overseas agents.

By the early part of this decade, quality was in fashion. The enormous amounts of data that companies like Liveops and Working Solutions collect allowed them to connect callers to the best possible agent with remarkable precision, while allowing big clients to avoid the overhead of a physical call center and full-time workers.

Today, in addition to sales calls, Liveops agents handle calls from people trying to file insurance claims, those in need of roadside assistance, even those with medical or financial issues relating to prescription drugs. The agents must obtain a certification before they can handle such calls, which sometimes takes weeks of online coursework.

Liveops goes to great lengths to attend to their needs, addressing technical-support issues, even answering agents’ emails to the chief executive within 24 hours.

Mr. Jones, like many of his fellow agents, thinks of himself as helping others in need. He said that many families will gather around a table after a loved one has died to discuss the burial. If the deceased relative had no insurance, he said, “A lot of times that table is going to clear.” If, on the other hand, he had even $2,000 in life insurance — the minimum that TruStage sells — “the family members are more inclined to say, ‘He did what he could, let me see what I could do to help out.’ You end up with $5,000 to $6,000. You can do a decent burial rather than none at all.”

Still, there is undeniably a brass-tacks quality to the work. Shortly after we hung up, I turned my attention to an assignment due that afternoon, only to receive more calls from Mr. Jones’s number. When I finally answered, he apologized for interrupting me, then came to the point. “I have a question for you,” he said. “Do you have life insurance?”

‘Where the Price Point Is’
Like Uber, Liveops expends considerable effort calculating demand for its agents. For example, if an auto insurance company is running a commercial on ESPN, Liveops will ask the company’s media buyer — that is, the intermediary that placed the ad — to predict how many calls such an ad is likely to generate. Liveops will adjust that prediction, using its own data showing how many calls similar ads have produced from similar audiences during a comparable time of year.

And like Uber, the Liveops focuses on “utilization” — in the Liveops case, the percentage of working agents actually on a call. Depending on the client, Liveops strives for rates of 65 percent to 75 percent. Lower than that and the agents, who make money only when they’re on a call, will complain that they’re not busy enough. Significantly higher and the system is vulnerable to a sudden increase in demand that could tie up the phone lines and keep callers waiting.

Liveops asks agents to schedule themselves in half-hour blocks, known as “commits,” for the upcoming week. If the company expects demand to be higher than the number of commits, it sends agents a message urging them to sign up. (Uber does something similar, except without formal scheduling.) Sometimes it will even offer financial incentives, like a bump in the rate earned for each minute they’re on a call, or a raffle-type scheme in which people accumulate tickets for the giveaway of an iPad or a cruise.

Again like Uber, Liveops relentlessly tests the effectiveness of these tools. Referring to financial incentives, Jon Brown, the Liveops senior director of client services, said, “We’ve zeroed in on exactly what we need for an agent to go from 10 to 15 commits, from 15 commits to 20 commits. We know where the price point is, what drives behavior.”

And then there are the performance metrics. Liveops agents are rated according to what are called key performance indicators, which, depending on the customer, can include the number of sales they make, their success at upselling customers, and whether a caller would recommend the service based on their interaction.

Liveops makes clear that its agents’ ability to earn more money is closely tied to performance. “You’ve heard the term meritocracy?” said a Liveops official named Aimee Matolka at the North Carolina event. “When a call comes in, it routes in to that best agent. Yes, our router is that smart. You guys want to be that agent, I know you do. Otherwise you wouldn’t be here.”

It allows the agents to track their rankings obsessively through internal leader boards. (Liveops officials say that while the pressures of the job can preoccupy agents, it is up to them how much time to invest.)

“I lost the No. 1 spot, now I’m No. 2,” Mr. Jones said in early August, acknowledging that he checks his ranking frequently. “I thought about researching to find out who it is — you always want to know who’s the competition — but I said leave it.”

He added: “I’m a competitive person. We just toggle back and forth. If they see me jump back in, they work harder. They want that spot back.”

‘This Is My Phone Call’
My flight to Bangor, Me., was due after 9 p.m., and apparently sensing my unease with the North Country, the firefighter seated next to me asked if I had to far to drive when we landed. “About three hours north,” I confessed. “Watch out for moose,” he said. I assured him I’d driven around deer before. He stopped me short: If you hit a deer, you’ll kill them, he said. If you hit a moose, they’ll kill you.

I found Troy Carter, the agent who had recently surpassed Emmett Jones, at his home in Fort Fairfield the next day, wearing jeans, a button-down short-sleeve shirt, and a New England Patriots hat. There were no shoes on his feet, only white socks.

Like Mr. Jones, Mr. Carter said Liveops had been a blessing, allowing him to earn a living in a part of Maine so remote that my cellphone carrier welcomed me to Canada shortly after I pulled into his driveway.

When I told Mr. Carter that I had been in touch with his top competitor, he quickly pulled up the latest monthly rankings of Liveops agents selling TruStage insurance. He pointed out that while Mr. Jones, whom he recognized only by his identification number, 141806, had more sales — 87 to his 82 — he had far fewer paid sales, charged at the time of purchase rather than by invoice.

“The real thing is the paid application rate — they want it around 95 percent,” Mr. Carter said. “He has 87 sales, but only 65 percent paid, compared to my 94 percent.” This, he explained, was why he enjoyed the right to call himself the top agent for the month.

Mr. Carter is what you might call a serial entrepreneur. He once started an art supply website that folded within a few months, and a penny auction site called Bid Tree that foundered for lack of a marketing budget.

He sees Liveops, on which he spends 40 to 50 hours per week, as of a piece with these entrepreneurial efforts. In fact, it is something of a family business. His wife, Lori, handles incoming calls while he’s busy with customers. “I’m a housewife/secretary/receptionist,” she said. Even Mr. Carter’s 9-year-old son, Logan, plays a role. “At nighttime, he says the last part of his prayer based on how many sales I did today,” Mr. Carter said. “If it was a lot of sales, he’ll pray, ‘Dear Lord, help my dad get the same amount of sales tomorrow.’”

Though Liveops agents work from a script, Mr. Carter, like Mr. Jones, adds his own flourishes. Before asking a caller’s gender, as he is required to do, he will say, “Now I already know the answer to this question, but please confirm if you’re male or female.” Upon receiving the answer, he will pause momentarily before saying, “I told you I already knew the answer,” and break into a laugh.

He might make this identical joke, with identical timing, dozens of times in a workday. “It’s like a comedian has a little pause before a joke,” he told me. “It relaxes them right off.”

Even with these touches, results can vary widely. Two days earlier, Mr. Carter had made seven sales, only a few shy of his record. The day I turned up, he managed only one. He said some callers had the impression they could receive $25,000 of insurance for $9.95 per month — the commercial mentions both figures — and begged off when Mr. Carter told them that
Mr. Carter has done research on how to comport himself, including watching an instructional YouTube video by the former stockbroker who was the subject of the movie “The Wolf of Wall Street.” He believes the key is to come off as the alpha presence. “The one that asks the most questions is the one in control,” he said. “If they ask me questions — ‘How are you doing?’ — I’ll come back, ‘The question is how are you doing?’ This is my phone call, as much as I can make it.”

But on this day he repeatedly ran up against the limits of his powers. Even those who remained interested after 10 or 15 minutes of painstaking back-and-forth often demurred when Mr. Carter asked them for payment information. “This one guy was outside in a wheelchair,” Mr. Carter said of a caller who couldn’t produce his credit card. “He didn’t want to go in and get it. I said, ‘I’m fine waiting,’ but I can’t push him.”

These setbacks only seem to make Mr. Carter focus more. At one point, he made a swiping motion between his face and his headset with his index finger and middle finger. “They recommend that you keep the microphone two fingers away,” he said. “I’m always doing that — checking that it’s two fingers. I’ll do that for the rest of my life.”

It seemed, all in all, like a grueling way to make the slightly more than $30,000 that Mr. Carter estimates he takes in before taxes. “The good thing is he can take hours off,” Lori told me. “But then he can lose his spot. It’s always a fight for the top.”

I was reminded of the Alec Baldwin monologue from the movie “Glengarry Glen Ross,” except that the prize for having the most sales wouldn’t be a Cadillac, it would be a set of steak knives, because the Liveops analytics team had calculated that agents would give nearly as much effort for a prize worth a small fraction of the cost.

Of course, unlike the salesmen in that movie, the Liveops agents can’t really be fired — the third prize — because they weren’t employees to begin with.

A while later, Mr. Carter described a recent initiative in which agents were promised a bonus if 95 percent of their collective sales were paid up front. “I knew it wasn’t going to work as soon as they said it,” he told me, because a handful of agents with low paid rates could ruin everyone else’s chances.

“They did do a pullover sweatshirt for the top two,” he added, brightening. “I was second, so that’s coming.”

A version of this article appears in print on November 12, 2017, on Page BU1 of the New York edition with the headline: Paradise at the End of a Phone Line. Order Reprints| Today’s Paper|Subscribe

Amazon Crush Sept 2017 Edition

===Amazon Crush Sept 2017 Edition===

Amazon now has the world’s attention. It just landed the cover story of The Economist, printed in its entirety below (together with a YouTube video and a Bloomberg article cited below).

A quick scan of this blog reminds me that I began tracking Amazon in early 2014 with multiple posts, copied here.

I speculated in EARLY 2014 (see post below) that Amazon revenue in 2015 would exceed $100 billion. They finished 2015 at $107 billion – up $11 billion vs 2014. I forecast $130 billion in 2016. They closed at $136 billion. Look at this remarkable growth curve!

2016
136 billion
2015
107,010
2014
88,988
2013
74,452
2012
61,093
2011
48,077
2010
34,204

The old forecast that Amazon will exceed $250 billion in sales by 2020 is looking about right. People are now saying Amazon is headed to $500 billion. I believe them.

Salient points from the article below:

The former bookseller accounts for more than half of every new dollar spent online in America.
Since the beginning of 2015 its share price has jumped by 173%, seven times quicker than in the two previous years (and 12 times faster than the S&P 500 index).
With a market capitalisation of some $400bn, it is the fifth-most-valuable firm in the world.
Last year cashflow (before investment) was $16bn, more than quadruple the level five years ago.
It continues to struggle with grocery, and yet Amazon is moving aggressively to learn from their mistakes. Their purchase of Whole Foods signals their learning that many consumers want to touch their groceries before buying, and they frequently enjoy the buying experience. A recent article in

==================ECONOMIST ARTICLE=========

CREDIT: https://www.economist.com/news/leaders/21719487-amazon-has-potential-meet-expectations-investors-success-will-bring-big

CREDIT: https://www.youtube.com/watch?v=H0UH1TxjcEA

Corporate ambitions
Amazon, the world’s most remarkable firm, is just getting started
Amazon has the potential to meet the expectations of investors. But success will bring a big problem

Mar 25th 2017

AMAZON is an extraordinary company. The former bookseller accounts for more than half of every new dollar spent online in America. It is the world’s leading provider of cloud computing. This year Amazon will probably spend twice as much on television as HBO, a cable channel. Its own-brand physical products include batteries, almonds, suits and speakers linked to a virtual voice-activated assistant that can control, among other things, your lamps and sprinkler.
Yet Amazon’s shareholders are working on the premise that it is just getting started. Since the beginning of 2015 its share price has jumped by 173%, seven times quicker than in the two previous years (and 12 times faster than the S&P 500 index). With a market capitalisation of some $400bn, it is the fifth-most-valuable firm in the world. Never before has a company been worth so much for so long while making so little money: 92% of its value is due to profits expected after 2020.

That is because investors anticipate both an extraordinary rise in revenue, from sales of $136bn last year to half a trillion over the next decade, and a jump in profits. The hopes invested in it imply that it will probably become more profitable than any other firm in America. Ground for scepticism does not come much more fertile than this: Amazon will have to grow faster than almost any big company in modern history to justify its valuation. Can it possibly do so?
It is easy to tick off some of the pitfalls. Rivals will not stand still. Microsoft has cloud-computing ambitions; Walmart already has revenues nudging $500bn and is beefing up online. If anything happened to Jeff Bezos, Amazon’s founder and boss, the gap would be exceptionally hard to fill. But the striking thing about the company is how much of a chance it has of achieving such unprecedented goals (see article).
A new sort of basket-case
This is largely due to the firm’s unusual approach to two dimensions of corporate life. The first of these is time. In an era when executives routinely whine about pressure to produce short-term results, Amazon is resolutely focused on the distant horizon. Mr Bezos emphasizes continual investment to propel its two principal businesses, e-commerce and Amazon Web Services (AWS), its cloud-computing arm.
In e-commerce, the more shoppers Amazon lures, the more retailers and manufacturers want to sell their goods on Amazon. That gives Amazon more cash for new services—such as two-hour shipping and streaming video and music—which entice more shoppers. Similarly, the more customers use AWS, the more Amazon can invest in new services, which attract more customers. A third virtuous circle is starting to whirl around Alexa, the firm’s voice-activated assistant: as developers build services for Alexa, it becomes more useful to consumers, giving developers reason to create yet more services.
So long as shareholders retain their faith in this model, Amazon’s heady valuation resembles a self-fulfilling prophecy. The company will be able to keep spending, and its spending will keep making it more powerful. Their faith is sustained by Amazon’s record. It has had its failures—its attempt to make a smartphone was a debacle. But the business is starting to crank out cash. Last year cashflow (before investment) was $16bn, more than quadruple the level five years ago.
If Amazon’s approach to time-frames is unusual, so too is the sheer breadth of its activities. The company’s list of current and possible competitors, as described in its annual filings, includes logistics firms, search engines, social networks, food manufacturers and producers of “physical, digital and interactive media of all types”. A wingspan this large is more reminiscent of a conglomerate than a retailer, which makes Amazon’s share price seem even more bloated: stockmarkets typically apply a “conglomerate discount” to reflect their inefficiencies.
Many of these services support Amazon’s own expansion and that of other companies. The obvious example is AWS, which powers Amazon’s operations as well as those of other firms. But Amazon also rents warehouse space to other sellers. It is building a $1.5bn air-freight hub in Kentucky. It is testing technology in stores to let consumers skip the cash register altogether, and experimenting with drone deliveries to the home. Such tools could presumably serve other customers, too. Some think that Amazon could become a new kind of utility: one that provides the infrastructure of commerce, from computing power to payments to logistics.
A giant cannot hide
And here lies the real problem with the expectations surrounding Amazon. If it gets anywhere close to fulfilling them, it will attract the attention of regulators. For now, Amazon is unlikely to trigger antitrust action. It is not yet the biggest retailer in America, its most mature market. America’s antitrust enforcers look mainly at a firm’s effect on consumers and pricing. Seen through this lens, Amazon appears pristine. Consumers applaud it; it is the most well-regarded company in America, according to a Harris poll. (AWS is a boon to startups, too.)
But as it grows, so will concerns about its power. Even on standard antitrust grounds, that may pose a problem: if it makes as much money as investors hope, a rough calculation suggests its earnings could be worth the equivalent of 25% of the combined profits of listed Western retail and media firms. But regulators are also changing the way they think about technology. In Europe, Google stands accused of using its clout as a search engine to extend its power to adjacent businesses. The comparative immunity from legal liability of digital platforms—for the posting of inflammatory content on Facebook, say, or the vetting of drivers on Uber—is being chipped away.
Amazon’s business model will also encourage regulators to think differently. Investors value Amazon’s growth over profits; that makes predatory pricing more tempting. In future, firms could increasingly depend on tools provided by their biggest rival. If Amazon does become a utility for commerce, the calls will grow for it to be regulated as one. Shareholders are right to believe in Amazon’s potential. But success will bring it into conflict with an even stronger beast: government.
This article appeared in the Leaders section of the print edition under the headline “Amazon’s empire”

===Amazon Crush Apr 2017 Edition===

Incredible 18 months for Amazon, but the new phrase is “retail apocalypse”.

Financial Times Article on Amazon

For all prior Amazon Updates, see 11/2016 Update

====Amazon Crush March 2017 Edition ===
CREDIT: https://www.bloomberg.com/news/features/2017-03-20/inside-amazon-s-battle-to-break-into-the-800-billion-grocery-market

Inside Amazon’s Battle to Break Into the $800 Billion Grocery Market

After almost a decade of food retail experiments with little success online, the e-commerce giant is embracing the physical stores it once shunned.

By Spencer Soper and Olivia Zaleski
March 20, 2017, 6:00 AM EDT

“Very wasteful” isn’t a phrase usually associated with Amazon.com Inc., which is so cost-conscious it once removed the light bulbs from its cafeteria’s vending machines. But after spending several months analyzing the online retailer’s grocery-shipping hubs back in 2014, that’s exactly how a mechanical engineering student described its approach to selling bananas.
Workers at Amazon Fresh, the company’s grocery-delivery business, threw away about a third of the bananas it purchased because the service only sold the fruit in bunches of five, the student concluded. Employees trimmed each bunch down to size and chucked the excess.

The research paper by Vrajesh Modi, who now works for Boston Consulting Group, highlighted other problems: Poorly trained employees often stood around with nothing to do. Moldy strawberries were frequently returned by disappointed customers. Amazon’s inspectors believed their corporate bosses didn’t care much about the quality of the food.
Such challenges linger for Amazon. Despite several attempts to break into the $800 billion grocery industry and almost a decade in the business, the company has struggled to entice shoppers en masse to buy eggs, steaks and berries online the same way they’ve flocked to buy books, tablets and toys.
“Online grocery is failing,” said Kurt Jetta, chief executive officer of TABS Analytics, a consumer products research firm. Only 4.5 percent of shoppers made frequent online grocery purchases in 2016, up just slightly from 4.2 percent four years earlier despite big investments from companies such as Amazon, according to the firm’s annual surveys. “There’s just not a lot of demand there. The whole premise is that you’re saving people a trip to the store, but people actually like going to the store to buy groceries.”
Amazon CEO Jeff Bezos now seems to understand that he can’t win the grocery game with websites, warehouses and trucks alone. The world’s biggest online retailer sees brick-and-mortar stores playing a key role in a renewed grocery push, documents reviewed by Bloomberg show. And like it did with Amazon Fresh, the company is launching its newest projects in Seattle, its home town.

Last Tuesday, men in cherry pickers worked through driving rain to affix “Amazon Fresh” signs to a drive-in grocery location in Seattle’s Ballard neighborhood, where shoppers can stop and have online orders loaded into their cars. Crews were busy on a similar site south of downtown, readying canopies over parking spaces to protect customers from the elements as they pick up their shopping bags. The secretive company has yet to announce the projects, and crews have covered the Amazon signs in black fabric and paper.
Late last year, Amazon purchased supply-chain software from LLamasoft Inc.– a major departure for a company known for its logistics prowess, and defying an internal mantra of “we don’t buy, we build.” And it more recently restructured how various grocery teams were managed to narrow their focus and set clear priorities, according to people familiar with the company’s business.
These changes come as Amazon breaks from its standard formula of shipping products in boxes out of jam-packed warehouses. Instead, it will invite shoppers inside its own grocery stores to smell the oranges, see the tomatoes and tap the watermelons. Ahead of a national rollout next year, Amazon is testing three brick-and-mortar grocery formats in Seattle — convenience stores called Amazon Go, the drive-in grocery kiosks, and a hybrid supermarket that mixes the best of online and in-store shopping. The company may open as many as 2,000 stores, according to internal documents.

The company has said little about its grocery-store plans, aside from a video about Amazon Go’s no-checkout format that has racked up more than 8.7 million views on YouTube. An Amazon spokeswoman declined to comment for this story. Reports on its moves have dribbled out over the past several months, prompting occasional denials and retorts from the company. Seattle technology site Geekwire in August uncovered Amazon’s mysterious drive-in grocery kiosk in Ballard. The New York Post in February said Amazon aimed to create “robot-run supermarkets” that would operate with only a few people. Bezos responded by tweeting to the Post: “Whoever your anonymous sources are on this story — they’ve mixed up their meds!”
Amazon’s goal is to become a Top 5 grocery retailer by 2025, according to a person familiar with the matter. That would require more than $30 billion in annual food and beverage spending through its sites, up from $8.7 billion — including Amazon Fresh and all other food and drink sales — in 2016, according to Cowen & Co. 
Reaching that milestone would require a new wave of store and warehouse investments around the country, costing billions of dollars. That’s an existential change for Amazon, which initially stayed away from perishable goods and has mostly avoided the overhead of physical stores since it started in 1994.

“A bunch of smart people at Amazon have been thinking about re-imagining the next phase of physical retail,” said Scott Jacobson, a former Amazon executive who is now a managing director at Madrona Venture Group. “They want more share of the wallet, and habitual, frequent use of Amazon for groceries is the ultimate goal.”
For Amazon shoppers interested in buying groceries online, the company’s current offerings can be confusing. Amazon Fresh is available in about 20 U.S. cities for those paying $14.99 a month. Amazon Pantry lets shoppers buy crackers, cookies, chips, coffee and other non-perishables for a delivery fee of $5.99 per box. Amazon’s speedy drop-off service, Prime Now, offers items from local grocers in some cities, but no major chains. Its stick-on Dash Buttons let people order many household products — including some groceries, but not fresh food — with a finger tap. And Subscribe & Save offers discounts to Amazon customers who sign up for periodic delivery of laundry detergent, toothpaste, diapers, paper towels and other items frequently purchased in grocery stores.
The various initiatives have been a source of increasing internal tension as employees on different projects compete to sell the same things, according to a person familiar with the matter.
One problem saddling Amazon Fresh is the high cost of losses caused by food going bad, an issue it’s never faced with books and toys. For conventional grocery sellers, browning bananas can be sold at a discount to smoothie-makers and bread bakers. Chicken breasts nearing their expiration dates can be marked down. With Amazon Fresh, such items must be discarded or are returned by frustrated customers, according to a person familiar with the matter. That has meant Amazon Fresh has lost money from spoilage at more than double the rate for a typical supermarket, said the person, who asked not to be identified discussing internal operations. The main reason Amazon began delivering groceries through Prime Now was to hand that risk back to the local grocers to lower Amazon’s costs. The company didn’t originally anticipate the scope or difficulty of these problems because so few people working on its grocery push have experience in the industry.
“Grocery is the most alluring and treacherous category,” said Nadia Shouraboura, a former Amazon executive whose company, Hointer, has been working on redefining in-store grocery shopping for the past 18 months. “It lures inventors and retailers with shopping volume and frequency, and then sinks them with low margin.”
Beyond grocery, Amazon executives have also discussed opening consumer electronics stores to showcase its gadgets and better compete with Best Buy Co., according to three people familiar with the plan. For years, Amazon executives have discussed the downside of an online-only strategy, mostly with regard to a lack of places for shoppers to try out Kindle electronic readers, the voice-activated Echo speaker and its defunct Fire smartphone. Amazon considered holding events similar to Tupperware parties when it introduced its first Kindle in 2007, fearing the products would languish unseen, Jacobson said. The handful of bookstores Amazon has opened around the country double as gadget showrooms, similar to the Apple Store.
Long term, a stronger grocery business could position Amazon to become a wholesale food-distribution business serving supermarkets, convenience stores, restaurants, hotels, hospitals and schools. But first the company has to find a way to get more people to think of Amazon when stocking their refrigerators and pantries.

Photographer: David Ryder/Bloomberg
A group of Amazon executives met late last year to discuss the disadvantage Amazon faced compared with grocery competitors such as Wal-Mart and Kroger because of its lack of physical stores and customer apprehension about buying fresh foods online. They decided they needed something more to jump-start Amazon’s grocery push beyond plans already under way for the Amazon Go convenience store, modeled for urban areas, and drive-in grocery pick-up stations suited for the suburbs.
They worked out plans for a third approach: grocery stores closer in size to a Trader Joe’s than a Wal-Mart to offer easy access to milk, eggs and produce.  Other items like paper towels, cereal, canned goods and dish detergent would be stocked on-site in a warehouse where they could be easily packed and delivered to shoppers at the location, according to documents reviewed by Bloomberg. It would also serve as a delivery hub for online orders.
Brittain Ladd, a supply chain consultant who joined Amazon in 2015 and most recently worked on its Amazon Fresh and Pantry expansions, wrote about such a store prior to joining Amazon in an academic paper called “A Beautiful Way to Save Woolworths.”

Ladd envisioned two-story buildings where shoppers browse produce, bread and other fresh items on the ground level while their orders for paper towels, canned goods and cereal are packed in a warehouse above. “The stores will have the capability to fulfill online orders placed by customers within a specific radius of the store,” he wrote. “Amazon drivers and/or contractors will be assigned to deliver groceries.”
The executives decided such a store would be worth pursuing for Amazon Fresh and ordered further research about ideal locations, how to integrate the stores with grocery delivery, and the use of automation to reduce overhead. Site selection for this store’s first model is happening now in Seattle, according to a person familiar with the plan.
Meanwhile, the first wave of its new grocery experiment, Amazon Go, was unveiled in December and for now is only open to employees while the systems are tested. Cameras and sensors monitor shoppers who scan their smartphones upon entering, allowing them to grab items like sandwiches, yogurt, drinks and snacks and automatically pay for them without a checkout kiosk. Products are embedded with tracking devices that pair with customers’ phones to charge their accounts. Weight-sensitive shelves tell Amazon when to restock. A patent filed by Amazon in 2014 suggests it could use facial-recognition technology to identify and then automatically charge in-store shoppers.
In its video touting Amazon Go, the company said it was aiming to open the site to the public in “early 2017,” and it hasn’t provided an update to that timing. But the technology has been crashing in tests when the store gets too crowded and requires human quality control, people watching video images to make sure customers are charged for the right things, according to a person familiar with the plan.
Beyond letting customers skip lines, the technology gives Amazon valuable data, said Guru Hariharan, founder of Boomerang Commerce Inc., which designs software for large retailers. Even if customers don’t purchase everything they touch, there’s value in understanding what shoppers consider but don’t ultimately buy, he said. That makes it worthwhile for Amazon to work through the kinks in the technology.
“It takes a lot of time and experimentation to work through unpredictable scenarios like a child picking up an item or a person wearing sunglasses or a face muffler,” he said.
At the same time, recent work and construction permits indicate the new drive-in grocery kiosk in Ballard could open any day.

===Amazon Crush Nov 2016 Edition===

I began tracking Amazon in early 2014 with multiple posts, copied here.

I speculated in EARLY 2014 (see post below) that Amazon revenue in 2015 would exceed $100 billion.

They finished 2015 at $107 billion – up $11 billion vs 2014:

2015
107,010
2014
88,988
2013
74,452
2012
61,093
2011
48,077
2010
34,204

Revenue is up 21% for the first 9 months of 2016. So my bet is that 2016 will be about $130 billion. The old forecast that Amazon will exceed $250 billion in sales by 2020 is looking about right.

Cash for the latest 12 months is way up – they have $13 billion on hand in cash and cash equivalents.

Their stock price is at an all-time high: $767.

Reminders of earlier posts about moves by Amazon:

ECHO: The Echo is a stout, plain-looking cylinder, about the height of a toaster, that you can park just about anywhere you have Wi-Fi access, though it seems most useful in the kitchen. You can ask it anything, beginning with the word “ALEXA….”

TWITCH: video streaming …. has 40% of all internet video streaming bandwidth????

AMAZONFRESH: lets customers purchase groceries online, including perishable items like dairy, meat, and fish, which are delivered within a day.

They tested in Seattle for years, and then rolled out in 2014 to most of California, New Jersey, New York City, Philadelphia, and Washington. They then took an 18 month expansion hiatus. They will expand to Boston and UK this year. This is slower than expected.

As for its progression into other markets, there are more hurdles associated with AmazonFresh than the site’s other services that have slowed it down—the company needs to open refrigerated warehouses, carry its own stock of perishable groceries, and hire additional delivery people in each new market.

 
Word is that it’s difficult to convince customers it’s worth the $299/year price tag. Amazon is trying to grab a larger share of the grocery market with this expansion. Delivery currently makes up less than 5% of all grocery sales.

Here is how their 2015 10K describes their business.

General
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earth’s most customer-centric company. We are guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. In each of our segments, we serve our primary customer sets, consisting of consumers, sellers, developers, enterprises, and content creators. In addition, we provide services, such as advertising services and co-branded credit card agreements.

Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and Amazon Web Services (“AWS”). These segments reflect the way the Company evaluates its business performance and manages its operations. Additional information on our operating segments and product information is contained in Item 8 of Part II, “Financial Statements and Supplementary Data—Note 11—Segment Information.” See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Supplemental Information” for supplemental information about our net sales. Our company-sponsored research and development expense is set forth within “Technology and content” in Item 8 of Part II, “Financial Statements and Supplementary Data—Consolidated Statements of Operations.”
Consumers
We serve consumers through our retail websites and focus on selection, price, and convenience. We design our websites to enable millions of unique products to be sold by us and by third parties across dozens of product categories. Customers access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo. We strive to offer our customers the lowest prices possible through low everyday product pricing and shipping offers, and to improve our operating efficiencies so that we can continue to lower prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service. In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on millions of items, access to unlimited instant streaming of thousands of movies and TV episodes, and other benefits.
We fulfill customer orders in a number of ways, including through: North America and International fulfillment and delivery networks that we operate; co-sourced and outsourced arrangements in certain countries; and digital delivery. We operate customer service centers globally, which are supplemented by co-sourced arrangements. See Item 2 of Part I, “Properties.”

Sellers
We offer programs that enable sellers to sell their products on our websites and their own branded websites and to fulfill orders through us. We are not the seller of record in these transactions, but instead earn fixed fees, a percentage of sales, per-unit activity fees, or some combination thereof.

Here are prior posts:
=========
JUNE, 2015 POST on ECHO

Amazon’s Echo
See NYT article below on Amazon’s Echo (and note comparisons to other voice command systems, such as Siri, Google Now, and Cortana):

“If it moves nimbly, keeping ahead of Apple and Google, Amazon could transform the Echo into a something like a residential hub, the one device to control pretty much everything attached to your home.”

Functionality at the moment is:

– telling you the weather
– playing music you ask for
– adding stuff to your shopping list
– reordering items you frequently buy from Amazon
– giving you a heads-up about your nearing calendar appointments
– setting a kitchen timer
– answering the most basic of search queries

Amazon Echo, a.k.a. Alexa, Is a Personal Aide in Need of Schooling
By FARHAD MANJOOJUNE 24, 2015

The Amazon Echo, a wireless speaker and artificially intelligent personal assistant, can tell you the weather, play music and reorder items you frequently buy from Amazon, among other things.

THIS week, I asked a friend for help: “Alexa, can you write this review for me?”
“What’s your question?” Alexa responded.
“Can you write this review for me?”
“Review is spelled R-E-V-I-E-W.”
“Thanks,” I said. “That about sums it up.”

O.K., so Alexa isn’t perfect; far from it, in fact. If there is one glaring flaw in the Amazon Echo — the tiny wireless speaker and artificially intelligent personal assistant, a machine that one always addresses with the honorific “Alexa,” as if she’s some kind of digital monarch — it is that she is quite stupid.

If Alexa were a human assistant, you’d fire her, if not have her committed. “Sorry, I didn’t understand the question I heard” is her favorite response, though honestly she really doesn’t sound very sorry. She’ll resort to that line whether you ask her questions answered by a simple Google search (“How much does a cup of flour weigh?”) or something more complicated (“Alexa, what was that Martin Scorsese movie with Joe Pesci and Robert De Niro?”).

Other times, she is mind-numbingly literal. One night during the N.B.A. playoffs, I asked, “Alexa, what’s the score of the basketball game?” She proceeded to give me a two-minute, 18-part definition of the word “score” that included “a seduction culminating in sexual intercourse.” Not exactly what I was going for.

And yet, after spending three weeks testing the Echo, I really kind of love Alexa. She is just smart enough to be useful. And she keeps getting smarter. This week, after a long invitation-only preview period, Amazon began selling the Echo to the public. At $179.99, Alexa is more expensive than I’d like. (Subscribers to Amazon’s $99-a-year Prime subscription service could buy the Echo for only $100 during the preview.) But if you’re the type who enjoys taking chances on early, halfway useful tech novelties, the Echo is a fun thing to try.

And if you’re anything like me, after a week with the Echo, you may feel the device begin to change how you think about home tech. It will not seem far-fetched to expect that one day soon, you’ll have an all-knowing, all-seeing talking assistant to control your lights, thermostat, entertainment system and just about anything else at home. In Alexa, Amazon has created the perfect interface to control your home; if it adds some more intelligence, it would be quite handy.

The Echo is a stout, plain-looking cylinder, about the height of a toaster, that you can park just about anywhere you have Wi-Fi access, though it seems most useful in the kitchen. It comes with a remote control that you don’t really need, because after a quick initial setup using your smartphone, you can control pretty much everything the Echo does with your voice. (The remote does have a microphone that allows you to speak to the Echo from far away.) From there, the Echo is terrifically easy to use — say “Alexa” and ask your question.

At the moment, there are only a handful of uses for the Echo. She’s great at telling you the weather, adding stuff to your shopping list, reordering items you frequently buy from Amazon, giving you a heads-up about your nearing calendar appointments, and answering the most basic of search queries.

She is pretty good at playing music, though her main source is Amazon Prime Music, a streaming service that is included with a Prime membership. Prime Music’s selection is dreadfully limited, though, and at the moment, the Echo can’t connect to many other streaming services. Thankfully, with a few quick voice commands, Alexa can connect to your phone like any other Bluetooth speaker. That way, she can take control of music you play from most apps, including streaming apps like Spotify. You can’t call out for specific songs this way, but you can say “Alexa, pause” or “Alexa, next” and she’ll control the tunes playing from your phone.

The Echo is also a very good kitchen timer. Put your cookies in the oven; yell out, “Alexa, set timer for 12 minutes”; and she’s off. It’s far easier than fumbling with buttons on the microwave, especially when you have your hands full.

But wait a minute — can’t you do pretty much all this on your phone, your smartwatch or many other devices? Yes, you can, but Alexa is right there. She’s always plugged in. She’s always listening, and she’s fast. It’s surprising how much of a difference a few milliseconds make in maintaining the illusion of intelligence in our machines. Because Alexa is far quicker to spring into action than Siri, Apple’s digital personal assistant, especially Siri on the Apple Watch, I found her to be much more pleasant to use, even if she is frequently wrong.

Amazon says that it plans to constantly improve the Echo. During the preview period, it added a host of new features, including the ability to control some smart-home devices, built-in integration with the Pandora streaming service, and traffic information for your morning commute. I’m hoping Amazon creates an open system — what developers call an API — for the Echo, which will allow a wide variety of online services and apps to connect to the device. If it moves nimbly, keeping ahead of Apple and Google, Amazon could transform the Echo into a something like a residential hub, the one device to control pretty much everything attached to your home.

At the moment, that dream is far off. But dumb as she sometimes sounds, Alexa may be just smart enough to make it happen.

This entry was posted in Personalization, Systems, Technology and tagged Amazon, Echo, Technology, voice recognition on June 29, 2015.

========= MAY 2015 POST ============

The Amazon Crush continues:

Just look at cash:

CASH AND CASH EQUIVALENTS, END OF PERIOD
2014
14.557 billion
2013
8,.658 billion
2012
8.084 billion

Amazon has published its 10Q for Q1 2015

http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsother

Note that free cash flow has doubled:

“Free cash flow, a non-GAAP financial measure, was $3.2 billion for the trailing twelve months ended March 31, 2015, compared to $1.5 billion for the trailing twelve months ended March 31, 2014.”

Note also that international revenue is down.

They also have published their annual report:
http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual

Net sales are continuing sharp growth – to $89 billion.
2014
88,988
2013
74,452
2012
61,093
2011
48,077
2010
34,204

Sales increased 20%, 22%, and 27% in 2014, 2013, and 2012

, compared to the comparable prior year periods. Changes in foreign currency exchange rates impacted net sales by $(636) million, $(1.3) billion, and $(854) million for 2014, 2013, and 2012. For a discussion of the effect on sales growth of foreign exchange rates, see “Effect of Foreign Exchange Rates” below.

North America sales increased 25%, 28%, and 30% in 2014, 2013, and 2012

, compared to the comparable prior year periods. The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers, and AWS, which was partially offset by AWS pricing changes. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings.

nternational sales increased 12%, 14%, and 23% in 2014, 2013, and 2012

, compared to the comparable prior year periods. The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings. Additionally, changes in foreign currency exchange rates impacted International net sales by $(580) million, $(1.3) billion, and $(853) million in 2014, 2013, and 2012. “

In their annual report, they state the key to their cash flow business model:

“Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.”

https://openforum.hbs.org/challenge/understand-digital-transformation-of-business/business-model/amazonfresh-well-positioned-to-capture-value-in-online-grocery

====================== Posted 20140820: Amazon Crush – Update =====
Amazon Crush – Update

Amazon update
Thanks to Oliver Wyman, Fast Company and many others for this update on last post on Amazon…..my sense from reading all:
– Twitch is Amazing! Driving 40% of all internet bandwidth???? Is that even possible? With 55 million users spending an average of 100+ minutes per day??? That is enormous! Bezos obviously intrigued and willing to take a risk to get this three-year old start-up in its fold? But why exactly? Don’t know
– FRESH is moving out. Per plan, and announcement to stockholders and also per rumor, Amazon Fresh is in a soft launch mode. The big news was the launch in LA (after 7 years in Seattle tweaking), and then it was small news that they rounded out most of the the rest of California markets – that is a HUGE expansion in less than a year. Moreover, Amazon green trucks are riding through Manhattan, and a roll there is imminent. No word yet, but I really think Chicago might be next – rumors say I am right.
– Manufacturers think this isn’t their fight. Most of them are just glad they are not retailers. But the truth is that Amazon will cause a massive reduction in retailer margin, as well as many of the brand-building activities at retail that manufacturers are used to …. horrible merchandising will replace great merchandising, forget about cold beverage sales, forget about impulse sales, etc.
– the truth is that retail is not at risk – just the marginally profitable ones.

Here are the articles:

AMAZONFRESH IN THE U.S.
After years of anticipation, AmazonFresh has now expanded its U.S. home grocery delivery service beyond its home market of Seattle.
In June 2013, it launched in Los Angeles, with more markets expected to follow. From conversations with supermarket retailers all over the U.S. and globally, it is clear that online and multi-channel competitors have come into focus as a key competitive threat, and AmazonFresh is by far the most dangerous of the new breed. What is striking is the similarity between what we hear from food retailers today and what leaders of category killers were saying back in 2009 – and we know that the category killers’ fears of Amazon proved to be well-founded.

WHAT IS AMAZON FRESH?
AmazonFresh, operating in pilot mode in Seattle since 2007, allows shopping online and on mobile apps. The assortment is surprisingly broad and deep, with between 10,000 and 30,000 items, depending on the market, including (for example) 400+ produce items, 500+ meat and seafood items, 1,300+ beverage items and 4,000+ health and beauty items. Unlike the traditional Amazon model, AmazonFresh prices on consumables are currently higher than those found in local supermarkets, as promotions are mostly absent – the current customer proposition focus is on convenience.
The differences between the Seattle and LA models (different membership and delivery pricing models and different assortment depth, to name a few) seem to indicate that Amazon is still trialling many elements of the business, but the rollout to additional markets suggests underlying confidence in the economics.
When Amazon decides to move from pilot to rollout, history indicates they will move very rapidly. The company has reportedly told vendors it could roll out to 40 U.S. markets by the end of 2014!
The direct impact that Amazon had on many category killers by winning market share is obvious, as is the impact on consumers’ price expectations, but one under-reported aspect of what is happening to category killers is the channel conflict competition Amazon provokes. Not only does Amazon take share, they also force category killers to shift transactions to their own websites. But those sites are not the basket-building machines that stores are. For one major category killer, the average online transaction has only a quarter of the number of items that the average in-store transaction has. So the incumbents face a conundrum – they must grow online sales, but doing so dramatically worsens their economics.
However, Amazon will never take as much share away from food retailers as it has taken from category killers. Food retailers’ natural defenses – low gross margins, focus on fresh product, “need it now” consumption patterns, the emotional aspect of personally selecting food to feed one’s family – mean the supermarket channel as a whole will not suffer the fate of Borders or even Best Buy.
The threat is not that stores will become obsolete; such notions are alarmist and naïve. But AmazonFresh can force dramatic change in the shape of the food retail industry with even modest market share. It doesn’t take complicated analysis to prove this. The industry overall runs with about a 2% bottom line and a 20% volume variable margin. This means
a 10% sales loss would wipe out the entire industry’s profit. Any experienced food retail executive knows that most chains have a “mushy middle” of stores that generate reasonable operating income with current sales volumes, but would quickly tip into negative store profit with a modest reduction in volume. We don’t know what Amazon’s ultimate ambitions in the food space are, but if they achieve even a 5% volume share it would force significant changes. Current players would have to either raise prices – kicking off the vicious cycle of volume loss, causing deleveraged fixed costs, leading to even more price rises – or close stores to bring costs into line. A 5% volume loss to AmazonFresh would result in 10-20% reduction in store count, because not all the volume from closed stores will be clawed back by surviving stores: as supermarkets become relatively less convenient, some of the volume would go to specialists (clubs, hard discounters, premium players) and online channels. It’s too early to know the full extent of the impact, but a good guess is that around one in eight supermarkets would have to close to maintain current profitability without raising prices.
Supermarkets should not count on their ability to weather this disruption the way they weathered the last major disruption: the Walmart supercenter tsunami, in the case of the U.S. Then, the best grocers got better, slashed cost out of their networks, improved their capabilities, and prospered at the expense of weaker competitors who couldn’t adapt fast enough. They had time to pull this off because Walmart couldn’t open a thousand supercenters overnight. But this time, the starting point is much, much more efficient – there will be a lot less “fat” to cut to preserve profitability in the face of falling volume – and the weaker players that were the victims last time are already gone. Most significantly, the rate of change in the competitive landscape will not be constrained by the process of opening new stores. Amazon only has to set up distribution centers and networks. It already has a strong consumer brand. This disruption could happen much faster than anything the industry has seen before.

WHAT SHOULD FOOD RETAILERS BE DOING? AT LEAST THREE THINGS:
Build a multi-channel offering. Of course, grocers must develop their own answer to online and mobile shopping. And it is better to cannibalize one’s own in-store sales than to surrender them to the competition. That said, it is very tricky to make the economics of these models work, so great care must be taken to manage the bottom line as online and mobile sales ramp up.
Get seriously good at fresh. The fresh categories represent a cushion around the rest of the customer offer. If customers believe they can’t get the same quality, freshness and selection online as they would in a store, it will be a formidable barrier to switching to on-line purchasing. So far AmazonFresh’s fresh product offering is highly variable (see Exhibit 1) but it stands to reason that they will get better with experience. And they have a built-in freshness advantage – as do all online grocers – because product take less time to go from the distribution center to the customer’s home. Most U.S. retailers are nowhere near where they could be, and the same is true in many other geographies. Getting good enough at fresh to fend off online competition means re-thinking the supply chain, store practices and merchandising standards. It means breaking the usual trade-off between availability and shrink, shifting the efficient frontier through better capabilities and greater accountability.
Prepare for a world with fewer stores. Possibly a lot fewer. Even an excellent multichannel platform and a rejuvenated fresh offer will not be nearly enough. We believe food retailers should be planning now for a world with far fewer stores. If, say, 15% of the square footage is going to have to close down, survival will depend on making sure the competition bears more than their fair share of the pain. So grocers’ competitive strategy should be focused on ensuring they get to keep more of their stores than the competition does, and being prepared to pounce when weakened competitors begin to wobble. This means understanding how to win store-by-store battles and drive maximum profit out of every square foot. To be clear, we are bullish on the supermarket industry. While the industry’s transformation will be painful for all and fatal for a few, the survivors will be better placed. Surviving stores will do much higher volume and, with higher fixed cost leverage, they could be massively more profitable. Stronger competition will force grocers to become even better operators and even more responsive to customer needs. Retailers who act fast can not only survive, but adapt their businesses to thrive in the new world.

Exhibit 1: PRELIMINARY CUSTOMER RESEARCH BY OLIVER WYMAN SHOWS a wide range of customer perceptions of the quality of AmazonFresh products
“The apples were the kind I would have hunted for and maybe not found. They looked great and the taste was fresh and sweet, the texture crisp which is exactly what I like. They were delicious.”
“The sell by date on the frozen beef says July 2013 [delivered in September 2013]. Granted it was frozen, this makes me believe it’s not fresh beef and I’m a little disappointed by that.”
“Some of the berries were very soft and leaking all over the box.”

ABOUT OLIVER WYMAN
Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation.
Copyright © 2014 Oliver Wyman. All rights reserved.
FastCompany: AmazonFresh a “Trojan horse;” 20 more markets expected
Aug 11 2013, 18:15 ET
In a cover story on Jeff Bezos and Amazon (AMZN), FastCompany’s J.J. McCorvey observes the company’s new AmazonFresh grocery service (offered via its $299/year Prime Fresh free shipping plan) is a “Trojan horse” meant to give Amazon’s broader same-day delivery efforts needed scale.
Amazon is also hoping its same-day infrastructure (replete with Amazon trucks) will increase its appeal to 3rd-party sellers (now responsible for 40% of unit sales) by lowering delivery times. Merchants already cite access to Prime as a reason for outsourcing fulfillment to Amazon (and giving a ~20% cut).
EBAY could prove a formidable same-day rival. Instead of building its own soup-to-nuts infrastructure, eBay is relying on dozens of offline retailers (inc. major national chains) to help handle fulfillment. Google is also dipping its toes into same-day.
Currently available in L.A. and Seattle, AmazonFresh is expected to expand to 20 more markets, including some international ones. SunTrust recently predicted an NYC launch will happen in 2014.
Also mentioned by McCorvey: Amazon is now able to ship items less than 2.5 hours after an order is placed; and wants to further lower than number; Prime now covers 15M+ items (up from 1M in ’05); and Amazon is still “evaluating” how to use Kiva’s robots.
Amazon buying Twitch for $970M in cash

FAST COMPANY
4.2K SHARES
AMAZONFRESH IS JEFF BEZOS’ LAST MILE QUEST FOR TOTAL RETAIL DOMINATION
AMAZON UPENDED RETAIL, BUT CEO JEFF BEZOS — WHO JUST BOUGHT THE WASHINGTON POST FOR $250 MILLION — INSISTS IT’S STILL “DAY ONE.” WHAT COMES NEXT? A RELENTLESS PURSUIT OF CHEAPER GOODS AND FASTER SHIPPING. THE COMPETITION IS ALREADY GASPING FOR BREATH.
BY J.J. MCCORVEY
The first thing you notice about Jeff Bezos is how he strides into a room.
A surprisingly diminutive figure, clad in blue jeans and a blue pinstripe button-down, Bezos flings open the door with an audible whoosh and instantly commands the space with his explosive voice, boisterous manner, and a look of total confidence. “How are you?” he booms, in a way that makes it sound like both a question and a high-decibel announcement.

MORE ON AMAZON
• Amazon CEO Jeff Bezos Agrees To Buy The Washington Post For $250 Million
• Need A Job? Amazon Is Hiring 5,000 People
• Think Your Office Is Soulless? Check Out This Amazon Fulfillment Center
Each of the dozen buildings on Amazon’s Seattle campus is named for a milestone in the company’s history–Wainwright, for instance, honors its first customer. Bezos and I meet in a six-floor structure known as Day One North. The name means far more than the fact that Amazon, like every company in the universe, opened on a certain date (in this case, it’s July 16, 1995). No, Day One is a central motivating idea for Bezos, who has been reminding the public since his first letter to shareholders in 1997 that we are only at Day One in the development of both the Internet and his ambitious retail enterprise. In one recent update for shareholders he went so far as to assert, with typical I-know-something-you-don’t flair, that “the alarm clock hasn’t even gone off yet.” So I ask Bezos: “What exactly does the rest of day one look like?” He pauses to think, then exclaims, “We’re still asleep at that!”
He’s a liar.
Amazon is a company that is anything but asleep. Amazon, in fact, is an eyes-wide-open army fighting–and winning–a battle that no one can map as well as its general. Yes, it is still the ruthless king of books–especially after Apple’s recent loss in a book price-fixing suit. But nearly two decades after its real day one, the e-commerce giant has evolved light-years from being just a book peddler. More than 209 million active customers rely on Amazon for everything from flat-panel TVs to dog food. Over the past five years, the retailer has snatched up its most sophisticated competition–shoe seller Zappos and Quidsi, parent of such sites as Diapers.com, Soap.com, Wag.com, and BeautyBar.com. It has purchased the robot maker Kiva Systems, because robots accelerate the speed at which Amazon can assemble customer orders, sometimes getting it down to 20 minutes from click to ship. Annual sales have quadrupled over the same period to a whopping $61 billion. Along the way, incidentally, Amazon also became the world’s most trusted company. Consumers voted it so in a recent Harris Poll, usurping the spot formerly held by Apple.
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Amazon has done a lot more than become a stellar retailer. It has reinvented, disrupted, redefined, and renovated the global marketplace. Last year, e-commerce sales around the world surpassed $1 trillion for the first time; Amazon accounted for more than 5% of that volume. This seemingly inevitable shift has claimed plenty of victims, with more to come. Big-box retailers like Circuit City and Best Buy bore the brunt of Amazon’s digital assault, while shopping-mall mainstays such as Sears and JCPenney have also seen sales tank. Malls in general, which once seemed to offer some shelter from the online pummeling, have been hollowed out. By Green Street Advisors’ estimate, 10% of the country’s large malls will close in the next decade. It has become painfully clear that the chance to sift through bins of sweaters simply isn’t enough of a draw for shoppers anymore. “It has been this way in retail forever,” says Kevin Sterneckert, a research VP at Gartner who focuses on shopping trends, and who lays out a strategy that should blow nobody’s mind: “If you don’t innovate and address who your customers are, you become irrelevant.” And now that means fending off threats from every phone, tablet, and laptop on the planet.
Amazon’s increasing dominance is now less about what it sells than how it sells. And that portends a second wave of change that will further devastate competitors and transform retail again. It’s not just “1-Click Ordering” on Amazon’s mobile app, which is tailor-made for impulse buying. It’s not just the company’s “Subscribe & Save” feature, which lets customers schedule regular replenishments of essentials like toilet paper and deodorant. It’s not just Amazon’s “Lockers” program, in which huge metal cabinets are installed at 7-Elevens and Staples in select cities, letting customers securely pick up packages at their convenience instead of risking missed (or stolen) deliveries.

“AMAZONFRESH IS REALLY A TROJAN HORSE. IT’S NOT ABOUT WINNING IN GROCERY SERVICES. IT’S ABOUT DOMINATING THE MARKET IN SAME-DAY DELIVERIES. ”

No, it’s all this, plus something more primal: speed. Bezos has turned Amazon into an unprecedented speed demon that can give you anything you want. Right. Now. To best understand Amazon’s aggressive game plan–and its true ambitions–you need to begin with Amazon Prime, the company’s $79-per-year, second-day delivery program. “I think Amazon Prime is the best bargain in the history of shopping,” Bezos tells me, noting that the service now includes free shipping on more than 15 million items, up from the 1 million it launched with in 2005. Prime members also gain access to more than 40,000 streaming Instant Video programs and 300,000 free books in the Kindle Owners’ Lending Library. As annoying as this might be to Netflix, it is not intended primarily as an assault on that business. Rather, Bezos is willing to lose money on shipping and services in exchange for loyalty. Those 10 million Prime members (up from 5 million two years ago, according to Morningstar) are practically addicted to using Amazon. The average Prime member spends an astounding $1,224 a year on Amazon, which is $700 more than a regular user. Members’ purchases and membership fees make up more than a third of Amazon’s U.S. profit. And memberships are projected to rise 150%, to 25 million, by 2017.
Nadia Shouraboura of Hointer, a new store that represents how retail must adapt in the Age of Amazon

Robbie Schwietzer, VP of Prime, is more candid than his boss when explaining Prime’s true purpose: “Once you become a Prime member, your human nature takes over. You want to leverage your $79 as much as possible,” he says. “Not only do you buy more, but you buy in a broader set of categories. You discover all the selections we have that you otherwise wouldn’t have thought to look to Amazon for.” And what you buy at Amazon you won’t buy from your local retailer.
Prime is phase one in a three-tiered scheme that also involves expanding Amazon’s local fulfillment capabilities and a nascent program called AmazonFresh. Together, these pillars will remake consumers’ expectations about retail. Bezos seems to relish the coming changes. “In the old world, you could make a living by hoping that your customer didn’t know whether your price was actually competitive. That’s a very”–Bezos pauses for a second to rummage for the least insulting word–“tenuous strategy in the new world. [Now] you can’t convince people you have the low price; you actually have to have the low price. You can’t persuade people that your delivery speeds are fast; you actually have to have fast delivery speeds!” With that last challenge, he erupts in a thunderous laugh, throwing his cleanly depilated head so far back that you can see the dark fillings on his upper molars. He really does seem to know something the rest of us don’t. We’re still asleep, he says? The alarm clock at Amazon went off hours ago. Whether the rest of the retail world has woken up yet is another question.
Amazon’s 1-million-square-foot Phoenix fulfillment center produces a steady and syncopated rhythm. It is the turn of mechanical conveyor belts, the thud of boxes hitting metal, the beeping of forklifts moving to and fro, and the hum of more than 100 industrial-size air conditioners whirring away. This is the sound of speed–a sonic representation of what it takes to serve millions of customers scattered across the globe.

In centers like this one, of which there are 89 globally (with more to come), Amazon has built the complex machinery to make sure a product will ship out in less than 2.5 hours from the time a customer clicks place your order.

From that click, a set of algorithms calculates the customer’s location, desired shipping speed, and product availability; it then dispatches the purchase request to “pickers” on duty at the nearest fulfillment center. The system directs the new order to the picker who is closest on the floor to that product, popping up with a bleep on the picker’s handheld scanner gun. These men and women roam the sea of product shelves with carts, guided by Amazon’s steady hand to the precise location of the product on the color-coded shelves. The picker gathers the item and puts it into a bin with other customer orders. And from there, the item zooms off on a conveyor belt to a boxing station, where a computer instructs a worker on what size box to grab and what items belong in that box. After the packer completes an order, the word success lights up in big green letters on a nearby computer screen. Then the package goes back on a conveyor, where the fastest delivery method is calculated by scanning the box, which is then kicked down a winding chute to the appropriate truck.
AMAZON-PROOF RETAIL
How one store merges digital and physical
If anyone can design a brick-and-mortar store for an e-commerce world, it should be Nadia Shouraboura. She used to be Amazon’s VP of global supply chain and fulfillment technology and has since created Hointer, a fully automated store run on software algorithms and machinery. She calls it a “microwarehouse” that marries digital’s instant gratification with in-store benefits. “In apparel, this will win,” she predicts. It works like this:
STEP 1. SEARCH
A customer enters the spare store, where there’s only one of every product in view. She pulls up the Hointer app, scans the QR code on a pair of jeans she likes, and enters her size.
STEP 2. DELIVER
Within 30 seconds of scanning the code, a pair of jeans in her size travels through a chute and lands in her dressing room. She can scan as many items as she likes.
STEP 3. REFINE
Inside the dressing room, she tries on the jeans, but they’re too baggy. So she chucks them down another chute and selects a smaller size from the app.
STEP 4. PURCHASE
The jeans fit! She pays on her phone or swipes her card at a kiosk, and leaves the store with her purchase. No sales clerk necessary.
The process is efficient, but still lower tech than it could be. Although Amazon shelled out $775 million last year for those orange Kiva robots, it says it’s still “evaluating” how to deploy the bots, and they’re nowhere to be seen here. “Fulfillment by Amazon” is still a very human endeavor–and the company’s creativity thrives within that limitation. A team at the Phoenix center is constantly thinking of ways to chip away at the 2.5-hour processing time. For instance, when products arrive from Amazon’s vendors and the 2 million third-party merchants who sell their goods on the site, workers now scan them into Amazon’s inventory system (again, with a handheld gun) instead of entering the details manually. Also, products have been stowed on shelves in what otherwise might appear to be a random way–for example, a single stuffed teddy bear might be next to a college biology book–because it reduces the potential distance a worker must trek between popular products that might be ordered together. Small tweaks like these have an impact: In the past two years, Amazon has reduced the time it took to move a product by a quarter. During the past holiday season, the company processed 306 items per second worldwide.
These centers aren’t just about warehouse speed, though: They’re also about proximity. Over the past several years, Bezos has poured billions into building them in areas closer and closer to customers. The Phoenix warehouse, one of four in the region, serves a metro area of nearly 4 million. Robbinsville, New Jersey, is roughly one hour from 8 million New Yorkers. Patterson, California, is an hour and a half from 7 million people living in the San Francisco Bay Area. Three locations in Texas–Coppell, Haslet, and Schertz–will serve not only the nearly 9 million citizens of the Dallas and San Antonio metro areas but also the other 17 million or so customers in the state (and possibly neighboring states too) who live only a few hundred miles away.
“What you see happening,” Bezos explains, “is that we can have inventory geographically near major urban populations. If we can be smart enough–and when I say ‘smart enough,’ I mean have the right technology, the right software systems, machine-learning tools–to position inventory in all the right places, over time, your items never get on an airplane. It’s lower cost, less fuel burned, and faster delivery.”
The holy grail of shipping–same-day delivery–is tantalizingly within reach. Amazon already offers that service in select cities, what it calls “local express” delivery, but the big trick is to do it nationally. And the crucial element of this ambitious plan is revealed by something wonkier than a bunch of buildings. It is something only an accountant could see coming: a cunning shift in tax strategy.
“”IN THE NEW DIGITAL WORLD,” SAYS BEZOS, “YOU CAN’T CONVINCE PEOPLE YOU HAVE THE LOW PRICE; YOU ACTUALLY HAVE TO HAVE THE LOW PRICE.””
If you were a competitor who knew what to listen for, you’d practically hear the Jaws theme every time Bezos said the word taxes. For years, Amazon fervently avoided establishing what is called a “tax nexus”–that is, a large-enough physical presence–in states that could potentially force it to collect sales tax from its customers, something brick-and-mortar and mom-and-pop stores had long argued would finally remove Amazon’s unfair pricing advantage. In states that dared to challenge Amazon, the company would quickly yank operations. The scrutiny even extended to its sale of products by other merchants. “We had to be very careful, even with the third-party business, about not incurring tax-nexus stuff,” recalls John Rossman, a former Amazon executive and current managing director at Alvarez and Marsal, a Seattle-based consulting firm.
But Amazon has since changed its mind. It determined that the benefits of more fulfillment centers–and all the speed they’ll provide–will outweigh the tax cost they’ll incur. So it began negotiating with states for tax incentives. South Carolina agreed to let the company slide without collecting sales tax until 2016, in exchange for bringing 2,000 jobs to the state. In California, Amazon was given a year to start collecting taxes in exchange for building three new warehouses. And at the end of 2011, Amazon even threw its support behind a federal bill that would mandate all online retailers with sales of more than $1 million to collect tax in states in which they sold to customers. In 2012 alone, Amazon spent $2.5 million lobbying for issues that included what’s known as the Marketplace Fairness Act–the same law, essentially, it had once moved heaven and earth to eradicate. The bill recently cleared the U.S. Senate and awaits passage in the House.
“The general perception is companies thinking, Oh, great, finally a level playing field,” Rossman says. “But other retailers are going to regret the day. Sales tax was one of the few things impeding Amazon from expanding. Now it’s like wherever Amazon wants to be, whatever Amazon wants to do, they are going to do it.”
There’s yet another weapon in Amazon’s offensive, and it’s ready for rollout. It’s called AmazonFresh, a grocery delivery service that has long been available only in Seattle. The site has a selection of 100,000 items, and from my hotel room in that city on a recent Saturday at 11 a.m., I gave it a try. I clicked on chips, bananas, apples, yogurt, and a case of bottled water–along with a DVD of Silver Linings Playbook and a Moleskine reporter’s notebook. After checking out and paying the $10 delivery fee, I requested my goods to arrive during the 7 p.m. to 8 p.m window. At 7:15 that evening, De, my AmazonFresh delivery woman, showed up in the lobby. She helped carry my bags up the elevator and to my hotel room, and tried several times to refuse a $5 tip for the trouble I put her through in the name of research. It was simple, easy–and for Amazon competitors, very threatening.
De and the Kiva robots are central to what Amazon sees as the future of shopping: whatever you want, whenever you want it, wherever you want it, as fast as you demand it. AmazonFresh is expected to expand soon to 20 more urban markets–including some outside America. Los Angeles became the second AmazonFresh market, this past June, and customers there were offered something the folks in Seattle must wish they got: a free trial of Prime Fresh, the upgrade version of Amazon Prime, which provides free shipping of products and free delivery of groceries for orders over $35. Subscribers will pay an annual fee of $299. Considering that grocery delivery otherwise costs between $8 and $10 each time (depending on order size), the subscription covers itself after about 30 deliveries–which busy families will quickly exceed.
Bezos, in his cagey, friendly way, seems more excited about my Fresh experience than he is about describing Fresh’s future. He seems almost surprised that the service worked so well at a hotel, given that it was designed for home delivery. “Thank you!” he shouts. After peppering me with questions on how, precisely, the delivery went down, he finally gets around to addressing the service’s business purpose.
“WE WON’T INVEST IN A COMPANY UNLESS THEY CAN TELL US WHY THEY WON’T GET STEAMROLLED BY AMAZON.”
“We’d been doing a very efficient job with our current distribution model for a wide variety of things,” Bezos says. “Diapers? Fine, no problem. Even Cheerios. But there are a bunch of products that you can’t just wrap up in a cardboard box and ship ’em. It doesn’t work for milk. It doesn’t work for hamburger.” So he developed a service that would work–not because he suddenly wanted to become your full-service grocer but because of how often people buy food.
AmazonFresh is actually a Trojan horse, a service designed for a much greater purpose. “It was articulated [in the initial, internal pitch to Bezos] that this would work with the broader rollout of same-day delivery,” says Tom Furphy, a former Amazon executive who launched Fresh in 2007 and ran it until 2009. Creating a same-day delivery service poses tremendous logistical and economic hurdles. It’s the so-called last-mile problem–you can ship trucks’ worth of packages from a warehouse easily enough, but getting an individual package to wind its way through a single neighborhood and arrive at a single consumer’s door isn’t easy. The volume of freight and frequency of delivery must outweigh the costs of fuel and time, or else this last mile is wildly expensive. You can’t hire a battalion of Des unless they earn their keep. So by expanding grocery delivery, Amazon hopes to transform monthly customers to weekly–or even thrice-weekly–customers. And that, in turn, will produce the kind of order volume that makes same-day delivery worth investing in. “Think of the synergy between Prime, same-day delivery, and Fresh,” says Furphy. “When all of those things start working in concert, it can be a very beautiful thing.”
AmazonFresh is arguably the last link in Bezos’s big plan: to make Amazon the dominant servicer–not just seller–of the entire retail experience. The difference is crucial. Third-party sellers, retailers large and small, now account for 40% of Amazon’s product sales. Amazon generally gets up to a 20% slice of each transaction. Those sellers are also highly incentivized to use Fulfillment by Amazon (known as FBA). Rather than shipping their products themselves after a sale is made on the Amazon site, these retailers let Amazon do the heavy lifting, picking and packing at places like the Phoenix center. For the sellers, an FBA agreement grants them access to Prime shipping speeds, which can help them win new customers and can allow them to sell at slightly higher prices. For Amazon, FBA increases sales, profits, and the likelihood that any shopper can find any item on its website.
“NOW YOU HAVE SMART BRICK-AND-MORTAR STORES SAYING, ‘WHY ISN’T OUR EXPERIENCE MORE INTUITIVE, AS IT IS ON THE WEB?’”
The burgeoning AmazonFresh transportation network will help expand these numbers. In Los Angeles and Seattle, a fleet of Fresh trucks delivers everything from full-course meals to chocolate from local merchants. The bright green branded trucks–with polite drivers in branded uniforms–let Amazon personify its brand, giving it the same kind of trustworthy familiarity that fueled the rise of UPS in the 1930s. “If you have all kinds of fly-by-night operations coming to your door, people don’t like that,” says Yossi Sheffi, professor and director of the MIT Center for Transportation and Logistics. “It’s different with someone in a U.S. Postal Service or FedEx uniform. Those brands inspire confidence.”
As Amazon evolves into a same-day delivery service, its active transportation fleet could become yet another competitive advantage. By supplementing its long-term relationships with UPS and FedEx with its own Fresh trucks, Amazon may well be able to deliver faster than retailers that depend entirely on outside services. “Pretty soon, if you’re a retailer with your online business, you’re going to be faced with a choice,” says Brian Walker, a former analyst at Forrester Research who is now with Hybris, a provider of e-commerce software. “You’re not going to be able to match Amazon, so you’re going to have to consider partnering with them and leveraging their network.”
This shift could even turn Amazon into a competitor to UPS and FedEx, the long-standing duopoly of next-day U.S. shipping. “If Amazon could do it at enough scale, they could offer shipping at a great value and still eke out some margin,” says Walker. “In classic Amazon fashion, they could leverage the infrastructure they’ve built for themselves, take a disruptive approach to the pricing, and run it as an efficiency play.”
Amazon has been down this road before. Its Web Services began as an efficient, reliable back end to handle its own web operations–then became so adept that it now provides digital services for an enormous range of customers, including Netflix and, reportedly, Apple. It’s not impossible to imagine Amazon doing the same with shipping. Last year, the company cut its shipping costs as a percentage of sales from 5.4% to 4.5%. As it builds more distribution centers, installs more lockers, and builds out its fleet, Amazon is likely to drive those efficiency costs down even further.
So is Amazon Freight Services Bezos’s next mission? When I ask, the laugh lines vanish from his face as if someone flipped a switch on his back. He contends that same-day delivery is too expensive outside of urban markets and that it only makes sense for Amazon to deliver its own products within the Fresh program. In China, he explains, Amazon does in fact deliver products via many couriers and bicycle messengers. “But in a country like the United States,” he says, “we have such a sophisticated last-mile delivery system that it makes more sense for Amazon to use that system to reach its customers in a rapid and accurate way.” When I ask whether he would consider, say, buying UPS, with its 90,000 trucks–or even more radically, purchasing the foundering USPS, with its 213,000 vehicles running daily through America’s cities and towns–Bezos scoffs. But he won’t precisely say no.

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Rivals aren’t waiting for an answer. EBay has launched eBay Now, a $5 service that uses its own branded couriers in New York, San Francisco, and San Jose, to fetch products from local retail stores like Best Buy and Toys “R” Us and deliver them to customers within an hour. Google, fully aware that Amazon’s market share in product search is substantial (now 30% to Google’s 13%), has launched a pilot service called Google Shopping Express, which partners with courier companies. Walmart–which has booted all Kindles from its stores–started testing same-day delivery in select cities during the last holiday season, shipping items directly from its stores. (Joel Anderson, chief executive of Walmart.com, even suggested paying in-store shoppers to deliver online orders to other customers the same day. Come for a handsaw, leave with a job!)
These are the sort of ideas that retailers–both e-commerce and physical, large and small–will have to consider as Amazon expands. Guys like Jeff Jordan, partner at well-known venture firm Andreessen Horowitz, will make sure of it. His firm follows and invests in direct-to-consumer businesses. “We won’t invest in a company,” he says, “unless they can tell us why they won’t get steamrolled by Amazon.”
Given the astounding growth of Amazon, and the seemingly infinite ways it has defied the critics, Bezos may have proved himself the best CEO in the world at taking the long view. But he doesn’t like talking about it. “Did you bring the crystal ball? I left mine at home today,” he quips. He does, however, like discussing what the future might bring for his customers. In fact, he likes talking about his customer so much that the word can seem like a conversational tic; he used it 40 times, by my count, in just one interview. “It’s impossible to imagine that 10 years from now, I could interview an Amazon customer and they would tell me, ‘Yeah, I really love Amazon. I just wish your prices were a little higher,’” he says. “Or, ‘I just wish you’d deliver a little more slowly.’” In Bezos’s world, the goal of the coming decade is a lot like the goal of the past two: Be cheap. Be fast. That’s how you win.
There is, naturally, no guarantee that Bezos will simply win and win and win. The bigger Amazon gets, the greater the number and variety of stakeholders required to make the Amazon machine hum. Many seem to be getting increasingly frustrated. Consider Amazon’s third-party sellers–that group making up 40% of the company’s product sales. Earlier this year, Amazon issued a series of fee hikes for use of its fulfillment services, ranging from as low as 5 cents per smallish unit to as much as $100 for heavier or awkwardly shaped items (like a whiteboard, say, or roll-away bed). Many sellers took to Amazon’s forums to complain, and others threatened to go to eBay, which mostly leaves fulfillment to its sellers. “I think Amazon is a necessary evil,” says Louisa Eyler, distributor for Lock Laces, a shoelace product that sells as many as 3,000 units per week on Amazon. After the price hike, Eyler says her total fees for the $7.99 item went from $2.37 to $3.62. She says Amazon now makes more per unit than she does.
Or consider the frustrations of Amazon employees, who are striking at two of its eight German facilities in an effort to wrest higher wages and overtime pay. At the height of the conflict, on June 17, 1,300 workers walked off the job. (It is one of Amazon’s largest walk-offs in its biggest foreign market, and could result in shipping delays.) Meanwhile, Amazon workers in the U.S. have filed a lawsuit claiming that they’ve been subject to excessive security checks–to search for pilfered items–at warehouses. The suit alleges their wait could last as long as 25 minutes, an inconvenience Amazon would never subject its customers to. “It means there’s a broken process somewhere,” says Annette Gleneicki, an executive at Confirmit, a software company that helps businesses capture customer and employee feedback. “[Bezos] clearly inspires passion in his employees, but that’s only sustainable for so long.”
The company could be vulnerable on other fronts as well. Target and Walgreens have “geo-fenced” their stores so their mobile apps can guide customers directly to the products they desire. Walmart and Macy’s have begun making their stores do double-duty, both as a place to shop and a warehouse from which to ship products. (The strategy seems to be paying off for Macy’s, which recently reported a jump in first-quarter profit and is now fulfilling 10% of its online purchases from its stores.) They’re proving that retail won’t go away–it’ll learn and adapt. “Now you have smart brick-and-mortar stores saying, Why isn’t our experience more intuitive, as it is on the web?” says Doug Stephens, author of The Retail Revival: Re-Imagining Business for the New Age of Consumerism. “We should know a consumer when they walk in, and what they bought before, in the same way as Amazon’s recommendation engine.”
Bezos won’t admit to any deep concern. While Amazon’s paper-thin profits continue to perplex observers (the company netted only $82 million in the first quarter of 2013), the three primary weapons in its retail takeover–fulfillment centers, Amazon Prime, and now AmazonFresh–are coming to maturity. If the next year tells us anything about Amazon’s future, it should reveal whether Bezos’s decision to plow billions back into these operations will give the company an end-to-end service advantage that might be nearly impossible for its competitors to overcome.
The sun seems to be setting on Bezos’s big Day One. Before we part ways in Seattle, I ask him what we can expect to see on Day Two. “Day Two will be when the rate of change slows,” he replies. “But there’s still so much you can do with technology to improve the customer experience. And that’s the sense in which I believe it’s still Day One, and that it’s early in the day. If anything, the rate of change is accelerating.”
Of course, Bezos is the accelerator.

Amazon Buys Twitch For $970 Million In Cash
EUGENE KIM
AUG. 25, 2014, 4:03 PM 13,994 21
Patrick T. Fallon/Getty Images
Twitch CEO Emmett Shear.
Amazon said on Monday it would pay $970 million in cash for Twitch, a live video-game-streaming site with more than 55 million users that’s like YouTube for video games.
As of July, Twitch had over 15 billion minutes of content, and users were spending more than 100 minutes a day on the site, on average. Twitch users can host live streams of their gaming sessions and broadcast them to the world. They can also chop up their sessions into segments for streaming later.
It’s also a resource for gamers who like to show off their unique skills. For example, there’s an entire community on Twitch dedicated to doing weird stuff like beating Zelda games in under 20 minutes or playing massively collaborative games of Pokemon.
Twitch/Screenshot
A Twitch streaming session.
Twitch is a huge part of the internet, and it accounts for nearly 2% of all traffic in the U.S. during peak hours, according to a report by The Wall Street Journal. Only Netflix, Google, and Apple account for more traffic. In that respect, Twitch even streams more video than Hulu.
Twitch also accounts for 40% of all live-streamed internet content, according to Business Insider Intelligence:
BI Intelligence
What’s really impressive is that Twitch was able to become so big after just three years.
You can see Amazon’s purchase of Twitch as a play to take over the future of TV. More and more content is being streamed online, and more and more hours of video watching are being done on sites like YouTube, Netflix, and Hulu. Amazon has its own streaming video service called Amazon Instant that comes with Amazon Prime memberships. Amazon Instant includes thousands of streaming movies and TV shows, including original shows like “Alpha House.”
Amazon
Alpha House is an original Amazon show.
Earlier Monday, multiple reports indicated Amazon was in late-stage talks to acquire Twitch. The news came as a big surprise because just last month it was reported that Google had agreed to acquire Twitch for about $1 billion. That deal, however, was never officially confirmed.
The Google-Twitch deal felt like a natural fit, since it would’ve been a good way for YouTube to expand its video offerings. Yahoo also tried to buy Twitch for $970 million, but Amazon swooped in and got it instead.
It’s unclear what had caused the Google-Twitch deal to fall through, but one possible reason is over antitrust issues. Since Google already owns YouTube, the world’s largest video streaming site, acquiring another massive video streaming site like Twitch could raise antitrust issues. According to Forbes, the two sides couldn’t agree on the potential break up fee.
Here’s the official announcement from Amazon:
Amazon.com, Inc. (NASDAQ: AMZN) today announced that it has reached an agreement to acquire Twitch Interactive, Inc., the leading live video platform for gamers. In July, more than 55 million unique visitors viewed more than 15 billion minutes of content on Twitch produced by more than 1 million broadcasters, including individual gamers, pro players, publishers, developers, media outlets, conventions and stadium-filling esports organizations.
“Broadcasting and watching gameplay is a global phenomenon and Twitch has built a platform that brings together tens of millions of people who watch billions of minutes of games each month – from The International, to breaking the world record for Mario, to gaming conferences like E3. And, amazingly, Twitch is only three years old,” said Jeff Bezos, founder and CEO of Amazon.com. “Like Twitch, we obsess over customers and like to think differently, and we look forward to learning from them and helping them move even faster to build new services for the gaming community.”
“Amazon and Twitch optimize for our customers first and are both believers in the future of gaming,” said Twitch CEO Emmett Shear. “Being part of Amazon will let us do even more for our community. We will be able to create tools and services faster than we could have independently. This change will mean great things for our community, and will let us bring Twitch to even more people around the world.”
Twitch launched in June 2011 to focus exclusively on live video for gamers. Under the terms of the agreement, which has been approved by Twitch’s shareholders, Amazon will acquire all of the outstanding shares of Twitch for approximately $970 million in cash, as adjusted for the assumption of options and other items. Subject to customary closing conditions, the acquisition is expected to close in the second half of 2014.
Here’s a letter from Twitch’s CEO:
Dear Twitch Community,
It’s almost unbelievable that slightly more than 3 years ago, Twitch didn’t exist. The moment we launched, we knew we had stumbled across something special. But what followed surprised us as much as anyone else, and the impact it’s had on both the community and us has been truly profound. Your talent, your passion, your dedication to gaming, your memes, your brilliance – these have made Twitch what it is today. Every day, we strive to live up to the standard set by you, the community. We want to create the very best place to share your gaming and life online, and that mission continues to guide us. Together with you, we’ve found new ways of connecting developers and publishers with their fans. We’ve created a whole new kind of career that lets people make a living sharing their love of games. We’ve brought billions of hours of entertainment, laughter, joy and the occasional ragequit. I think we can all call that a pretty good start. Today, I’m pleased to announce we’ve been acquired by Amazon. We chose Amazon because they believe in our community, they share our values and long-term vision, and they want to help us get there faster. We’re keeping most everything the same: our office, our employees, our brand, and most importantly our independence. But with Amazon’s support we’ll have the resources to bring you an even better Twitch. I personally want to thank you, each and every member of the Twitch community, for what you’ve created. Thank you for putting your faith in us. Thank you for sticking with us through growing pains and stumbles. Thank you for bringing your very best to us and sharing it with the world. Thank you, from a group of gamers who never dreamed they’d get to help shape the face of the industry that we love so much. It’s dangerous to go alone. On behalf of myself and everyone else at Twitch, thank you for coming with us. Emmett Shear, CEO
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
SEE ALSO:  Here’s Why Amazon Just Paid Nearly $1 Billion For A Site Where You Can Watch People Play Video Games
Read more: http://www.businessinsider.com/amazon-buys-twitch-2014-8#ixzz3BSBNYa53
Amazon Is Turning Into Google
STEVE KOVACH
AUG. 25, 2014, 7:15 PM 1,038 3
Amazon Inc.
Amazon CEO Jeff Bezos.
Tell me which company this sounds like:
A company that…
• Has its own mobile operating system for tablets and smartphones.
• Has its own app store.
• Sells digital music, books, movies, and TV shows.
• Will soon have an online ad network.
• Created a way to accept payments with a smartphone.
• Owns the servers that act as the backbone for several major apps and startups and even parts of the CIA.
• Is experimenting with drones.
It’s not Google. It’s Amazon.
But just like Google has expanded beyond search into everything from finding ways to cheat death to making cars that can drive themselves, Amazon has been increasingly expanding beyond its core e-commerce business.
And in recent months, that only seems to be speeding up.
Amazon’s $970 million purchase of Twitch, a site that lets you watch people play video games via a live stream, is its latest push into original video content and a move to transform itself into part media company. It’s a longer-term bet that the trend of watching stuff online versus cable will continue.
Add that on top of the stuff listed above, and Amazon suddenly sounds less like an online store for buying books and gifts and more like a company trying to insert itself into everything you do online. It sounds very Google-y.
Plus …
There’s experimentation with same-day delivery, grocery delivery, and point of sale systems for brick-and-mortar retailers. Those are all things Google is working on or has at least experimented with.
The only difference, of course, is that Google is wildly profitable while Amazon continues to post losses each quarter. (Next quarter could be a doozy. Amazon said to expect at least a $410 million operating loss.)
But it’s also a changing company, one that’s no longly simply “the everything store,” but an entity creeping its way into everything we do from shop to play games to run our small businesses.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
SEE ALSO:  9 impressive stats about Twitch
Read more: http://www.businessinsider.com/amazon-is-google-2014-8#ixzz3BSE4Hglt
Bezos Confirms

AmazonFresh Expansion Plans

, Says Drones Are for Real
April 10, 2014, 9:15 AM PDT
By Jason Del Rey
Grocery delivery fans outside of Seattle and California, rejoice: Amazon plans to expand its AmazonFresh offering beyond its current three markets, CEO Jeff Bezos confirmed in his 2013 letter to shareholders published today.
“We’ll continue our methodical approach — measuring and refining AmazonFresh — with the goal of bringing this incredible service to more cities over time,” he said in the letter.
For five years, Fresh was only available in Seattle, before the company launched the program last year in Los Angeles and, six months later, San Francisco. Several reports over the past year have said Amazon plans to expand the delivery service into 10 to 20 more new markets this year, but this may be the first time Bezos has publicly acknowledged the expansion plans.
Through Fresh, shoppers can order deliveries of groceries and hundreds of thousands of other items, from TVs to toys, that arrive either that same day or the following morning. Industry observers believe that part of Amazon’s reason for delivering groceries is that it will create enough sales volume and delivery demand to justify delivering all other Amazon merchandise within one day.
Another highlight from the letter: Drones.
“The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles,” Bezos wrote, “and we are in the design phase on generations 7 and 8.”
Is it possible that drone delivery is still a marketing stunt? Sure. If so, Bezos is sticking to the script.
More from this story


SLIDE SHOW:
Headed your way: AmazonFresh widens range of grocery deliveries
Doorstep delivery: Our reporter gives AmazonFresh grocery service a whirl
BY NANCY LUNA / STAFF WRITER
Published: June 20, 2014 Updated: June 23, 2014 11:44 a.m.
STEVEN GEORGES, CONTRIBUTING PHOTOGRAPHER
VONS VS. AMAZONFRESH
Here are a few price comparisons based on items found online this week:
1 gallon of Alta Dena fat-free milk: $5.49 Vons vs. $4.99 AmazonFresh
59-ounce jug of Simply Lemonade: $2.50 Vons vs. $2 AmazonFresh
5 ounces organic baby romaine: $3.90 O private-label Vons brand vs. $3.39 Earthbound brand at AmazonFresh
24-pack of Aquafina 16.9-ounce bottled water: $5.49 Vons vs. $4.29 AmazonFresh
Tide Free and Gentle (100 ounces): $11.99 Vons vs. $11.97 AmazonFresh
20-pack Coke Zero: $8.29 Vons vs. $6.99 AmazonFresh
Winder Farms: A Utah-based delivery service in California, Utah and Nevada. Delivers roughly 300 farm fresh items. Delivery in Orange County and parts of Los Angeles County. winderfarms.com
Good Eggs: Delivery of locally grown, sustainable goods from stores or farmers’ markets. Los Angeles County only. goodeggs.com/about/mission
Vons: Traditional market with home delivery in Orange County. shop.safeway.com
Instacart: Delivers from local stores like Whole Foods, Ralphs and Bristol Farms. Limited to a few ZIP codes in Los Angeles County. instacart.com/store/whole-foods
Deliveer: Personal shoppers deliver groceries from Whole Foods Market, Trader Joe’s, Vons and Costco in Pasadena, San Marino, South Pasadena and Altadena. Expansion to other parts of Los Angeles County coming soon. deliveer.com
As Amazon’s fledgling grocery service in Southern California widens its reach, some boutique food suppliers say the experiment has proven to be a boon for business.
Huntington Meats saw sales go from single-digit growth to double digits after the first month of partnering with AmazonFresh, a doorstep food service that launched last summer in Los Angeles.
The 30-year-old butcher shop, known for its top-grade meats and wild game, partnered with AmazonFresh last summer. Co-owner Jim Cascone said his meat market sells the “whole store,” or 175 items, through the online site, from free-range chickens to ground elk.
Demand for his specialty goods continues to soar and was boosted in recent weeks when the company expanded its service to most of Orange County.
“We’re very pleased,” said Cascone. “We’re definitely getting a lot of business out of it.”
For other Amazon partners, the impact has been much less dramatic. Greg Daniels, executive chef-partner at Haven Collective, has been working with AmazonFresh the last six months. The company’s Provisions Market bottle and cheese shop in Old Towne Orange offers Amazon shoppers specialty cheeses, cured meats, chocolate and a wide selection of craft beer.
“Cheese is popular, and beer not too much yet,” said Daniels. “It’s definitely brand exposure more than money.”
Amazon’s doorstep service initially was limited to Los Angeles, four cities in Orange County and parts of Long Beach. Shoppers choose from a wide selection – some 500,000 items – of merchandise, groceries and specialty foods.
In recent weeks, AmazonFresh has expanded to Orange, Tustin, Garden Grove, Aliso Viejo, Santa Ana, Laguna Niguel and Mission Viejo in addition to Irvine, Anaheim, Huntington Beach and Newport Beach. All of Long Beach is also eligible for delivery, a company spokesperson said.
The expansion comes as Amazon sees positive results in the greater Los Angeles area.
“While I can’t share specific numbers, we are very pleased with the response from our customers so far,” AmazonFresh said in a statement.
AmazonFresh’s grocery delivery expansion comes as doorstep food services experience a resurgence after failing years ago.
In 2013, revenue from online grocery sales reached $6.5 billion, according to market research firm IBIS World. By 2018, sales are projected to reach $10.1 billion as time-strapped consumers seek convenient ways to shop through mobiles devices and home computers, IBIS said.
AmazonFresh entered Los Angeles last summer after testing its grocery service near its home turf in Seattle. The service is also available in San Francisco and Berkeley.
Other food delivery options in the region include Winder Farms, Good Eggs, Deliveer, Instacart and Vons.
AmazonFresh rolls into San Diego
By Katherine P. Harvey2:08 P.M.JULY 29, 2014Updated5:36 P.M.

This entry was posted in Business Models, E-Commerce and tagged Amazon on August 20, 2014. Edit

==============AMAZING AMAZON POST AUGUST, 2014 ========

Amazing Amazon
Continually updated notes as I try to keep up with Jeff Bezos (impossible)
As of 10/23/2013

Background
JCR was working with a partner at a major consulting firm on CGF business. In a casual moment, they got talking about e-commerce, and the subject of Amazon came up. The partner shared that they had just completed a major piece about Amazon, using entirely public sources, for a retailer client. He graciously offered to share the work, and did not label the work confidential. JCR reviewed it and thought that the sources and insights were outstanding – but he thought it best not to quote or share the document directly. So these facts are largely from that analysis and that analysis’ public sources (shown at the end of this paper). They are extended by other facts and articles discovered by JCR.

Purpose

The purpose of this working paper is to lay out a case that Amazon deserves high-priority consideration by virtually all Fortune 1000 companies operating in a retail or manufacturer environment.
!Hypotheses
From 2015-2018, there is a high likelihood that:

1. E-commercewillbemainstream.Itwillbecomethepreferredmethodofshoppingformany consumers, and it will enjoy ubiquity and mainstream use by the global middle class like cell phones do today;
2. Amazon will lead e-commerce. Amazon will be – far and away – the leader in the e-commerce retailing space;
3. E-commercewillimpactfoodandbeverage.Itwillemergeasaforceinfoodandbeverageretail;
4. Amazon will aggressively enter food and beverage retail globally. They will establish themselves
in key markets as one of the top 10 customers of most manufacturers;
5. Amazon will “perfect” home delivery. They will crack the “last mile” of retail. They will “perfect” delivering direct to the home or to a designated agent of the home, thereby making obsolete traditional retailers who cannot do this;
6. Amazon will “perfect” their business model. Amazon will dominate best practice in logistics, fulfillment, and customer satisfaction over this planning period, in a manner so effective that others who fail to keep up will be left behind by 2016;
7. Amazon will disrupt most business models. Amazon can potentially disrupt fundamental assumptions bout store delivery, merchandising, and the viability of home delivery

Discussion
Experts project that:
– E-Commerce will exceed $1,400 billion revenue by 2020
– It will be ubiquitous, accepted by virtually all (like cell phones today)
– It will be primary source of purchasing by consumers, who will be intensively engaged
– It will extend from its current 33 retail categories into all retail categories

1. E-Commerce Will Be Mainstream
2. Amazon Will Lead E-Commerce
Amazon will be – far and away – the leader in the e-commerce retailing space. Amazon revenue will continue to grow fast: in 2013 it was $75 billion, up from $61, $48, $34, $25, and $19 billion in 2012, 2011, 2010, 2009, and 2008 respectively. Analysts predict revenue will reach $90 billion in 2014. By 2015, Amazon is highly likely to have revenues exceeding $100 billion annually. Conservatively, Amazon revenue is likely to grow 20% per year from 2015 to 2020, reaching at least $250 billion in 2020 (one third of e-commerce and more than half the size of Wal-Mart today).
Exhibit 2: Projected Amazon Revenue Growth (2008-2024)

Note: 2008-2012 are actual revenues !

Amazon will begin to directly threaten Walmart over this 2015-2020 planning cycle
Today, Amazon revenue ($61 billion) is small compared to brick & mortar Wal-Mart, who closed 2012 with revenue of $444 billion. But, it nonetheless is remarkable for an online retailer. In 2000, the entire universe

of e-commerce was predicted to be less than $20B by Forrester and yet today, Amazon alone sells $61 MM and is closing in on $100 MM.
In contrast, it appears that Wal-Mart online sales will be less than $10 million. $61 million versus $10 million: it seems reasonably clear who is going to win in e-commerce. Although recent reports make it very clear that Wal-Mart has woken up to the threat and is responding so no one can know for sure what the outcome of this battle will be.

Not bad for a company that opened for business as a bookseller less than 20 years ago – in 1995.

3. E-Commerce Will Impact Food And Beverage
Food & Beverages to Grow as a Proportion of Total E-Commerce Sales
Amazon will emerge as a force in food and beverage retail. Some have concluded that grocery was approximately $36M in 2011 and would nearly double by 2015 to $57M and nearly triple from 2011 to $101B in 2020. Furthermore, it is predicted that beverages would grow from $6B in 2011, to $8B in 2015, and to $17B by 2020 (see Exhibit 1).

Amazon will establish itself in key markets as one of our top 10 customers. The food and beverage category will grow in importance online and Amazon is expected to own 30% of that market.

Amazon will crack the “last mile” of retail. They will “perfect” delivering direct to the home or to a designated agent of the home, thereby marginalizing traditional retailers who cannot do this. Amazon is currently testing and honing their approach through AmazonFresh.

AmazonFresh
AmazonFresh is a new service that is currently available in Seattle and Los Angeles in select zip codes. The service offers same-day and early morning delivery on orders of over $35 of more than 500,000 Amazon items, including fresh grocery and local products. The annual “membership” costs $299 with unlimited free delivery and is offered as an additional level of Amazon Prime.

4. Amazon Will Aggressively Enter Food and Beverage Retail Globally

5. Amazon Will “Perfect” Home Delivery
Exhibit 3: AmazonFresh Sortable Shopping

6. Amazon Will “Perfect” Their Business Model
Amazon will dominate best practice in logistics, fulfillment, and customer satisfaction over this planning period, in a manner so effective that others who fail to keep up will be left behind by 2016. One example of their current testing in fulfillment, logistics, and delivery is the launch of

Amazon Locker.
Amazon Locker
Now Amazon has taken a small step toward eliminating the UPS wait with a service inspired less by the internet and more by the Port Authority. Amazon Locker allows you to have your packages sent to the equivalent of single-use P.O. boxes housed in 24-hour convenience stores, grocery stores and drug stores. Amazon sends you an email with a pickup code, which you enter on a touchscreen to open the door of the locker containing your package. You have three days from the delivery date to pick it up.
Additionally, Amazon has started sharing warehouse space with some of its key suppliers. Amazon has been sharing warehouse space with P&G for 3 years and is now in at least 7 P&G distribution centers. Amazon also has arrangements in place or is working out deals with companies such as Kimberly-Clark, Seventh Generation, and Georgia-Pacific.
7. Amazon Will Disrupt Many Business Models
Amazon can potentially disrupt fundamental assumptions about direct store delivery, merchandising, bottlers, OBPPC, and the viability of home delivery.

================ 2013 AMAZON FACT SHEET ========

Amazon Fact Sheet
Last Updated in Late 2013

Basic Facts
Corporate mission: We seek to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators
Headquarters: Seattle, WA
When Founded: The company was incorporated in 1994 as Cadabra and went online as Amazon.com in 1995
CEO: Jeffrey Bezos
Number of Employees: 97,000
Number of Retail Categories: 33 categories
Customers: 200 million active customers; 132 million unique visitors each month Fulfillment Centers: 89 worldwide, 54 million square feet of total space

Geographical Presence
Amazon has 89 fulfillment centers worldwide
Fulfillment centers are located in 8 countries including USA, Canada, France, Germany, Italy, China, Japan, and the UK
Amazon has separate retail sites for USA, Canada, France, Germany, Italy, China, Japan, and UK plus Brazil, India, Mexico, and Spain
The US fulfillment centers are located in: Arizona, California, Delaware, Indiana, Kansas, Kentucky, Nevada, New Hampshire, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington 1995: 400 square foot 2010: 50 fulfillment centers 26M square feet
Revenue was $61, $48, $34, $25, and $19B in 2012, 2011, 2010, 2009, and 2008 respectively o Annual revenue in 2011 was 27% more than Google’s
Revenue to reach $74.6B in 2013 (though $0 net income), 24.6% CAGR from 2011 Amazon’s market share represents one third of U.S. e-commerce sales

Amazon on pace to reach over $125B globally by 2016; 4.5% CAGR from 2010

North America: $65.4B by 2016; 23.2% CAGR from 2010

International: $61.3B by 2016; 26.3% CAGR from 2010 Amazon has had one of the fastest growths in the internet’s history

Financial Results

After 5 years eBay reached $0.4B, Google reached $1.5B, and Amazon reached $2.8B
Amazon Revenue vs. Net Income ($M)
$ $ $ $
70,000 52,500 35,000 17,500
00 (17,500)
$
2008 2009 2010 2011 2012
!
Millions ($)
!Organizational Structure
CEO and founder Jeffery Bezos and an eight-member board of directors
CEO oversees the Chief Financial Officer (CFO), the Chief Technology Officer and the following 8 departments:
o Business Development o E-Commerce Platform o International Retail
o North America Retail o Web Services
o Digital Media
o Legal & Secretary o Kindle
CFO oversees the Real Estate and Control department
International Retail oversees three separate departments: China, Europe and India
North America Retail oversees the following five departments: Seller Services, Operations, Toys, Sports & Home Improvement, Amazon Publishing and Music & Video
Web Services department oversees Amazon S3 and Database Services
Other departments include Product Development & Studios, Europe Operations, Global Advertising Sales, Computing Services, and Global Customer Fulfillment

Key Acquisitions
1998: PlanetAll, Junglee, Bookpages.co.uk
1999: Internet Movie Database (IMDb), Alexa Internet, Accept.com, Exchange.com, Pets.com, Home
Grocer, Back-to-Basics Toys, drugstore.com
2004: Joyo.com
2005: BookSurge, Mobipocket.com, CreateSpace.com
2006: Shopbop
2007: DPRreview.com, Brilliance Audio
2008: Audible.com, Fabric.com, Box Office Mojo, AbeBooks, Shelfari, Reflexive Entertainment 2009: Zappos, Lexcycle. SnapTell, Stanza
2010: Touchco, Woot, Quidsi, BuyVIP, Amie Street
2011: LoveFilm, The Book Depository, Pushbutton, Yap
2012: Kiva Systems, Teachstreet, Evi
2013: IVONA Software, GoodReads, Liquavista
Corporate Timeline (1995-2013)
July, 1995
o Began selling books online

o Two small fulfillment centers – Seattle and Delaware 1999
o Acquired Pets.com for $58 million
o Acquired Home Grocer for $42.5 million
o Acquired Back-to-Basics toys for $135 million
o Acquired drugstore.com for $44 million
o (Since then have acquired hardware, car, electronics, sporting goods, luxury, wine, etc.)

2001
o Became the online engine behind Borders.com o Broadened beyond books to CD’s and DVD’s

2005
o Launched Amazon Prime 2007
o Launched Kindle (developed by Lab126, their internal appliance R&D shop)
o Launched Amazon Fresh in Seattle 2008
o $19 billion revenue 2009
o $24.5 billion revenue (+28%)
o $.6 billion net income
o Acquired Zappos for $920 million
2010
o Acquired Quidsi for $500 million (owns Diapers.com) 2011
o $48 billion revenue (+41%) 2012
o 164 million active customers
o $61 billion revenue (+27%)
o $.6 billion net income
o Launched AmazonSupply (with 500,000 products, in 14 categories, B2B target)
• • •
o (Instant new major competitor for Blockbuster and Netflix)
2013
o $75 billion revenue PROJECTED (+22%)
o $0 net income
o 200 million active customers
!o (132 million every month, compared to EBAY 60MM; Wal-Mart 63 MM; Apple 18MM)
Product Categories
In 15 years, Amazon went from one category (books) to 33 (cloud services, clothing, baby products, sports, electronics, music, video games, books, film, audio, beauty products, tools & home improvement, office products etc.)
!• Has introduced two new product categories every year for almost a decade !Strategies
Build, buy, partner
o Build: new categories (e.g., MYHABIT)
o Buy: well-established competitors (E.g., Quidsi)
o Partner: offers tech service / e-commerce expertize to third parties (e.g., cobranded website
with Toys “R” Us Customer-first solutions
o Bottom-up approach: customer needs drive everything
o Frugality: Amazon continually seeking to do things cost-efficiently o Innovation: Amazon always seeing simpler solutions

Data & human driven customer service
o Every employee, even the CEO, spends two days every two years on the service desk to answer
calls and help customers
o 90% of customer service by email rather than by telephone
o Amazon has developed its own software to manage email centers

Convenience
o 1-click ordering
o Amazon Prime – $79 / year, instant streaming of movies & TV shows, instant access to thousands
of Kindle Books, free-two day shipping
o Amazon Locker – lockers installed in grocery, convenience and drugstore outlets that can accept
packages for customers for a later pick-up o Moving towards same-day delivery
▪ Building warehouses close to city center – risky because Amazon will pay states taxes it did not pay before, but it will get closer to same-day deliver
▪ Warehouses currently being built in California, Indiana, New Jersey, Tennessee, South Carolina, Virginia
o Amazon Supply – free two-day shipping for orders over $50 Low price
o Amazon significantly cheaper than competitors Digital optimization of supply chain
• •
Amazon automatically chooses the cheapest origin for the customer’s order in real-time It re-optimizes it based on the customers’ orders
Fast moving items are stored in all the fulfillment centers
Hard-to-find items are kept in small quantities in one or two fulfillment centers
Easily movable items (e.g. media) are stored in highly automated facilities
Extensive use of tracing
Drop shipping: when applicable, Amazon provides packages and asks the supplier to ship the product himself
Third-party sellers follow the same principle, which increases margins
Selling at a loss – costs around $210 to produce, sold at $199
But over the first 6 months of use, Amazon makes $136 of margin on average on every Kindle Fire by selling digital content
Amazon is developing international partnerships with retailers (e.g., Darty in France) to sell more Kindles

Kindle

Wal-Mart had 62.5M unique visitors in August 2013, compared with Amazon’s 133M Wal-Mart copycatting some of Amazon’s most successful tactics
o Trying out lockers, allowing shoppers to order items online and pick them up in stores o Dabbling in same-day delivery (testing in four cities) and even going a step further than
Amazon by attempting to crowd-source package drop-off among customers
o Investing in web technology to improve both their site’s appearance and ease of navigation

Comparisons to Wal-Mart
Contrary to Wal-Mart, which failed to enter the German and South Korean markets, Amazon’s international expansion has been successful
Amazon to reach $74.6B in 2013, 24.6% CAGR from 2011
o Wal-Mart’s revenue will be $500B in 2013, but its revenue in e-commerce by 2014 will reach just $10B
E-commerce is growing at 11% a year, but sales for consumer packaged goods online – food, groceries, everyday items – are growing at closer to 20% this is the area Wal-Mart will go after
o Amazon already one step ahead with Amazon Fresh !!

Added Sources:
How Amazon Controls Ecommerce (Slides)
http://www.forbes.com/sites/clareoconnor/2013/04/23/wal-mart-vs-amazon-worlds-biggest-e-commerce- battle-could-boil-down-to-vegetables/
======================

Amazon Crush – Update

I began tracking Amazon in early 2014 with multiple posts, copied here.

I speculated in EARLY 2014 (see post below) that Amazon revenue in 2015 would exceed $100 billion.

They finished 2015 at $107 billion – up $11 billion vs 2014:

2015
107,010
2014
88,988
2013
74,452
2012
61,093
2011
48,077
2010
34,204

Revenue is up 21% for the first 9 months of 2016. So my bet is that 2016 will be about $130 billion. The old forecast that Amazon will exceed $250 billion in sales by 2020 is looking about right.

Cash for the latest 12 months is way up – they have $13 billion on hand in cash and cash equivalents.

Their stock price is at an all-time high: $767.

Reminders of earlier posts about moves by Amazon:

ECHO: The Echo is a stout, plain-looking cylinder, about the height of a toaster, that you can park just about anywhere you have Wi-Fi access, though it seems most useful in the kitchen. You can ask it anything, beginning with the word “ALEXA….”

TWITCH: video streaming …. has 40% of all internet video streaming bandwidth????

AMAZONFRESH: lets customers purchase groceries online, including perishable items like dairy, meat, and fish, which are delivered within a day.

They tested in Seattle for years, and then rolled out in 2014 to most of California, New Jersey, New York City, Philadelphia, and Washington. They then took an 18 month expansion hiatus. They will expand to Boston and UK this year. This is slower than expected.

As for its progression into other markets, there are more hurdles associated with AmazonFresh than the site’s other services that have slowed it down—the company needs to open refrigerated warehouses, carry its own stock of perishable groceries, and hire additional delivery people in each new market.

 
Word is that it’s difficult to convince customers it’s worth the $299/year price tag. Amazon is trying to grab a larger share of the grocery market with this expansion. Delivery currently makes up less than 5% of all grocery sales.

Here is how their 2015 10K describes their business.

General
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earth’s most customer-centric company. We are guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. In each of our segments, we serve our primary customer sets, consisting of consumers, sellers, developers, enterprises, and content creators. In addition, we provide services, such as advertising services and co-branded credit card agreements.

Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and Amazon Web Services (“AWS”). These segments reflect the way the Company evaluates its business performance and manages its operations. Additional information on our operating segments and product information is contained in Item 8 of Part II, “Financial Statements and Supplementary Data—Note 11—Segment Information.” See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Supplemental Information” for supplemental information about our net sales. Our company-sponsored research and development expense is set forth within “Technology and content” in Item 8 of Part II, “Financial Statements and Supplementary Data—Consolidated Statements of Operations.”
Consumers
We serve consumers through our retail websites and focus on selection, price, and convenience. We design our websites to enable millions of unique products to be sold by us and by third parties across dozens of product categories. Customers access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo. We strive to offer our customers the lowest prices possible through low everyday product pricing and shipping offers, and to improve our operating efficiencies so that we can continue to lower prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service. In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on millions of items, access to unlimited instant streaming of thousands of movies and TV episodes, and other benefits.
We fulfill customer orders in a number of ways, including through: North America and International fulfillment and delivery networks that we operate; co-sourced and outsourced arrangements in certain countries; and digital delivery. We operate customer service centers globally, which are supplemented by co-sourced arrangements. See Item 2 of Part I, “Properties.”

Sellers
We offer programs that enable sellers to sell their products on our websites and their own branded websites and to fulfill orders through us. We are not the seller of record in these transactions, but instead earn fixed fees, a percentage of sales, per-unit activity fees, or some combination thereof.

Here are prior posts:
=========
JUNE, 2015 POST on ECHO

Amazon’s Echo
See NYT article below on Amazon’s Echo (and note comparisons to other voice command systems, such as Siri, Google Now, and Cortana):

“If it moves nimbly, keeping ahead of Apple and Google, Amazon could transform the Echo into a something like a residential hub, the one device to control pretty much everything attached to your home.”

Functionality at the moment is:

– telling you the weather
– playing music you ask for
– adding stuff to your shopping list
– reordering items you frequently buy from Amazon
– giving you a heads-up about your nearing calendar appointments
– setting a kitchen timer
– answering the most basic of search queries

Amazon Echo, a.k.a. Alexa, Is a Personal Aide in Need of Schooling
By FARHAD MANJOOJUNE 24, 2015

The Amazon Echo, a wireless speaker and artificially intelligent personal assistant, can tell you the weather, play music and reorder items you frequently buy from Amazon, among other things.

THIS week, I asked a friend for help: “Alexa, can you write this review for me?”
“What’s your question?” Alexa responded.
“Can you write this review for me?”
“Review is spelled R-E-V-I-E-W.”
“Thanks,” I said. “That about sums it up.”

O.K., so Alexa isn’t perfect; far from it, in fact. If there is one glaring flaw in the Amazon Echo — the tiny wireless speaker and artificially intelligent personal assistant, a machine that one always addresses with the honorific “Alexa,” as if she’s some kind of digital monarch — it is that she is quite stupid.

If Alexa were a human assistant, you’d fire her, if not have her committed. “Sorry, I didn’t understand the question I heard” is her favorite response, though honestly she really doesn’t sound very sorry. She’ll resort to that line whether you ask her questions answered by a simple Google search (“How much does a cup of flour weigh?”) or something more complicated (“Alexa, what was that Martin Scorsese movie with Joe Pesci and Robert De Niro?”).

Other times, she is mind-numbingly literal. One night during the N.B.A. playoffs, I asked, “Alexa, what’s the score of the basketball game?” She proceeded to give me a two-minute, 18-part definition of the word “score” that included “a seduction culminating in sexual intercourse.” Not exactly what I was going for.

And yet, after spending three weeks testing the Echo, I really kind of love Alexa. She is just smart enough to be useful. And she keeps getting smarter. This week, after a long invitation-only preview period, Amazon began selling the Echo to the public. At $179.99, Alexa is more expensive than I’d like. (Subscribers to Amazon’s $99-a-year Prime subscription service could buy the Echo for only $100 during the preview.) But if you’re the type who enjoys taking chances on early, halfway useful tech novelties, the Echo is a fun thing to try.

And if you’re anything like me, after a week with the Echo, you may feel the device begin to change how you think about home tech. It will not seem far-fetched to expect that one day soon, you’ll have an all-knowing, all-seeing talking assistant to control your lights, thermostat, entertainment system and just about anything else at home. In Alexa, Amazon has created the perfect interface to control your home; if it adds some more intelligence, it would be quite handy.

The Echo is a stout, plain-looking cylinder, about the height of a toaster, that you can park just about anywhere you have Wi-Fi access, though it seems most useful in the kitchen. It comes with a remote control that you don’t really need, because after a quick initial setup using your smartphone, you can control pretty much everything the Echo does with your voice. (The remote does have a microphone that allows you to speak to the Echo from far away.) From there, the Echo is terrifically easy to use — say “Alexa” and ask your question.

At the moment, there are only a handful of uses for the Echo. She’s great at telling you the weather, adding stuff to your shopping list, reordering items you frequently buy from Amazon, giving you a heads-up about your nearing calendar appointments, and answering the most basic of search queries.

She is pretty good at playing music, though her main source is Amazon Prime Music, a streaming service that is included with a Prime membership. Prime Music’s selection is dreadfully limited, though, and at the moment, the Echo can’t connect to many other streaming services. Thankfully, with a few quick voice commands, Alexa can connect to your phone like any other Bluetooth speaker. That way, she can take control of music you play from most apps, including streaming apps like Spotify. You can’t call out for specific songs this way, but you can say “Alexa, pause” or “Alexa, next” and she’ll control the tunes playing from your phone.

The Echo is also a very good kitchen timer. Put your cookies in the oven; yell out, “Alexa, set timer for 12 minutes”; and she’s off. It’s far easier than fumbling with buttons on the microwave, especially when you have your hands full.

But wait a minute — can’t you do pretty much all this on your phone, your smartwatch or many other devices? Yes, you can, but Alexa is right there. She’s always plugged in. She’s always listening, and she’s fast. It’s surprising how much of a difference a few milliseconds make in maintaining the illusion of intelligence in our machines. Because Alexa is far quicker to spring into action than Siri, Apple’s digital personal assistant, especially Siri on the Apple Watch, I found her to be much more pleasant to use, even if she is frequently wrong.

Amazon says that it plans to constantly improve the Echo. During the preview period, it added a host of new features, including the ability to control some smart-home devices, built-in integration with the Pandora streaming service, and traffic information for your morning commute. I’m hoping Amazon creates an open system — what developers call an API — for the Echo, which will allow a wide variety of online services and apps to connect to the device. If it moves nimbly, keeping ahead of Apple and Google, Amazon could transform the Echo into a something like a residential hub, the one device to control pretty much everything attached to your home.

At the moment, that dream is far off. But dumb as she sometimes sounds, Alexa may be just smart enough to make it happen.

This entry was posted in Personalization, Systems, Technology and tagged Amazon, Echo, Technology, voice recognition on June 29, 2015.

========= MAY 2015 POST ============

The Amazon Crush continues:

Just look at cash:

CASH AND CASH EQUIVALENTS, END OF PERIOD
2014
14.557 billion
2013
8,.658 billion
2012
8.084 billion

Amazon has published its 10Q for Q1 2015

http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsother

Note that free cash flow has doubled:

“Free cash flow, a non-GAAP financial measure, was $3.2 billion for the trailing twelve months ended March 31, 2015, compared to $1.5 billion for the trailing twelve months ended March 31, 2014.”

Note also that international revenue is down.

They also have published their annual report:
http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual

Net sales are continuing sharp growth – to $89 billion.
2014
88,988
2013
74,452
2012
61,093
2011
48,077
2010
34,204

Sales increased 20%, 22%, and 27% in 2014, 2013, and 2012

, compared to the comparable prior year periods. Changes in foreign currency exchange rates impacted net sales by $(636) million, $(1.3) billion, and $(854) million for 2014, 2013, and 2012. For a discussion of the effect on sales growth of foreign exchange rates, see “Effect of Foreign Exchange Rates” below.

North America sales increased 25%, 28%, and 30% in 2014, 2013, and 2012

, compared to the comparable prior year periods. The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers, and AWS, which was partially offset by AWS pricing changes. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings.

nternational sales increased 12%, 14%, and 23% in 2014, 2013, and 2012

, compared to the comparable prior year periods. The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings. Additionally, changes in foreign currency exchange rates impacted International net sales by $(580) million, $(1.3) billion, and $(853) million in 2014, 2013, and 2012. “

In their annual report, they state the key to their cash flow business model:

“Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.”

https://openforum.hbs.org/challenge/understand-digital-transformation-of-business/business-model/amazonfresh-well-positioned-to-capture-value-in-online-grocery

====================== Posted 20140820: Amazon Crush – Update =====
Amazon Crush – Update

Amazon update
Thanks to Oliver Wyman, Fast Company and many others for this update on last post on Amazon…..my sense from reading all:
– Twitch is Amazing! Driving 40% of all internet bandwidth???? Is that even possible? With 55 million users spending an average of 100+ minutes per day??? That is enormous! Bezos obviously intrigued and willing to take a risk to get this three-year old start-up in its fold? But why exactly? Don’t know
– FRESH is moving out. Per plan, and announcement to stockholders and also per rumor, Amazon Fresh is in a soft launch mode. The big news was the launch in LA (after 7 years in Seattle tweaking), and then it was small news that they rounded out most of the the rest of California markets – that is a HUGE expansion in less than a year. Moreover, Amazon green trucks are riding through Manhattan, and a roll there is imminent. No word yet, but I really think Chicago might be next – rumors say I am right.
– Manufacturers think this isn’t their fight. Most of them are just glad they are not retailers. But the truth is that Amazon will cause a massive reduction in retailer margin, as well as many of the brand-building activities at retail that manufacturers are used to …. horrible merchandising will replace great merchandising, forget about cold beverage sales, forget about impulse sales, etc.
– the truth is that retail is not at risk – just the marginally profitable ones.

Here are the articles:

AMAZONFRESH IN THE U.S.
After years of anticipation, AmazonFresh has now expanded its U.S. home grocery delivery service beyond its home market of Seattle.
In June 2013, it launched in Los Angeles, with more markets expected to follow. From conversations with supermarket retailers all over the U.S. and globally, it is clear that online and multi-channel competitors have come into focus as a key competitive threat, and AmazonFresh is by far the most dangerous of the new breed. What is striking is the similarity between what we hear from food retailers today and what leaders of category killers were saying back in 2009 – and we know that the category killers’ fears of Amazon proved to be well-founded.

WHAT IS AMAZON FRESH?
AmazonFresh, operating in pilot mode in Seattle since 2007, allows shopping online and on mobile apps. The assortment is surprisingly broad and deep, with between 10,000 and 30,000 items, depending on the market, including (for example) 400+ produce items, 500+ meat and seafood items, 1,300+ beverage items and 4,000+ health and beauty items. Unlike the traditional Amazon model, AmazonFresh prices on consumables are currently higher than those found in local supermarkets, as promotions are mostly absent – the current customer proposition focus is on convenience.
The differences between the Seattle and LA models (different membership and delivery pricing models and different assortment depth, to name a few) seem to indicate that Amazon is still trialling many elements of the business, but the rollout to additional markets suggests underlying confidence in the economics.
When Amazon decides to move from pilot to rollout, history indicates they will move very rapidly. The company has reportedly told vendors it could roll out to 40 U.S. markets by the end of 2014!
The direct impact that Amazon had on many category killers by winning market share is obvious, as is the impact on consumers’ price expectations, but one under-reported aspect of what is happening to category killers is the channel conflict competition Amazon provokes. Not only does Amazon take share, they also force category killers to shift transactions to their own websites. But those sites are not the basket-building machines that stores are. For one major category killer, the average online transaction has only a quarter of the number of items that the average in-store transaction has. So the incumbents face a conundrum – they must grow online sales, but doing so dramatically worsens their economics.
However, Amazon will never take as much share away from food retailers as it has taken from category killers. Food retailers’ natural defenses – low gross margins, focus on fresh product, “need it now” consumption patterns, the emotional aspect of personally selecting food to feed one’s family – mean the supermarket channel as a whole will not suffer the fate of Borders or even Best Buy.
The threat is not that stores will become obsolete; such notions are alarmist and naïve. But AmazonFresh can force dramatic change in the shape of the food retail industry with even modest market share. It doesn’t take complicated analysis to prove this. The industry overall runs with about a 2% bottom line and a 20% volume variable margin. This means
a 10% sales loss would wipe out the entire industry’s profit. Any experienced food retail executive knows that most chains have a “mushy middle” of stores that generate reasonable operating income with current sales volumes, but would quickly tip into negative store profit with a modest reduction in volume. We don’t know what Amazon’s ultimate ambitions in the food space are, but if they achieve even a 5% volume share it would force significant changes. Current players would have to either raise prices – kicking off the vicious cycle of volume loss, causing deleveraged fixed costs, leading to even more price rises – or close stores to bring costs into line. A 5% volume loss to AmazonFresh would result in 10-20% reduction in store count, because not all the volume from closed stores will be clawed back by surviving stores: as supermarkets become relatively less convenient, some of the volume would go to specialists (clubs, hard discounters, premium players) and online channels. It’s too early to know the full extent of the impact, but a good guess is that around one in eight supermarkets would have to close to maintain current profitability without raising prices.
Supermarkets should not count on their ability to weather this disruption the way they weathered the last major disruption: the Walmart supercenter tsunami, in the case of the U.S. Then, the best grocers got better, slashed cost out of their networks, improved their capabilities, and prospered at the expense of weaker competitors who couldn’t adapt fast enough. They had time to pull this off because Walmart couldn’t open a thousand supercenters overnight. But this time, the starting point is much, much more efficient – there will be a lot less “fat” to cut to preserve profitability in the face of falling volume – and the weaker players that were the victims last time are already gone. Most significantly, the rate of change in the competitive landscape will not be constrained by the process of opening new stores. Amazon only has to set up distribution centers and networks. It already has a strong consumer brand. This disruption could happen much faster than anything the industry has seen before.

WHAT SHOULD FOOD RETAILERS BE DOING? AT LEAST THREE THINGS:
Build a multi-channel offering. Of course, grocers must develop their own answer to online and mobile shopping. And it is better to cannibalize one’s own in-store sales than to surrender them to the competition. That said, it is very tricky to make the economics of these models work, so great care must be taken to manage the bottom line as online and mobile sales ramp up.
Get seriously good at fresh. The fresh categories represent a cushion around the rest of the customer offer. If customers believe they can’t get the same quality, freshness and selection online as they would in a store, it will be a formidable barrier to switching to on-line purchasing. So far AmazonFresh’s fresh product offering is highly variable (see Exhibit 1) but it stands to reason that they will get better with experience. And they have a built-in freshness advantage – as do all online grocers – because product take less time to go from the distribution center to the customer’s home. Most U.S. retailers are nowhere near where they could be, and the same is true in many other geographies. Getting good enough at fresh to fend off online competition means re-thinking the supply chain, store practices and merchandising standards. It means breaking the usual trade-off between availability and shrink, shifting the efficient frontier through better capabilities and greater accountability.
Prepare for a world with fewer stores. Possibly a lot fewer. Even an excellent multichannel platform and a rejuvenated fresh offer will not be nearly enough. We believe food retailers should be planning now for a world with far fewer stores. If, say, 15% of the square footage is going to have to close down, survival will depend on making sure the competition bears more than their fair share of the pain. So grocers’ competitive strategy should be focused on ensuring they get to keep more of their stores than the competition does, and being prepared to pounce when weakened competitors begin to wobble. This means understanding how to win store-by-store battles and drive maximum profit out of every square foot. To be clear, we are bullish on the supermarket industry. While the industry’s transformation will be painful for all and fatal for a few, the survivors will be better placed. Surviving stores will do much higher volume and, with higher fixed cost leverage, they could be massively more profitable. Stronger competition will force grocers to become even better operators and even more responsive to customer needs. Retailers who act fast can not only survive, but adapt their businesses to thrive in the new world.

Exhibit 1: PRELIMINARY CUSTOMER RESEARCH BY OLIVER WYMAN SHOWS a wide range of customer perceptions of the quality of AmazonFresh products
“The apples were the kind I would have hunted for and maybe not found. They looked great and the taste was fresh and sweet, the texture crisp which is exactly what I like. They were delicious.”
“The sell by date on the frozen beef says July 2013 [delivered in September 2013]. Granted it was frozen, this makes me believe it’s not fresh beef and I’m a little disappointed by that.”
“Some of the berries were very soft and leaking all over the box.”

ABOUT OLIVER WYMAN
Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation.
Copyright © 2014 Oliver Wyman. All rights reserved.
FastCompany: AmazonFresh a “Trojan horse;” 20 more markets expected
Aug 11 2013, 18:15 ET
In a cover story on Jeff Bezos and Amazon (AMZN), FastCompany’s J.J. McCorvey observes the company’s new AmazonFresh grocery service (offered via its $299/year Prime Fresh free shipping plan) is a “Trojan horse” meant to give Amazon’s broader same-day delivery efforts needed scale.
Amazon is also hoping its same-day infrastructure (replete with Amazon trucks) will increase its appeal to 3rd-party sellers (now responsible for 40% of unit sales) by lowering delivery times. Merchants already cite access to Prime as a reason for outsourcing fulfillment to Amazon (and giving a ~20% cut).
EBAY could prove a formidable same-day rival. Instead of building its own soup-to-nuts infrastructure, eBay is relying on dozens of offline retailers (inc. major national chains) to help handle fulfillment. Google is also dipping its toes into same-day.
Currently available in L.A. and Seattle, AmazonFresh is expected to expand to 20 more markets, including some international ones. SunTrust recently predicted an NYC launch will happen in 2014.
Also mentioned by McCorvey: Amazon is now able to ship items less than 2.5 hours after an order is placed; and wants to further lower than number; Prime now covers 15M+ items (up from 1M in ’05); and Amazon is still “evaluating” how to use Kiva’s robots.
Amazon buying Twitch for $970M in cash

FAST COMPANY
4.2K SHARES
AMAZONFRESH IS JEFF BEZOS’ LAST MILE QUEST FOR TOTAL RETAIL DOMINATION
AMAZON UPENDED RETAIL, BUT CEO JEFF BEZOS — WHO JUST BOUGHT THE WASHINGTON POST FOR $250 MILLION — INSISTS IT’S STILL “DAY ONE.” WHAT COMES NEXT? A RELENTLESS PURSUIT OF CHEAPER GOODS AND FASTER SHIPPING. THE COMPETITION IS ALREADY GASPING FOR BREATH.
BY J.J. MCCORVEY
The first thing you notice about Jeff Bezos is how he strides into a room.
A surprisingly diminutive figure, clad in blue jeans and a blue pinstripe button-down, Bezos flings open the door with an audible whoosh and instantly commands the space with his explosive voice, boisterous manner, and a look of total confidence. “How are you?” he booms, in a way that makes it sound like both a question and a high-decibel announcement.

MORE ON AMAZON
• Amazon CEO Jeff Bezos Agrees To Buy The Washington Post For $250 Million
• Need A Job? Amazon Is Hiring 5,000 People
• Think Your Office Is Soulless? Check Out This Amazon Fulfillment Center
Each of the dozen buildings on Amazon’s Seattle campus is named for a milestone in the company’s history–Wainwright, for instance, honors its first customer. Bezos and I meet in a six-floor structure known as Day One North. The name means far more than the fact that Amazon, like every company in the universe, opened on a certain date (in this case, it’s July 16, 1995). No, Day One is a central motivating idea for Bezos, who has been reminding the public since his first letter to shareholders in 1997 that we are only at Day One in the development of both the Internet and his ambitious retail enterprise. In one recent update for shareholders he went so far as to assert, with typical I-know-something-you-don’t flair, that “the alarm clock hasn’t even gone off yet.” So I ask Bezos: “What exactly does the rest of day one look like?” He pauses to think, then exclaims, “We’re still asleep at that!”
He’s a liar.
Amazon is a company that is anything but asleep. Amazon, in fact, is an eyes-wide-open army fighting–and winning–a battle that no one can map as well as its general. Yes, it is still the ruthless king of books–especially after Apple’s recent loss in a book price-fixing suit. But nearly two decades after its real day one, the e-commerce giant has evolved light-years from being just a book peddler. More than 209 million active customers rely on Amazon for everything from flat-panel TVs to dog food. Over the past five years, the retailer has snatched up its most sophisticated competition–shoe seller Zappos and Quidsi, parent of such sites as Diapers.com, Soap.com, Wag.com, and BeautyBar.com. It has purchased the robot maker Kiva Systems, because robots accelerate the speed at which Amazon can assemble customer orders, sometimes getting it down to 20 minutes from click to ship. Annual sales have quadrupled over the same period to a whopping $61 billion. Along the way, incidentally, Amazon also became the world’s most trusted company. Consumers voted it so in a recent Harris Poll, usurping the spot formerly held by Apple.
RELATED ARTICLE
• Retail’s Game Of Thrones: Citizens of these kingdoms know the stakes–you innovate or you die.
Amazon has done a lot more than become a stellar retailer. It has reinvented, disrupted, redefined, and renovated the global marketplace. Last year, e-commerce sales around the world surpassed $1 trillion for the first time; Amazon accounted for more than 5% of that volume. This seemingly inevitable shift has claimed plenty of victims, with more to come. Big-box retailers like Circuit City and Best Buy bore the brunt of Amazon’s digital assault, while shopping-mall mainstays such as Sears and JCPenney have also seen sales tank. Malls in general, which once seemed to offer some shelter from the online pummeling, have been hollowed out. By Green Street Advisors’ estimate, 10% of the country’s large malls will close in the next decade. It has become painfully clear that the chance to sift through bins of sweaters simply isn’t enough of a draw for shoppers anymore. “It has been this way in retail forever,” says Kevin Sterneckert, a research VP at Gartner who focuses on shopping trends, and who lays out a strategy that should blow nobody’s mind: “If you don’t innovate and address who your customers are, you become irrelevant.” And now that means fending off threats from every phone, tablet, and laptop on the planet.
Amazon’s increasing dominance is now less about what it sells than how it sells. And that portends a second wave of change that will further devastate competitors and transform retail again. It’s not just “1-Click Ordering” on Amazon’s mobile app, which is tailor-made for impulse buying. It’s not just the company’s “Subscribe & Save” feature, which lets customers schedule regular replenishments of essentials like toilet paper and deodorant. It’s not just Amazon’s “Lockers” program, in which huge metal cabinets are installed at 7-Elevens and Staples in select cities, letting customers securely pick up packages at their convenience instead of risking missed (or stolen) deliveries.

“AMAZONFRESH IS REALLY A TROJAN HORSE. IT’S NOT ABOUT WINNING IN GROCERY SERVICES. IT’S ABOUT DOMINATING THE MARKET IN SAME-DAY DELIVERIES. ”

No, it’s all this, plus something more primal: speed. Bezos has turned Amazon into an unprecedented speed demon that can give you anything you want. Right. Now. To best understand Amazon’s aggressive game plan–and its true ambitions–you need to begin with Amazon Prime, the company’s $79-per-year, second-day delivery program. “I think Amazon Prime is the best bargain in the history of shopping,” Bezos tells me, noting that the service now includes free shipping on more than 15 million items, up from the 1 million it launched with in 2005. Prime members also gain access to more than 40,000 streaming Instant Video programs and 300,000 free books in the Kindle Owners’ Lending Library. As annoying as this might be to Netflix, it is not intended primarily as an assault on that business. Rather, Bezos is willing to lose money on shipping and services in exchange for loyalty. Those 10 million Prime members (up from 5 million two years ago, according to Morningstar) are practically addicted to using Amazon. The average Prime member spends an astounding $1,224 a year on Amazon, which is $700 more than a regular user. Members’ purchases and membership fees make up more than a third of Amazon’s U.S. profit. And memberships are projected to rise 150%, to 25 million, by 2017.
Nadia Shouraboura of Hointer, a new store that represents how retail must adapt in the Age of Amazon

Robbie Schwietzer, VP of Prime, is more candid than his boss when explaining Prime’s true purpose: “Once you become a Prime member, your human nature takes over. You want to leverage your $79 as much as possible,” he says. “Not only do you buy more, but you buy in a broader set of categories. You discover all the selections we have that you otherwise wouldn’t have thought to look to Amazon for.” And what you buy at Amazon you won’t buy from your local retailer.
Prime is phase one in a three-tiered scheme that also involves expanding Amazon’s local fulfillment capabilities and a nascent program called AmazonFresh. Together, these pillars will remake consumers’ expectations about retail. Bezos seems to relish the coming changes. “In the old world, you could make a living by hoping that your customer didn’t know whether your price was actually competitive. That’s a very”–Bezos pauses for a second to rummage for the least insulting word–“tenuous strategy in the new world. [Now] you can’t convince people you have the low price; you actually have to have the low price. You can’t persuade people that your delivery speeds are fast; you actually have to have fast delivery speeds!” With that last challenge, he erupts in a thunderous laugh, throwing his cleanly depilated head so far back that you can see the dark fillings on his upper molars. He really does seem to know something the rest of us don’t. We’re still asleep, he says? The alarm clock at Amazon went off hours ago. Whether the rest of the retail world has woken up yet is another question.
Amazon’s 1-million-square-foot Phoenix fulfillment center produces a steady and syncopated rhythm. It is the turn of mechanical conveyor belts, the thud of boxes hitting metal, the beeping of forklifts moving to and fro, and the hum of more than 100 industrial-size air conditioners whirring away. This is the sound of speed–a sonic representation of what it takes to serve millions of customers scattered across the globe.

In centers like this one, of which there are 89 globally (with more to come), Amazon has built the complex machinery to make sure a product will ship out in less than 2.5 hours from the time a customer clicks place your order.

From that click, a set of algorithms calculates the customer’s location, desired shipping speed, and product availability; it then dispatches the purchase request to “pickers” on duty at the nearest fulfillment center. The system directs the new order to the picker who is closest on the floor to that product, popping up with a bleep on the picker’s handheld scanner gun. These men and women roam the sea of product shelves with carts, guided by Amazon’s steady hand to the precise location of the product on the color-coded shelves. The picker gathers the item and puts it into a bin with other customer orders. And from there, the item zooms off on a conveyor belt to a boxing station, where a computer instructs a worker on what size box to grab and what items belong in that box. After the packer completes an order, the word success lights up in big green letters on a nearby computer screen. Then the package goes back on a conveyor, where the fastest delivery method is calculated by scanning the box, which is then kicked down a winding chute to the appropriate truck.
AMAZON-PROOF RETAIL
How one store merges digital and physical
If anyone can design a brick-and-mortar store for an e-commerce world, it should be Nadia Shouraboura. She used to be Amazon’s VP of global supply chain and fulfillment technology and has since created Hointer, a fully automated store run on software algorithms and machinery. She calls it a “microwarehouse” that marries digital’s instant gratification with in-store benefits. “In apparel, this will win,” she predicts. It works like this:
STEP 1. SEARCH
A customer enters the spare store, where there’s only one of every product in view. She pulls up the Hointer app, scans the QR code on a pair of jeans she likes, and enters her size.
STEP 2. DELIVER
Within 30 seconds of scanning the code, a pair of jeans in her size travels through a chute and lands in her dressing room. She can scan as many items as she likes.
STEP 3. REFINE
Inside the dressing room, she tries on the jeans, but they’re too baggy. So she chucks them down another chute and selects a smaller size from the app.
STEP 4. PURCHASE
The jeans fit! She pays on her phone or swipes her card at a kiosk, and leaves the store with her purchase. No sales clerk necessary.
The process is efficient, but still lower tech than it could be. Although Amazon shelled out $775 million last year for those orange Kiva robots, it says it’s still “evaluating” how to deploy the bots, and they’re nowhere to be seen here. “Fulfillment by Amazon” is still a very human endeavor–and the company’s creativity thrives within that limitation. A team at the Phoenix center is constantly thinking of ways to chip away at the 2.5-hour processing time. For instance, when products arrive from Amazon’s vendors and the 2 million third-party merchants who sell their goods on the site, workers now scan them into Amazon’s inventory system (again, with a handheld gun) instead of entering the details manually. Also, products have been stowed on shelves in what otherwise might appear to be a random way–for example, a single stuffed teddy bear might be next to a college biology book–because it reduces the potential distance a worker must trek between popular products that might be ordered together. Small tweaks like these have an impact: In the past two years, Amazon has reduced the time it took to move a product by a quarter. During the past holiday season, the company processed 306 items per second worldwide.
These centers aren’t just about warehouse speed, though: They’re also about proximity. Over the past several years, Bezos has poured billions into building them in areas closer and closer to customers. The Phoenix warehouse, one of four in the region, serves a metro area of nearly 4 million. Robbinsville, New Jersey, is roughly one hour from 8 million New Yorkers. Patterson, California, is an hour and a half from 7 million people living in the San Francisco Bay Area. Three locations in Texas–Coppell, Haslet, and Schertz–will serve not only the nearly 9 million citizens of the Dallas and San Antonio metro areas but also the other 17 million or so customers in the state (and possibly neighboring states too) who live only a few hundred miles away.
“What you see happening,” Bezos explains, “is that we can have inventory geographically near major urban populations. If we can be smart enough–and when I say ‘smart enough,’ I mean have the right technology, the right software systems, machine-learning tools–to position inventory in all the right places, over time, your items never get on an airplane. It’s lower cost, less fuel burned, and faster delivery.”
The holy grail of shipping–same-day delivery–is tantalizingly within reach. Amazon already offers that service in select cities, what it calls “local express” delivery, but the big trick is to do it nationally. And the crucial element of this ambitious plan is revealed by something wonkier than a bunch of buildings. It is something only an accountant could see coming: a cunning shift in tax strategy.
“”IN THE NEW DIGITAL WORLD,” SAYS BEZOS, “YOU CAN’T CONVINCE PEOPLE YOU HAVE THE LOW PRICE; YOU ACTUALLY HAVE TO HAVE THE LOW PRICE.””
If you were a competitor who knew what to listen for, you’d practically hear the Jaws theme every time Bezos said the word taxes. For years, Amazon fervently avoided establishing what is called a “tax nexus”–that is, a large-enough physical presence–in states that could potentially force it to collect sales tax from its customers, something brick-and-mortar and mom-and-pop stores had long argued would finally remove Amazon’s unfair pricing advantage. In states that dared to challenge Amazon, the company would quickly yank operations. The scrutiny even extended to its sale of products by other merchants. “We had to be very careful, even with the third-party business, about not incurring tax-nexus stuff,” recalls John Rossman, a former Amazon executive and current managing director at Alvarez and Marsal, a Seattle-based consulting firm.
But Amazon has since changed its mind. It determined that the benefits of more fulfillment centers–and all the speed they’ll provide–will outweigh the tax cost they’ll incur. So it began negotiating with states for tax incentives. South Carolina agreed to let the company slide without collecting sales tax until 2016, in exchange for bringing 2,000 jobs to the state. In California, Amazon was given a year to start collecting taxes in exchange for building three new warehouses. And at the end of 2011, Amazon even threw its support behind a federal bill that would mandate all online retailers with sales of more than $1 million to collect tax in states in which they sold to customers. In 2012 alone, Amazon spent $2.5 million lobbying for issues that included what’s known as the Marketplace Fairness Act–the same law, essentially, it had once moved heaven and earth to eradicate. The bill recently cleared the U.S. Senate and awaits passage in the House.
“The general perception is companies thinking, Oh, great, finally a level playing field,” Rossman says. “But other retailers are going to regret the day. Sales tax was one of the few things impeding Amazon from expanding. Now it’s like wherever Amazon wants to be, whatever Amazon wants to do, they are going to do it.”
There’s yet another weapon in Amazon’s offensive, and it’s ready for rollout. It’s called AmazonFresh, a grocery delivery service that has long been available only in Seattle. The site has a selection of 100,000 items, and from my hotel room in that city on a recent Saturday at 11 a.m., I gave it a try. I clicked on chips, bananas, apples, yogurt, and a case of bottled water–along with a DVD of Silver Linings Playbook and a Moleskine reporter’s notebook. After checking out and paying the $10 delivery fee, I requested my goods to arrive during the 7 p.m. to 8 p.m window. At 7:15 that evening, De, my AmazonFresh delivery woman, showed up in the lobby. She helped carry my bags up the elevator and to my hotel room, and tried several times to refuse a $5 tip for the trouble I put her through in the name of research. It was simple, easy–and for Amazon competitors, very threatening.
De and the Kiva robots are central to what Amazon sees as the future of shopping: whatever you want, whenever you want it, wherever you want it, as fast as you demand it. AmazonFresh is expected to expand soon to 20 more urban markets–including some outside America. Los Angeles became the second AmazonFresh market, this past June, and customers there were offered something the folks in Seattle must wish they got: a free trial of Prime Fresh, the upgrade version of Amazon Prime, which provides free shipping of products and free delivery of groceries for orders over $35. Subscribers will pay an annual fee of $299. Considering that grocery delivery otherwise costs between $8 and $10 each time (depending on order size), the subscription covers itself after about 30 deliveries–which busy families will quickly exceed.
Bezos, in his cagey, friendly way, seems more excited about my Fresh experience than he is about describing Fresh’s future. He seems almost surprised that the service worked so well at a hotel, given that it was designed for home delivery. “Thank you!” he shouts. After peppering me with questions on how, precisely, the delivery went down, he finally gets around to addressing the service’s business purpose.
“WE WON’T INVEST IN A COMPANY UNLESS THEY CAN TELL US WHY THEY WON’T GET STEAMROLLED BY AMAZON.”
“We’d been doing a very efficient job with our current distribution model for a wide variety of things,” Bezos says. “Diapers? Fine, no problem. Even Cheerios. But there are a bunch of products that you can’t just wrap up in a cardboard box and ship ’em. It doesn’t work for milk. It doesn’t work for hamburger.” So he developed a service that would work–not because he suddenly wanted to become your full-service grocer but because of how often people buy food.
AmazonFresh is actually a Trojan horse, a service designed for a much greater purpose. “It was articulated [in the initial, internal pitch to Bezos] that this would work with the broader rollout of same-day delivery,” says Tom Furphy, a former Amazon executive who launched Fresh in 2007 and ran it until 2009. Creating a same-day delivery service poses tremendous logistical and economic hurdles. It’s the so-called last-mile problem–you can ship trucks’ worth of packages from a warehouse easily enough, but getting an individual package to wind its way through a single neighborhood and arrive at a single consumer’s door isn’t easy. The volume of freight and frequency of delivery must outweigh the costs of fuel and time, or else this last mile is wildly expensive. You can’t hire a battalion of Des unless they earn their keep. So by expanding grocery delivery, Amazon hopes to transform monthly customers to weekly–or even thrice-weekly–customers. And that, in turn, will produce the kind of order volume that makes same-day delivery worth investing in. “Think of the synergy between Prime, same-day delivery, and Fresh,” says Furphy. “When all of those things start working in concert, it can be a very beautiful thing.”
AmazonFresh is arguably the last link in Bezos’s big plan: to make Amazon the dominant servicer–not just seller–of the entire retail experience. The difference is crucial. Third-party sellers, retailers large and small, now account for 40% of Amazon’s product sales. Amazon generally gets up to a 20% slice of each transaction. Those sellers are also highly incentivized to use Fulfillment by Amazon (known as FBA). Rather than shipping their products themselves after a sale is made on the Amazon site, these retailers let Amazon do the heavy lifting, picking and packing at places like the Phoenix center. For the sellers, an FBA agreement grants them access to Prime shipping speeds, which can help them win new customers and can allow them to sell at slightly higher prices. For Amazon, FBA increases sales, profits, and the likelihood that any shopper can find any item on its website.
“NOW YOU HAVE SMART BRICK-AND-MORTAR STORES SAYING, ‘WHY ISN’T OUR EXPERIENCE MORE INTUITIVE, AS IT IS ON THE WEB?’”
The burgeoning AmazonFresh transportation network will help expand these numbers. In Los Angeles and Seattle, a fleet of Fresh trucks delivers everything from full-course meals to chocolate from local merchants. The bright green branded trucks–with polite drivers in branded uniforms–let Amazon personify its brand, giving it the same kind of trustworthy familiarity that fueled the rise of UPS in the 1930s. “If you have all kinds of fly-by-night operations coming to your door, people don’t like that,” says Yossi Sheffi, professor and director of the MIT Center for Transportation and Logistics. “It’s different with someone in a U.S. Postal Service or FedEx uniform. Those brands inspire confidence.”
As Amazon evolves into a same-day delivery service, its active transportation fleet could become yet another competitive advantage. By supplementing its long-term relationships with UPS and FedEx with its own Fresh trucks, Amazon may well be able to deliver faster than retailers that depend entirely on outside services. “Pretty soon, if you’re a retailer with your online business, you’re going to be faced with a choice,” says Brian Walker, a former analyst at Forrester Research who is now with Hybris, a provider of e-commerce software. “You’re not going to be able to match Amazon, so you’re going to have to consider partnering with them and leveraging their network.”
This shift could even turn Amazon into a competitor to UPS and FedEx, the long-standing duopoly of next-day U.S. shipping. “If Amazon could do it at enough scale, they could offer shipping at a great value and still eke out some margin,” says Walker. “In classic Amazon fashion, they could leverage the infrastructure they’ve built for themselves, take a disruptive approach to the pricing, and run it as an efficiency play.”
Amazon has been down this road before. Its Web Services began as an efficient, reliable back end to handle its own web operations–then became so adept that it now provides digital services for an enormous range of customers, including Netflix and, reportedly, Apple. It’s not impossible to imagine Amazon doing the same with shipping. Last year, the company cut its shipping costs as a percentage of sales from 5.4% to 4.5%. As it builds more distribution centers, installs more lockers, and builds out its fleet, Amazon is likely to drive those efficiency costs down even further.
So is Amazon Freight Services Bezos’s next mission? When I ask, the laugh lines vanish from his face as if someone flipped a switch on his back. He contends that same-day delivery is too expensive outside of urban markets and that it only makes sense for Amazon to deliver its own products within the Fresh program. In China, he explains, Amazon does in fact deliver products via many couriers and bicycle messengers. “But in a country like the United States,” he says, “we have such a sophisticated last-mile delivery system that it makes more sense for Amazon to use that system to reach its customers in a rapid and accurate way.” When I ask whether he would consider, say, buying UPS, with its 90,000 trucks–or even more radically, purchasing the foundering USPS, with its 213,000 vehicles running daily through America’s cities and towns–Bezos scoffs. But he won’t precisely say no.

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Rivals aren’t waiting for an answer. EBay has launched eBay Now, a $5 service that uses its own branded couriers in New York, San Francisco, and San Jose, to fetch products from local retail stores like Best Buy and Toys “R” Us and deliver them to customers within an hour. Google, fully aware that Amazon’s market share in product search is substantial (now 30% to Google’s 13%), has launched a pilot service called Google Shopping Express, which partners with courier companies. Walmart–which has booted all Kindles from its stores–started testing same-day delivery in select cities during the last holiday season, shipping items directly from its stores. (Joel Anderson, chief executive of Walmart.com, even suggested paying in-store shoppers to deliver online orders to other customers the same day. Come for a handsaw, leave with a job!)
These are the sort of ideas that retailers–both e-commerce and physical, large and small–will have to consider as Amazon expands. Guys like Jeff Jordan, partner at well-known venture firm Andreessen Horowitz, will make sure of it. His firm follows and invests in direct-to-consumer businesses. “We won’t invest in a company,” he says, “unless they can tell us why they won’t get steamrolled by Amazon.”
Given the astounding growth of Amazon, and the seemingly infinite ways it has defied the critics, Bezos may have proved himself the best CEO in the world at taking the long view. But he doesn’t like talking about it. “Did you bring the crystal ball? I left mine at home today,” he quips. He does, however, like discussing what the future might bring for his customers. In fact, he likes talking about his customer so much that the word can seem like a conversational tic; he used it 40 times, by my count, in just one interview. “It’s impossible to imagine that 10 years from now, I could interview an Amazon customer and they would tell me, ‘Yeah, I really love Amazon. I just wish your prices were a little higher,’” he says. “Or, ‘I just wish you’d deliver a little more slowly.’” In Bezos’s world, the goal of the coming decade is a lot like the goal of the past two: Be cheap. Be fast. That’s how you win.
There is, naturally, no guarantee that Bezos will simply win and win and win. The bigger Amazon gets, the greater the number and variety of stakeholders required to make the Amazon machine hum. Many seem to be getting increasingly frustrated. Consider Amazon’s third-party sellers–that group making up 40% of the company’s product sales. Earlier this year, Amazon issued a series of fee hikes for use of its fulfillment services, ranging from as low as 5 cents per smallish unit to as much as $100 for heavier or awkwardly shaped items (like a whiteboard, say, or roll-away bed). Many sellers took to Amazon’s forums to complain, and others threatened to go to eBay, which mostly leaves fulfillment to its sellers. “I think Amazon is a necessary evil,” says Louisa Eyler, distributor for Lock Laces, a shoelace product that sells as many as 3,000 units per week on Amazon. After the price hike, Eyler says her total fees for the $7.99 item went from $2.37 to $3.62. She says Amazon now makes more per unit than she does.
Or consider the frustrations of Amazon employees, who are striking at two of its eight German facilities in an effort to wrest higher wages and overtime pay. At the height of the conflict, on June 17, 1,300 workers walked off the job. (It is one of Amazon’s largest walk-offs in its biggest foreign market, and could result in shipping delays.) Meanwhile, Amazon workers in the U.S. have filed a lawsuit claiming that they’ve been subject to excessive security checks–to search for pilfered items–at warehouses. The suit alleges their wait could last as long as 25 minutes, an inconvenience Amazon would never subject its customers to. “It means there’s a broken process somewhere,” says Annette Gleneicki, an executive at Confirmit, a software company that helps businesses capture customer and employee feedback. “[Bezos] clearly inspires passion in his employees, but that’s only sustainable for so long.”
The company could be vulnerable on other fronts as well. Target and Walgreens have “geo-fenced” their stores so their mobile apps can guide customers directly to the products they desire. Walmart and Macy’s have begun making their stores do double-duty, both as a place to shop and a warehouse from which to ship products. (The strategy seems to be paying off for Macy’s, which recently reported a jump in first-quarter profit and is now fulfilling 10% of its online purchases from its stores.) They’re proving that retail won’t go away–it’ll learn and adapt. “Now you have smart brick-and-mortar stores saying, Why isn’t our experience more intuitive, as it is on the web?” says Doug Stephens, author of The Retail Revival: Re-Imagining Business for the New Age of Consumerism. “We should know a consumer when they walk in, and what they bought before, in the same way as Amazon’s recommendation engine.”
Bezos won’t admit to any deep concern. While Amazon’s paper-thin profits continue to perplex observers (the company netted only $82 million in the first quarter of 2013), the three primary weapons in its retail takeover–fulfillment centers, Amazon Prime, and now AmazonFresh–are coming to maturity. If the next year tells us anything about Amazon’s future, it should reveal whether Bezos’s decision to plow billions back into these operations will give the company an end-to-end service advantage that might be nearly impossible for its competitors to overcome.
The sun seems to be setting on Bezos’s big Day One. Before we part ways in Seattle, I ask him what we can expect to see on Day Two. “Day Two will be when the rate of change slows,” he replies. “But there’s still so much you can do with technology to improve the customer experience. And that’s the sense in which I believe it’s still Day One, and that it’s early in the day. If anything, the rate of change is accelerating.”
Of course, Bezos is the accelerator.

Amazon Buys Twitch For $970 Million In Cash
EUGENE KIM
AUG. 25, 2014, 4:03 PM 13,994 21
Patrick T. Fallon/Getty Images
Twitch CEO Emmett Shear.
Amazon said on Monday it would pay $970 million in cash for Twitch, a live video-game-streaming site with more than 55 million users that’s like YouTube for video games.
As of July, Twitch had over 15 billion minutes of content, and users were spending more than 100 minutes a day on the site, on average. Twitch users can host live streams of their gaming sessions and broadcast them to the world. They can also chop up their sessions into segments for streaming later.
It’s also a resource for gamers who like to show off their unique skills. For example, there’s an entire community on Twitch dedicated to doing weird stuff like beating Zelda games in under 20 minutes or playing massively collaborative games of Pokemon.
Twitch/Screenshot
A Twitch streaming session.
Twitch is a huge part of the internet, and it accounts for nearly 2% of all traffic in the U.S. during peak hours, according to a report by The Wall Street Journal. Only Netflix, Google, and Apple account for more traffic. In that respect, Twitch even streams more video than Hulu.
Twitch also accounts for 40% of all live-streamed internet content, according to Business Insider Intelligence:
BI Intelligence
What’s really impressive is that Twitch was able to become so big after just three years.
You can see Amazon’s purchase of Twitch as a play to take over the future of TV. More and more content is being streamed online, and more and more hours of video watching are being done on sites like YouTube, Netflix, and Hulu. Amazon has its own streaming video service called Amazon Instant that comes with Amazon Prime memberships. Amazon Instant includes thousands of streaming movies and TV shows, including original shows like “Alpha House.”
Amazon
Alpha House is an original Amazon show.
Earlier Monday, multiple reports indicated Amazon was in late-stage talks to acquire Twitch. The news came as a big surprise because just last month it was reported that Google had agreed to acquire Twitch for about $1 billion. That deal, however, was never officially confirmed.
The Google-Twitch deal felt like a natural fit, since it would’ve been a good way for YouTube to expand its video offerings. Yahoo also tried to buy Twitch for $970 million, but Amazon swooped in and got it instead.
It’s unclear what had caused the Google-Twitch deal to fall through, but one possible reason is over antitrust issues. Since Google already owns YouTube, the world’s largest video streaming site, acquiring another massive video streaming site like Twitch could raise antitrust issues. According to Forbes, the two sides couldn’t agree on the potential break up fee.
Here’s the official announcement from Amazon:
Amazon.com, Inc. (NASDAQ: AMZN) today announced that it has reached an agreement to acquire Twitch Interactive, Inc., the leading live video platform for gamers. In July, more than 55 million unique visitors viewed more than 15 billion minutes of content on Twitch produced by more than 1 million broadcasters, including individual gamers, pro players, publishers, developers, media outlets, conventions and stadium-filling esports organizations.
“Broadcasting and watching gameplay is a global phenomenon and Twitch has built a platform that brings together tens of millions of people who watch billions of minutes of games each month – from The International, to breaking the world record for Mario, to gaming conferences like E3. And, amazingly, Twitch is only three years old,” said Jeff Bezos, founder and CEO of Amazon.com. “Like Twitch, we obsess over customers and like to think differently, and we look forward to learning from them and helping them move even faster to build new services for the gaming community.”
“Amazon and Twitch optimize for our customers first and are both believers in the future of gaming,” said Twitch CEO Emmett Shear. “Being part of Amazon will let us do even more for our community. We will be able to create tools and services faster than we could have independently. This change will mean great things for our community, and will let us bring Twitch to even more people around the world.”
Twitch launched in June 2011 to focus exclusively on live video for gamers. Under the terms of the agreement, which has been approved by Twitch’s shareholders, Amazon will acquire all of the outstanding shares of Twitch for approximately $970 million in cash, as adjusted for the assumption of options and other items. Subject to customary closing conditions, the acquisition is expected to close in the second half of 2014.
Here’s a letter from Twitch’s CEO:
Dear Twitch Community,
It’s almost unbelievable that slightly more than 3 years ago, Twitch didn’t exist. The moment we launched, we knew we had stumbled across something special. But what followed surprised us as much as anyone else, and the impact it’s had on both the community and us has been truly profound. Your talent, your passion, your dedication to gaming, your memes, your brilliance – these have made Twitch what it is today. Every day, we strive to live up to the standard set by you, the community. We want to create the very best place to share your gaming and life online, and that mission continues to guide us. Together with you, we’ve found new ways of connecting developers and publishers with their fans. We’ve created a whole new kind of career that lets people make a living sharing their love of games. We’ve brought billions of hours of entertainment, laughter, joy and the occasional ragequit. I think we can all call that a pretty good start. Today, I’m pleased to announce we’ve been acquired by Amazon. We chose Amazon because they believe in our community, they share our values and long-term vision, and they want to help us get there faster. We’re keeping most everything the same: our office, our employees, our brand, and most importantly our independence. But with Amazon’s support we’ll have the resources to bring you an even better Twitch. I personally want to thank you, each and every member of the Twitch community, for what you’ve created. Thank you for putting your faith in us. Thank you for sticking with us through growing pains and stumbles. Thank you for bringing your very best to us and sharing it with the world. Thank you, from a group of gamers who never dreamed they’d get to help shape the face of the industry that we love so much. It’s dangerous to go alone. On behalf of myself and everyone else at Twitch, thank you for coming with us. Emmett Shear, CEO
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
SEE ALSO:  Here’s Why Amazon Just Paid Nearly $1 Billion For A Site Where You Can Watch People Play Video Games
Read more: http://www.businessinsider.com/amazon-buys-twitch-2014-8#ixzz3BSBNYa53
Amazon Is Turning Into Google
STEVE KOVACH
AUG. 25, 2014, 7:15 PM 1,038 3
Amazon Inc.
Amazon CEO Jeff Bezos.
Tell me which company this sounds like:
A company that…
• Has its own mobile operating system for tablets and smartphones.
• Has its own app store.
• Sells digital music, books, movies, and TV shows.
• Will soon have an online ad network.
• Created a way to accept payments with a smartphone.
• Owns the servers that act as the backbone for several major apps and startups and even parts of the CIA.
• Is experimenting with drones.
It’s not Google. It’s Amazon.
But just like Google has expanded beyond search into everything from finding ways to cheat death to making cars that can drive themselves, Amazon has been increasingly expanding beyond its core e-commerce business.
And in recent months, that only seems to be speeding up.
Amazon’s $970 million purchase of Twitch, a site that lets you watch people play video games via a live stream, is its latest push into original video content and a move to transform itself into part media company. It’s a longer-term bet that the trend of watching stuff online versus cable will continue.
Add that on top of the stuff listed above, and Amazon suddenly sounds less like an online store for buying books and gifts and more like a company trying to insert itself into everything you do online. It sounds very Google-y.
Plus …
There’s experimentation with same-day delivery, grocery delivery, and point of sale systems for brick-and-mortar retailers. Those are all things Google is working on or has at least experimented with.
The only difference, of course, is that Google is wildly profitable while Amazon continues to post losses each quarter. (Next quarter could be a doozy. Amazon said to expect at least a $410 million operating loss.)
But it’s also a changing company, one that’s no longly simply “the everything store,” but an entity creeping its way into everything we do from shop to play games to run our small businesses.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
SEE ALSO:  9 impressive stats about Twitch
Read more: http://www.businessinsider.com/amazon-is-google-2014-8#ixzz3BSE4Hglt
Bezos Confirms

AmazonFresh Expansion Plans

, Says Drones Are for Real
April 10, 2014, 9:15 AM PDT
By Jason Del Rey
Grocery delivery fans outside of Seattle and California, rejoice: Amazon plans to expand its AmazonFresh offering beyond its current three markets, CEO Jeff Bezos confirmed in his 2013 letter to shareholders published today.
“We’ll continue our methodical approach — measuring and refining AmazonFresh — with the goal of bringing this incredible service to more cities over time,” he said in the letter.
For five years, Fresh was only available in Seattle, before the company launched the program last year in Los Angeles and, six months later, San Francisco. Several reports over the past year have said Amazon plans to expand the delivery service into 10 to 20 more new markets this year, but this may be the first time Bezos has publicly acknowledged the expansion plans.
Through Fresh, shoppers can order deliveries of groceries and hundreds of thousands of other items, from TVs to toys, that arrive either that same day or the following morning. Industry observers believe that part of Amazon’s reason for delivering groceries is that it will create enough sales volume and delivery demand to justify delivering all other Amazon merchandise within one day.
Another highlight from the letter: Drones.
“The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles,” Bezos wrote, “and we are in the design phase on generations 7 and 8.”
Is it possible that drone delivery is still a marketing stunt? Sure. If so, Bezos is sticking to the script.
More from this story


SLIDE SHOW:
Headed your way: AmazonFresh widens range of grocery deliveries
Doorstep delivery: Our reporter gives AmazonFresh grocery service a whirl
BY NANCY LUNA / STAFF WRITER
Published: June 20, 2014 Updated: June 23, 2014 11:44 a.m.
STEVEN GEORGES, CONTRIBUTING PHOTOGRAPHER
VONS VS. AMAZONFRESH
Here are a few price comparisons based on items found online this week:
1 gallon of Alta Dena fat-free milk: $5.49 Vons vs. $4.99 AmazonFresh
59-ounce jug of Simply Lemonade: $2.50 Vons vs. $2 AmazonFresh
5 ounces organic baby romaine: $3.90 O private-label Vons brand vs. $3.39 Earthbound brand at AmazonFresh
24-pack of Aquafina 16.9-ounce bottled water: $5.49 Vons vs. $4.29 AmazonFresh
Tide Free and Gentle (100 ounces): $11.99 Vons vs. $11.97 AmazonFresh
20-pack Coke Zero: $8.29 Vons vs. $6.99 AmazonFresh
Winder Farms: A Utah-based delivery service in California, Utah and Nevada. Delivers roughly 300 farm fresh items. Delivery in Orange County and parts of Los Angeles County. winderfarms.com
Good Eggs: Delivery of locally grown, sustainable goods from stores or farmers’ markets. Los Angeles County only. goodeggs.com/about/mission
Vons: Traditional market with home delivery in Orange County. shop.safeway.com
Instacart: Delivers from local stores like Whole Foods, Ralphs and Bristol Farms. Limited to a few ZIP codes in Los Angeles County. instacart.com/store/whole-foods
Deliveer: Personal shoppers deliver groceries from Whole Foods Market, Trader Joe’s, Vons and Costco in Pasadena, San Marino, South Pasadena and Altadena. Expansion to other parts of Los Angeles County coming soon. deliveer.com
As Amazon’s fledgling grocery service in Southern California widens its reach, some boutique food suppliers say the experiment has proven to be a boon for business.
Huntington Meats saw sales go from single-digit growth to double digits after the first month of partnering with AmazonFresh, a doorstep food service that launched last summer in Los Angeles.
The 30-year-old butcher shop, known for its top-grade meats and wild game, partnered with AmazonFresh last summer. Co-owner Jim Cascone said his meat market sells the “whole store,” or 175 items, through the online site, from free-range chickens to ground elk.
Demand for his specialty goods continues to soar and was boosted in recent weeks when the company expanded its service to most of Orange County.
“We’re very pleased,” said Cascone. “We’re definitely getting a lot of business out of it.”
For other Amazon partners, the impact has been much less dramatic. Greg Daniels, executive chef-partner at Haven Collective, has been working with AmazonFresh the last six months. The company’s Provisions Market bottle and cheese shop in Old Towne Orange offers Amazon shoppers specialty cheeses, cured meats, chocolate and a wide selection of craft beer.
“Cheese is popular, and beer not too much yet,” said Daniels. “It’s definitely brand exposure more than money.”
Amazon’s doorstep service initially was limited to Los Angeles, four cities in Orange County and parts of Long Beach. Shoppers choose from a wide selection – some 500,000 items – of merchandise, groceries and specialty foods.
In recent weeks, AmazonFresh has expanded to Orange, Tustin, Garden Grove, Aliso Viejo, Santa Ana, Laguna Niguel and Mission Viejo in addition to Irvine, Anaheim, Huntington Beach and Newport Beach. All of Long Beach is also eligible for delivery, a company spokesperson said.
The expansion comes as Amazon sees positive results in the greater Los Angeles area.
“While I can’t share specific numbers, we are very pleased with the response from our customers so far,” AmazonFresh said in a statement.
AmazonFresh’s grocery delivery expansion comes as doorstep food services experience a resurgence after failing years ago.
In 2013, revenue from online grocery sales reached $6.5 billion, according to market research firm IBIS World. By 2018, sales are projected to reach $10.1 billion as time-strapped consumers seek convenient ways to shop through mobiles devices and home computers, IBIS said.
AmazonFresh entered Los Angeles last summer after testing its grocery service near its home turf in Seattle. The service is also available in San Francisco and Berkeley.
Other food delivery options in the region include Winder Farms, Good Eggs, Deliveer, Instacart and Vons.
AmazonFresh rolls into San Diego
By Katherine P. Harvey2:08 P.M.JULY 29, 2014Updated5:36 P.M.

This entry was posted in Business Models, E-Commerce and tagged Amazon on August 20, 2014. Edit

==============AMAZING AMAZON POST AUGUST, 2014 ========

Amazing Amazon
Continually updated notes as I try to keep up with Jeff Bezos (impossible)
As of 10/23/2013

Background
JCR was working with a partner at a major consulting firm on CGF business. In a casual moment, they got talking about e-commerce, and the subject of Amazon came up. The partner shared that they had just completed a major piece about Amazon, using entirely public sources, for a retailer client. He graciously offered to share the work, and did not label the work confidential. JCR reviewed it and thought that the sources and insights were outstanding – but he thought it best not to quote or share the document directly. So these facts are largely from that analysis and that analysis’ public sources (shown at the end of this paper). They are extended by other facts and articles discovered by JCR.

Purpose

The purpose of this working paper is to lay out a case that Amazon deserves high-priority consideration by virtually all Fortune 1000 companies operating in a retail or manufacturer environment.
!Hypotheses
From 2015-2018, there is a high likelihood that:

1. E-commercewillbemainstream.Itwillbecomethepreferredmethodofshoppingformany consumers, and it will enjoy ubiquity and mainstream use by the global middle class like cell phones do today;
2. Amazon will lead e-commerce. Amazon will be – far and away – the leader in the e-commerce retailing space;
3. E-commercewillimpactfoodandbeverage.Itwillemergeasaforceinfoodandbeverageretail;
4. Amazon will aggressively enter food and beverage retail globally. They will establish themselves
in key markets as one of the top 10 customers of most manufacturers;
5. Amazon will “perfect” home delivery. They will crack the “last mile” of retail. They will “perfect” delivering direct to the home or to a designated agent of the home, thereby making obsolete traditional retailers who cannot do this;
6. Amazon will “perfect” their business model. Amazon will dominate best practice in logistics, fulfillment, and customer satisfaction over this planning period, in a manner so effective that others who fail to keep up will be left behind by 2016;
7. Amazon will disrupt most business models. Amazon can potentially disrupt fundamental assumptions bout store delivery, merchandising, and the viability of home delivery

Discussion
Experts project that:
– E-Commerce will exceed $1,400 billion revenue by 2020
– It will be ubiquitous, accepted by virtually all (like cell phones today)
– It will be primary source of purchasing by consumers, who will be intensively engaged
– It will extend from its current 33 retail categories into all retail categories

1. E-Commerce Will Be Mainstream
2. Amazon Will Lead E-Commerce
Amazon will be – far and away – the leader in the e-commerce retailing space. Amazon revenue will continue to grow fast: in 2013 it was $75 billion, up from $61, $48, $34, $25, and $19 billion in 2012, 2011, 2010, 2009, and 2008 respectively. Analysts predict revenue will reach $90 billion in 2014. By 2015, Amazon is highly likely to have revenues exceeding $100 billion annually. Conservatively, Amazon revenue is likely to grow 20% per year from 2015 to 2020, reaching at least $250 billion in 2020 (one third of e-commerce and more than half the size of Wal-Mart today).
Exhibit 2: Projected Amazon Revenue Growth (2008-2024)

Note: 2008-2012 are actual revenues !

Amazon will begin to directly threaten Walmart over this 2015-2020 planning cycle
Today, Amazon revenue ($61 billion) is small compared to brick & mortar Wal-Mart, who closed 2012 with revenue of $444 billion. But, it nonetheless is remarkable for an online retailer. In 2000, the entire universe

of e-commerce was predicted to be less than $20B by Forrester and yet today, Amazon alone sells $61 MM and is closing in on $100 MM.
In contrast, it appears that Wal-Mart online sales will be less than $10 million. $61 million versus $10 million: it seems reasonably clear who is going to win in e-commerce. Although recent reports make it very clear that Wal-Mart has woken up to the threat and is responding so no one can know for sure what the outcome of this battle will be.

Not bad for a company that opened for business as a bookseller less than 20 years ago – in 1995.

3. E-Commerce Will Impact Food And Beverage
Food & Beverages to Grow as a Proportion of Total E-Commerce Sales
Amazon will emerge as a force in food and beverage retail. Some have concluded that grocery was approximately $36M in 2011 and would nearly double by 2015 to $57M and nearly triple from 2011 to $101B in 2020. Furthermore, it is predicted that beverages would grow from $6B in 2011, to $8B in 2015, and to $17B by 2020 (see Exhibit 1).

Amazon will establish itself in key markets as one of our top 10 customers. The food and beverage category will grow in importance online and Amazon is expected to own 30% of that market.

Amazon will crack the “last mile” of retail. They will “perfect” delivering direct to the home or to a designated agent of the home, thereby marginalizing traditional retailers who cannot do this. Amazon is currently testing and honing their approach through AmazonFresh.

AmazonFresh
AmazonFresh is a new service that is currently available in Seattle and Los Angeles in select zip codes. The service offers same-day and early morning delivery on orders of over $35 of more than 500,000 Amazon items, including fresh grocery and local products. The annual “membership” costs $299 with unlimited free delivery and is offered as an additional level of Amazon Prime.

4. Amazon Will Aggressively Enter Food and Beverage Retail Globally

5. Amazon Will “Perfect” Home Delivery
Exhibit 3: AmazonFresh Sortable Shopping

6. Amazon Will “Perfect” Their Business Model
Amazon will dominate best practice in logistics, fulfillment, and customer satisfaction over this planning period, in a manner so effective that others who fail to keep up will be left behind by 2016. One example of their current testing in fulfillment, logistics, and delivery is the launch of

Amazon Locker.
Amazon Locker
Now Amazon has taken a small step toward eliminating the UPS wait with a service inspired less by the internet and more by the Port Authority. Amazon Locker allows you to have your packages sent to the equivalent of single-use P.O. boxes housed in 24-hour convenience stores, grocery stores and drug stores. Amazon sends you an email with a pickup code, which you enter on a touchscreen to open the door of the locker containing your package. You have three days from the delivery date to pick it up.
Additionally, Amazon has started sharing warehouse space with some of its key suppliers. Amazon has been sharing warehouse space with P&G for 3 years and is now in at least 7 P&G distribution centers. Amazon also has arrangements in place or is working out deals with companies such as Kimberly-Clark, Seventh Generation, and Georgia-Pacific.
7. Amazon Will Disrupt Many Business Models
Amazon can potentially disrupt fundamental assumptions about direct store delivery, merchandising, bottlers, OBPPC, and the viability of home delivery.

================ 2013 AMAZON FACT SHEET ========

Amazon Fact Sheet
Last Updated in Late 2013

Basic Facts
Corporate mission: We seek to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators
Headquarters: Seattle, WA
When Founded: The company was incorporated in 1994 as Cadabra and went online as Amazon.com in 1995
CEO: Jeffrey Bezos
Number of Employees: 97,000
Number of Retail Categories: 33 categories
Customers: 200 million active customers; 132 million unique visitors each month Fulfillment Centers: 89 worldwide, 54 million square feet of total space

Geographical Presence
Amazon has 89 fulfillment centers worldwide
Fulfillment centers are located in 8 countries including USA, Canada, France, Germany, Italy, China, Japan, and the UK
Amazon has separate retail sites for USA, Canada, France, Germany, Italy, China, Japan, and UK plus Brazil, India, Mexico, and Spain
The US fulfillment centers are located in: Arizona, California, Delaware, Indiana, Kansas, Kentucky, Nevada, New Hampshire, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington 1995: 400 square foot 2010: 50 fulfillment centers 26M square feet
Revenue was $61, $48, $34, $25, and $19B in 2012, 2011, 2010, 2009, and 2008 respectively o Annual revenue in 2011 was 27% more than Google’s
Revenue to reach $74.6B in 2013 (though $0 net income), 24.6% CAGR from 2011 Amazon’s market share represents one third of U.S. e-commerce sales

Amazon on pace to reach over $125B globally by 2016; 4.5% CAGR from 2010

North America: $65.4B by 2016; 23.2% CAGR from 2010

International: $61.3B by 2016; 26.3% CAGR from 2010 Amazon has had one of the fastest growths in the internet’s history

Financial Results

After 5 years eBay reached $0.4B, Google reached $1.5B, and Amazon reached $2.8B
Amazon Revenue vs. Net Income ($M)
$ $ $ $
70,000 52,500 35,000 17,500
00 (17,500)
$
2008 2009 2010 2011 2012
!
Millions ($)
!Organizational Structure
CEO and founder Jeffery Bezos and an eight-member board of directors
CEO oversees the Chief Financial Officer (CFO), the Chief Technology Officer and the following 8 departments:
o Business Development o E-Commerce Platform o International Retail
o North America Retail o Web Services
o Digital Media
o Legal & Secretary o Kindle
CFO oversees the Real Estate and Control department
International Retail oversees three separate departments: China, Europe and India
North America Retail oversees the following five departments: Seller Services, Operations, Toys, Sports & Home Improvement, Amazon Publishing and Music & Video
Web Services department oversees Amazon S3 and Database Services
Other departments include Product Development & Studios, Europe Operations, Global Advertising Sales, Computing Services, and Global Customer Fulfillment

Key Acquisitions
1998: PlanetAll, Junglee, Bookpages.co.uk
1999: Internet Movie Database (IMDb), Alexa Internet, Accept.com, Exchange.com, Pets.com, Home
Grocer, Back-to-Basics Toys, drugstore.com
2004: Joyo.com
2005: BookSurge, Mobipocket.com, CreateSpace.com
2006: Shopbop
2007: DPRreview.com, Brilliance Audio
2008: Audible.com, Fabric.com, Box Office Mojo, AbeBooks, Shelfari, Reflexive Entertainment 2009: Zappos, Lexcycle. SnapTell, Stanza
2010: Touchco, Woot, Quidsi, BuyVIP, Amie Street
2011: LoveFilm, The Book Depository, Pushbutton, Yap
2012: Kiva Systems, Teachstreet, Evi
2013: IVONA Software, GoodReads, Liquavista
Corporate Timeline (1995-2013)
July, 1995
o Began selling books online

o Two small fulfillment centers – Seattle and Delaware 1999
o Acquired Pets.com for $58 million
o Acquired Home Grocer for $42.5 million
o Acquired Back-to-Basics toys for $135 million
o Acquired drugstore.com for $44 million
o (Since then have acquired hardware, car, electronics, sporting goods, luxury, wine, etc.)

2001
o Became the online engine behind Borders.com o Broadened beyond books to CD’s and DVD’s

2005
o Launched Amazon Prime 2007
o Launched Kindle (developed by Lab126, their internal appliance R&D shop)
o Launched Amazon Fresh in Seattle 2008
o $19 billion revenue 2009
o $24.5 billion revenue (+28%)
o $.6 billion net income
o Acquired Zappos for $920 million
2010
o Acquired Quidsi for $500 million (owns Diapers.com) 2011
o $48 billion revenue (+41%) 2012
o 164 million active customers
o $61 billion revenue (+27%)
o $.6 billion net income
o Launched AmazonSupply (with 500,000 products, in 14 categories, B2B target)
• • •
o (Instant new major competitor for Blockbuster and Netflix)
2013
o $75 billion revenue PROJECTED (+22%)
o $0 net income
o 200 million active customers
!o (132 million every month, compared to EBAY 60MM; Wal-Mart 63 MM; Apple 18MM)
Product Categories
In 15 years, Amazon went from one category (books) to 33 (cloud services, clothing, baby products, sports, electronics, music, video games, books, film, audio, beauty products, tools & home improvement, office products etc.)
!• Has introduced two new product categories every year for almost a decade !Strategies
Build, buy, partner
o Build: new categories (e.g., MYHABIT)
o Buy: well-established competitors (E.g., Quidsi)
o Partner: offers tech service / e-commerce expertize to third parties (e.g., cobranded website
with Toys “R” Us Customer-first solutions
o Bottom-up approach: customer needs drive everything
o Frugality: Amazon continually seeking to do things cost-efficiently o Innovation: Amazon always seeing simpler solutions

Data & human driven customer service
o Every employee, even the CEO, spends two days every two years on the service desk to answer
calls and help customers
o 90% of customer service by email rather than by telephone
o Amazon has developed its own software to manage email centers

Convenience
o 1-click ordering
o Amazon Prime – $79 / year, instant streaming of movies & TV shows, instant access to thousands
of Kindle Books, free-two day shipping
o Amazon Locker – lockers installed in grocery, convenience and drugstore outlets that can accept
packages for customers for a later pick-up o Moving towards same-day delivery
▪ Building warehouses close to city center – risky because Amazon will pay states taxes it did not pay before, but it will get closer to same-day deliver
▪ Warehouses currently being built in California, Indiana, New Jersey, Tennessee, South Carolina, Virginia
o Amazon Supply – free two-day shipping for orders over $50 Low price
o Amazon significantly cheaper than competitors Digital optimization of supply chain
• •
Amazon automatically chooses the cheapest origin for the customer’s order in real-time It re-optimizes it based on the customers’ orders
Fast moving items are stored in all the fulfillment centers
Hard-to-find items are kept in small quantities in one or two fulfillment centers
Easily movable items (e.g. media) are stored in highly automated facilities
Extensive use of tracing
Drop shipping: when applicable, Amazon provides packages and asks the supplier to ship the product himself
Third-party sellers follow the same principle, which increases margins
Selling at a loss – costs around $210 to produce, sold at $199
But over the first 6 months of use, Amazon makes $136 of margin on average on every Kindle Fire by selling digital content
Amazon is developing international partnerships with retailers (e.g., Darty in France) to sell more Kindles

Kindle

Wal-Mart had 62.5M unique visitors in August 2013, compared with Amazon’s 133M Wal-Mart copycatting some of Amazon’s most successful tactics
o Trying out lockers, allowing shoppers to order items online and pick them up in stores o Dabbling in same-day delivery (testing in four cities) and even going a step further than
Amazon by attempting to crowd-source package drop-off among customers
o Investing in web technology to improve both their site’s appearance and ease of navigation

Comparisons to Wal-Mart
Contrary to Wal-Mart, which failed to enter the German and South Korean markets, Amazon’s international expansion has been successful
Amazon to reach $74.6B in 2013, 24.6% CAGR from 2011
o Wal-Mart’s revenue will be $500B in 2013, but its revenue in e-commerce by 2014 will reach just $10B
E-commerce is growing at 11% a year, but sales for consumer packaged goods online – food, groceries, everyday items – are growing at closer to 20% this is the area Wal-Mart will go after
o Amazon already one step ahead with Amazon Fresh !!

Added Sources:
How Amazon Controls Ecommerce (Slides)
http://www.forbes.com/sites/clareoconnor/2013/04/23/wal-mart-vs-amazon-worlds-biggest-e-commerce- battle-could-boil-down-to-vegetables/

NantHealth NantWorks 2016 Update

Dr. Patrick Soon-Shiong, CEO of NantWorks, the holding company of NantHealth, announced today the IPO of NantHealth:
WSJ 5/24/2016 article on NantHealth
MedCity News Article
The IPO, if successful, will value the company at $2 billion.

So … a few items:

The IPO had been expected last year, but Soon-Shiong told MedCity News in January that he put off the move until NantHealth completed its acquisition of payer-provider communications platform NaviNet.

Here are seven interesting tidbits we found in NantHealth’s S-1 registration statement.

1. The Culver City, California-based company filed for an IPO worth as much as $92 million. That’s actually relative pocket change, given that Allscripts Healthcare Solutions invested $200 million in NantHealth last year, and that NantHealth has been valued at $2 billion. (However, the S-1 lists net tangible book value at $239.4 million as of Dec. 31, which means total tangible assets minus liabilities.)

2. The government of Kuwait owns at least 10 percent of NantHealth, via two holding companies. The Kuwait Investment Authority had put $250 million into NantHealth in 2014.

3. NantHealth has named its knowledge, provider and payer platform CLINICS, for Comprehensive Learning Integrated NantHealth Intelligent Clinical System.

“CLINICS is designed to address many of the key challenges healthcare constituents face by enabling them to acquire and store genomic and proteomic data, combine diagnostic inputs with phenotypic and cost data, analyze datasets, securely deliver that data to providers in a clinical setting to aid selection of the appropriate treatments, monitor patient biometric data and progression on a real-time basis, and demonstrate improved patient outcomes and costs.”

Latest on well-being convenience

I just had a great experience at a CVS Minute Clinic, which I documented here:

JCR Experience with CVS Minute Clinic

It’s been awhile since I revised this mega-trend, so here is an update.

So CVS has been busy. They changed their name to CVS Health, threw tobacco out of their store, and set out to create 900 “Minute Clinics”. These were intended to provide consumers with highly convenient access to nurse practitioners who were armed with the latest in diagnostic tools and online diagnostic protocols.

The latest? CVS now has 800 Minute Clinics in 28 states plus DC.

Walgreens now has 400 clinics. Their press recently has raised questions about whether they are rethinking their corporate strategy.
 
Seattle-based Arivale arrived on the scene in 2015, announcing their intention to revolutionize this space by brings LABS to the foreground, especially through genomics. What caught my eye then was the background of the CEO, Clayton Lewis, who was in genomics from the beginning with Genentech, and Lee Hood, who is a thought-leader in the area.
 
The latest? Well, the update on Arivale is this: they did indeed raise $40 million, and they now have a year’s experience with their “pioneers”. The pioneers are individuals who opted into this intensive longitudinal tracking. The pioneers were offered well-being coaches as well. There originally were 170 pioneers, and there now are over 1,000.

Learnings:

1. the Company says that well-being coaches are a winner. People like them and they say they really help keep them on track.  
2. They are finding that it is difficult (impossible) to keep people focused on long-term risks.
3. They are finding that “experiences” – avoiding bad experiences and promoting good “experiences” is proving useful as a way to motive the pioneers.
 
References:
I wrote about my own vision for this subject here, in 2014:

JCR 2014 Predictions
 

 I wrote about Walgreens here:
2011 post on Walmart with Updates

I Wrote about Arivale here:
2015 post on Arivale

….and here are the two co-founders, on stage in March, 2016:
Lee Hood and Clayton Lewis
 
… an astute 2016 synopsis of what Arivale has learned is here:
 
2016 synopsis of Arivale learnings
 
…and a March 2016 article provides an update, including the acquisition of the Institute for System Biology:
March 2016 Article on Arivale

A good summary on Walgreens and CVS overall is here:

Walgreens and CVS Summary

 

CVS Minute Clinic

I have written before about the trend toward convenience well-being centers (like convenience stores but for all things health and wellness-related). Every big box – most especially Walmart, CVS, and Walgreens – wants their store to be the convenience store for well-being. See all posts tagged BeWell or Well-Being.

There is a retail component – and CVS is an example of best practice. And there is a back-end component. Iona Heath and Arivale are examples there of best practice.

In any event….

Yesterday, with my daughter insisting I had pink eye, I decided to check out the CVS Minute Clinic in my neighborhood. I had a great experience.

There was the usual “set-up/registration” time. It was acceptable and on-line – at a kiosk outside the clinic rooms themselves. Took me about 10 minutes to tell them about me. At the end of registration, they asked online whether I wanted to be in line to see a clinician. I said yes.

There was no wait! Amazing. Not sure how this could be – but true.

The clinician was a “nurse practitioner”. That worried me until I watched her work with all her online and in-clinic diagnostic tools. She gave me a viral pink eye test – negative. So all that was left was the possibility of bacterial pink eye. For this possibility, I needed to take seven days of drops.

How to get the drops? She offered to provide a prescription at the store. I said “yes, please”, and she literally called the pharmacy next to her, and said ‘Josh, I need 7 days of drops in five minutes. Can you handle that. Josh said yes, and I was on my way – so simple!

So here is what I also loved. She took all vitals, she checked my ears and eyes with a laser light (or whatever it is called), she even checked my eyesight! But I am sure she would not have done all these things if I had said I was busy.

So what’s up with this trend? Here’s one mom’s take:

One Mom’s Take on CVC Minute Clinics

I left convinced that a good nurse practitioner could handle 95% of my medical needs – saving the tough stuff for my primary care physician.

References:

Here is my July 11, 2015 blog post about CVS Minute Clinics – printed here in its entirety:

This update about CVS is from today’s NYT:

Strategic Summary:

CVS is placing a very big bet, and my guess is it is right:

That the future consumer of health care in the US will:
– rarely have a primary care physician
– have “high deductible” insurance (so they will be very tough buyers)
– demand services closer to home (convenience is a premium)
– demand services with great frequency of visits (shorter waits, no hassle)
– value convenient treatment for routine illnesses, basic screenings and vaccinations.

So these consumers still need a “front end” to the health care system that allows them to get what they need, when they need it – when it is routine. They also want to crisis services, and other backend services – arranged when the need arises. They think CVS is the answer to those consumers. They want to be the one-stop shop for those consumers.

Their push to retail clinics can be seen in their 900 MinuteClinics and plan to have 1500 by 2017. A typical CVS clinic staffed by nurse practitioners sees 35 to 40 patients a day; those patients pay $79 to $99 for minor illnesses and injuries, and most insurance plans are accepted. Analysts estimate each clinic typically brings in $500,000 a year..

And … just a few months ago …they bought all of Target’s 1900 pharmacy locations. Assuming that some of these become clinics, there could there be even more retail clinics in the future.

So they want to be the one-stop-shop for a consumer’s health, with a front end that is both behind the counter (traditional pharmacy) and in-front-of-the-counter (the store with lotions and magazines and diagnostic equipment etc).

On the back end, they want to best prices for everything that is health-oriented. They also are partnering with Rush University in Chicago to make sure that more-critical needs are serviced properly.

Highlights:

– The Company started in 1963 as Consumer Value Stores (Lowell, Massachusetts)
– CVS under CEO Larry Merlo (who came to CVS when they acquired People’s Drug) has moved aggressively to rebrand the company as a health company. This move began in 2004, when they bought Eckerd Drug.
– They now have 7800 stores, and 900 “MinuteClinics” within their stores …. and plan to have 1500 soon.
– “Its MinuteClinics diagnose and treat patients, and its pharmacies dispense medicine to more than two million prescriptions a day. It negotiates the price of medicines and helps 65 million people navigate drug coverage under their insurance plans.”

Last year, the company changed its name from CVS Caremark to CVS Health.

Acquisitions history is:

2004: The shift toward health care started in 2004, when CVS acquired Eckerd Stores and Eckerd Health Services, giving CVS a foothold in administering drug benefits to employees of big corporations and government agencies.

2006: CVS acquired MinuteClinic, a pioneering in-store health clinic chain that was offering treatment for routine illnesses, basic screenings and vaccinations.

2007: $21 billion merger between CVS and Caremark, which gave birth to the country’s leading pharmacy benefits manager.

2012: CVS struck a deal with the medical products distributor Cardinal Health to form the country’s largest generic drug sourcing operation.

2012: $2.1 billion acquisition of Coram, a business that allows CVS to dispatch technicians to patients’ homes to administer pharmaceuticals through needles and catheters.

2015: In May, it paid $12.7 billion to acquire Omnicare, which distributes prescription drugs to nursing homes and assisted-living operations.

2015: In June, CVS announced it would buy Target’s pharmacy and clinic businesses for $1.9 billion and left open the possibility of pursuing further deals. Once the Target deal closes, CVS will operate about 9,600 retail stores, or about one out of seven retail pharmacies, according to Pembroke Consulting.

= = = = = = = = = =
Article begins here:

How CVS Quit Smoking and Grew Into a Health Care Giant

Michael Gaffney’s throat was scratchy for days, and lemon tea was not helping. So he dropped into a MinuteClinic above a CVS store in Midtown Manhattan on a lunch break. Within minutes, a nurse practitioner tested him for strep throat (negative), suggested lozenges and a regimen (ample fluids, no spicy food), collected a co-payment ($25 cash) and sent him on his way.

“That was quick,” said Mr. Gaffney, 26, an account executive for Indeed.com, who, like millions of Americans, does not have a primary care physician, even though he is covered by health insurance. He has been meaning to find a doctor since moving to New York last year, but his sore throat did not seem serious enough to warrant what was sure to be a time-consuming search and a long wait for an appointment.

The CVS MinuteClinic, on the other hand, was just blocks away from his office. “I waited longer for my bagel this morning,” he said.

With 7,800 retail stores and a presence in almost every state, CVS Health has enormous reach. And while shoppers might think of CVS as a place to pick up toothpaste, Band-Aids or lipstick, it is also the country’s biggest operator of health clinics, the largest dispenser of prescription drugs and the second-largest pharmacy benefits manager. With close to $140 billion in revenue last year — about 97 percent of that from prescription drugs or pharmacy services — CVS is arguably the country’s biggest health care company, bigger than the drug makers and wholesalers, and bigger than the insurers.

Even before the Affordable Care Act created millions of newly insured customers in the almost $3 trillion health care industry, CVS saw that there were more profits to be made handling prescription drugs than selling diapers. But while its transformation from drugstore to health care company began a decade ago, CVS has more recently taken on a new advocacy role, that of a public enemy of cigarettes.

Last year, CVS became the first major pharmacy chain to stop selling tobacco, a business that brought in $2 billion a year. And on Tuesday, CVS said that it would resign from the United States Chamber of Commerce after revelations that the chamber and its foreign affiliates were engaged in a global lobbying campaign against antismoking laws.

Its stand against smoking has allowed CVS to make alliances with health care providers and rebrand itself fully as a health care company. But with smoking rates on a steady decline, and cigarettes sales slumping, CVS also saw that future profits lie not with Big Tobacco but in health and wellness.

Taking the high road for health has its challenges. For one thing, it means new competitors in a rapidly changing industry. And, for a major retailer with tens of thousands of products on its shelves, it leads to an uncomfortable question: If we cannot sell cigarettes, what does that mean for potato chips?

Road to Growth

The Consumer Value Store started as a scrappy discount health and beauty outlet in Lowell, Mass., in 1963. Four years later, the small chain opened its first in-store pharmacies, and those became the core of the company — and its growth — for years. Larry Merlo, the chief executive, is a pharmacist by training and came into the company when it bought People’s Drug, a drugstore chain based in a suburb of Washington.

In a phone interview, Mr. Merlo spoke mostly in corporate platitudes, but when the conversation turned to the subject of pharmacists, he spoke passionately about pharmacists’ role in delivering health care.

“Hypertension, diabetes, osteoporosis,” he said. “It’s the same story — people don’t take their medication as prescribed.”

Pharmacists, who see patients more frequently than doctors do, can make sure patients stay on their drug regimens, he said, keeping them out of the hospital and saving the health care system billions of dollars down the road.

“I think back to my own personal experience,” he said. “Sometimes, it’s as simple as answering questions to get people to stay on their prescription therapies.”

Mr. Merlo said the company stood out in the breadth of products and services it offered: Its MinuteClinics diagnose and treat patients, and its pharmacies dispense medicine to more than two million prescriptions a day. It negotiates the price of medicines and helps 65 million people navigate drug coverage under their insurance plans.

The shift toward health care started in 2004, when CVS acquired Eckerd Stores and Eckerd Health Services, giving CVS a foothold in administering drug benefits to employees of big corporations and government agencies. Two years later, CVS acquired MinuteClinic, a pioneering in-store health clinic chain that was offering treatment for routine illnesses, basic screenings and vaccinations. CVS also expanded its very profitable specialty pharmacy business, which focuses on expensive drugs to treat complex or rare diseases like cancer or H.I.V.

Then in 2007 came the $21 billion merger between CVS and Caremark, which gave birth to the country’s leading pharmacy benefits manager. Three years ago, CVS struck a deal with the medical products distributor Cardinal Health to form the country’s largest generic drug sourcing operation. It followed up with a $2.1 billion acquisition of Coram, a business that allows CVS to dispatch technicians to patients’ homes to administer pharmaceuticals through needles and catheters.

The acquisitions keep coming. In May, it paid $12.7 billion to acquire Omnicare, which distributes prescription drugs to nursing homes and assisted-living operations. Just weeks later, CVS announced it would buy Target’s pharmacy and clinic businesses for $1.9 billion and left open the possibility of pursuing further deals. Once the Target deal closes, CVS will operate about 9,600 retail stores, or about one out of seven retail pharmacies, according to Pembroke Consulting. Last year, the company changed its name from CVS Caremark to CVS Health.

The growth of CVS comes at a time when the way Americans get access to and pay for health care is evolving quickly. Surveys show that many of the estimated 30 million people who gained insurance coverage last year under health care reform do not have a primary health care physician or do not use one. Many, too, opted for high-deductible health plans and are expected to become picky with the dollars they spend, and less tolerant of the opaque pricing that is still the industry’s norm. And consumers in general are starting to demand more convenient, on-demand access to health care, closer to home.

In that fast-changing world, CVS’s strategy is to be a one-stop shop for health care.

“Say you have diabetes, and you go into a pharmacy to get your insulin, how great is it if, in the same aisle, there’s a cookbook for people with diabetes?” said Ceci Connolly, managing director of PwC’s Health Research Institute. “And maybe there’s some foods that are already approved for you, and a place to check your feet, and a clinician to check your eyes,” she said.

“Consumers are saying: I want all of that at a place near my house that’s open on Saturdays, when it’s convenient for me. I want that place to post prices. It’s in CVS’s interest to pull in more and more pieces of that puzzle.”

A typical CVS clinic staffed by nurse practitioners sees 35 to 40 patients a day; those patients pay $79 to $99 for minor illnesses and injuries, and most insurance plans are accepted. Analysts estimate each clinic typically brings in $500,000 a year, representing just a fraction of CVS’s revenue. Still, the clinics are an important part of the company’s health care proposition.

Other retailers are also getting into the business. The number of retail clinic sites grew to 1,800 locations nationwide in 2014 from 200 in 2006, though they still represent just 2 percent of primary care encounters in the United States, according to a report published this year by Manatt Health, a health advisory practice, and the Robert Wood Johnson Foundation. But CVS is by far the leader. Walmart, which charges just $40 a visit, has fewer than 100 clinics, compared with the more than 900 in CVS’s portfolio. Walgreens, the second-largest, has half as many clinics as CVS. And CVS plans to add more, reaching 1,500 by 2017, the company has said.

Whether these clinics provide the best kind of care is a question sometimes raised by doctors in more traditional practices, like Robert Wergin, president of the American Academy of Family Physicians and a doctor in Milford, Neb.

“These retail clinics, they’re run by competent folks, and they probably have some role to play,” he said. “But you’re being seen at a clinic next to the frozen food section by a stranger. And if you go back for a follow-up, you’re going to get seen by someone else.”

For employers and insurers, however, the clinics offer a way to reduce costs for noncritical conditions. A study by researchers at the RAND Corporation estimated that more than a quarter of emergency room visits could be handled at retail clinics and urgent care centers, creating savings of $4.4 billion a year.

Reducing health care spending, however, may turn out to be complicated.

“You might imagine that they keep people out of E.R., so that’s one way you could save money,” said Martin Gaynor, professor of economics and public policy at Heinz College, Carnegie Mellon University. “On the other hand, just because they’re more convenient, people might go and obtain care in circumstances where they otherwise would not have sought care.”

CVS might have more sway reducing health care costs in its role as a middleman between drug companies and patients with drug benefits. The company is expected to start shifting the balance between end users on one hand, and drug manufacturers and wholesalers on the other.

CVS and other large dispensing pharmacies — Walgreens, Express Scripts, Rite Aid and Walmart — made up about 64 percent of prescription-dispensing revenue in the United States in 2014, according to Pembroke Consulting. That year, CVS was also the leading provider of specialty drugs in North America, with $20.5 billion in revenue, representing 26 percent of the total market.

“Scale is a big factor in pharmacy,” said Joseph Agnese, senior equity analyst at S&P Capital IQ. “There’s a lot of pricing pressure from drug manufacturers and one way for retailers can come back at them is to become larger, and become a more significant purchaser of drugs.”

Dr. Gaynor of Carnegie Mellon said, however, that cost reduction varied greatly by type of drug. “If there’s a drug that is very important for CVS to carry, and there are no alternatives, they aren’t going to have a lot of negotiating power,” Dr. Gaynor said. “But of course, the bigger CVS gets, the more they can move product, the more important it becomes.”

The company’s size also creates significant competition issues, says David A. Balto, an antitrust lawyer and former policy director at the Federal Trade Commission who often represents independent pharmacies. CVS’s ownership of Caremark could restrict consumers’ access to rival pharmacies, he said, and CVS’s acquisition of Omnicare, already a dominant player in long-term care, could reduce competition in that industry.

“There are tremendous concerns when you see someone becoming so terrifically large,” Mr. Balto said. “The acquisitions might conceivably be efficient, but whether those efficiencies are passed on to consumers really depends on the level of competition in the market.”

Quitting Cigarettes

Helena B. Foulkes, who leads CVS’s retail business, swept past the sales counter at a newly renovated CVS in downtown Manhattan. Where cigarette packs once lined up in neat rows, now there were nicotine gum and patches to help smokers quit. (There are no e-cigarettes either, much to the chagrin of that industry, which had hoped CVS would embrace its products as a lower-risk alternative.)

Ms. Foulkes, who lost her mother to lung disease, leads the retail business, which is starting to change to fit the company’s health care bent better.

The move to forgo $2 billion in annual tobacco sales has bolstered CVS’s health care bona fides. The White House lauded CVS’s move. “Thanks @CVS_Extra, now we can all breathe a little easier,” Michelle Obama wrote in a Twitter post. The praise seemed to give Mr. Merlo a jolt of confidence. At a TEDx talk this year in Winston-Salem, N.C., he declared: “CVS kicks butts across the U.S.”

“When we exited the tobacco category, it was the most important decision we’d made as a company,” Ms. Foulkes said. “That decision really became a symbol both internally and externally for the fact that we’re a health care company.”

It also made economic sense. Adult smoking rates have dropped to 18 percent in 2014, from 43 percent in 1965, according to the Centers for Disease Control, and experts predict that rate to dip below 10 percent in the next decade. Ditching cigarettes allows CVS to trade a small — less than 2 percent of revenue — and shrinking part of its business for an instant enhancement of its credentials in the faster-growing health and wellness space.

In October, CVS announced that its Caremark arm would require some of its customers to make higher co-payments for prescriptions filled at pharmacies that still sold tobacco products — in effect driving more traffic to the now tobacco-free CVS pharmacies. While that move encourages pharmacies to quit selling tobacco, it also raised the ire of an antitrust law research firm, which called the announcement “a smokescreen” that masks higher costs for those who fill prescriptions at competing pharmacies.

“CVS’s use of its market power to bludgeon consumers and rivals into ending tobacco sales is not a legitimate form of competition,” the American Antitrust Institute said in a statement. It has urged the Federal Trade Commission to investigate.

In general, CVS’s new anti-tobacco stance has helped it forge affiliations with regional hospitals. Before CVS went tobacco-free, negotiations with local health systems were awkward, Mr. Merlo said during a recent analyst conference call.

“That question would always come up — ‘You guys sell tobacco products, don’t you?’ — and that literally sucks all the energy out of the room,” Mr. Merlo said. But since the company stopped selling tobacco, he said, “We’ve been able to accelerate partnerships with leading health systems across the country.”

A new partnership with Rush University Medical Center in Chicago will involve patient referrals and shared electronic health records. Anthony Perry, vice president for ambulatory care and population health at Rush, said that traditional health care providers and companies like CVS could be natural allies.

“Take people with high blood pressure. That’s the type of thing you manage steadily over time, and you work on things like diet and exercise, and lifestyle changes, and if those things don’t work, you get into the world of medications,” he said. “What we asked was: If we’re going to do a series of visits with somebody, might they be able to do some of that closer to home?”

The flip side, he said, is that CVS can refer people with more serious ailments, but no primary care doctor, to Rush. “So CVS can now say: You need to see a primary care doctor, and we can connect you.”

The anti-tobacco stand has had other effects. Notably, the company has had to start thinking about other unhealthy items on its shelves. If it is a company that promotes health, can it also sell sugary sodas and candy bars?

The downtown Manhattan store where Ms. Foulkes walked the aisles is one of 500 locations that CVS is remodeling to emphasize healthy fare.

“I was in Long Island the day after the tobacco announcement, and I ran into a store manager who said: ‘I’m so proud of the company,’ ” she recalled. “But he also said, ‘I’m hearing customers now saying, why don’t you have healthier food?’ ”

“Customers quickly made the leap. They expected more from us,” she said.

Ms. Foulkes pointed to a prominent snack corner at the front of the store.

“What you’ll see in our stores are brands that convey healthy without being overly edgy. It’s Chobani yogurt, it’s Kind bars, it’s lots of proteins and nuts,” she said. “Health for the masses.”

At this point, there are no plans to stop selling high-fat or high-sugar snacks, still a big part of CVS stores’ sales. But they might be harder to spot.

When asked where the Oreos were, she smiled. “You’ll find them, but you’ll have to look for them.”

Dubai and Well-Being

Dubai: Dubai Healthcare City , a health and wellness destination, today announced the launch of the world’s largest wellness concept in its Phase 2 expansion in Al Jadaf Dubai.

World’s Largest Wellness Village

Jan 25 2016

World’s largest wellness village to launch in Dubai Healthcare City Phase 2

Dubai: Dubai Healthcare City , a health and wellness destination, today announced the launch of the world’s largest wellness concept in its Phase 2 expansion in Al Jadaf Dubai.

Strategically located on the waterfront, the WorldCare Wellness Village will occupy an area equivalent to roughly the size of 16 football fields, and is estimated to be significantly larger in scale and offerings to current wellness properties in Europe and the US.

Tapping into the growing demand of people looking for evidence-based and holistic care, the wellness concept is driven by US-based WorldCare International and developed by the Dubai-based MAG Group. WorldCare is renowned for its online medical consultation service that digitally connects millions of members worldwide with over 20,000 specialists at world-class medical centers.
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The Wellness Village concept contributes to the vision of Dubai Healthcare City to become an internationally recognized location of choice for quality healthcare and wellness services. With DHCC ‘s Phase 2 expansion, over land area of 22 million square feet, the free zone will drive the global trend of preventative healthcare taking into account local and regional healthcare demands and demographic changes.

Increasing access to preventative care is important to improve wellbeing and lower healthcare expenditure in the long term, said Her Excellency Dr Raja Al Gurg, Vice-Chairperson and Executive Director of Dubai Healthcare City Authority.
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“By enabling access to wellness services, we are strengthening the health system and bringing patient centered care to the forefront. We are confident that Phase 2 will drive wellness tourism together with medical tourism, boosting Dubai’s diversified economy. It will bring together unique wellness concepts and specialized services such as rehabilitation, counseling, sports medicine and elderly care for both residents and visitors.”

The WorldCare Wellness Village will be anchored by a 100,000 square feet Wellness Center that will focus on prevention and management of diseases such as obesity, hypertension, diabetes and other physical conditions.

The Center will provide diagnosis and treatment plans, offering comprehensive two-to-six week medical programs built around patient education and lifestyle change. More than 100 healthcare and allied professionals are expected to work at the Center.
Nasser Menhall, Chief Executive Officer and co-founder of WorldCare International, said “We are proud to bring to Dubai a diversified wellness capability that will aggregate leading technologies and best practices in wellness programs in an unprecedented manner. Benefiting from economies of scale and our broad medical network, we hope to deliver a unique package of services that will raise the bar and set high standards.”

The Wellness Village, occupying 810,000 square feet of built up area (gross floor area /GFA) on a 900,000 square feet plot, is also conceptualized to include customized living spaces such as residential villas and apartments, as well as rental units to support long-term stay for both for local and foreign patients.

The eco-friendly living spaces will be designed to serve wellness and rehabilitation needs through features such as therapy zero-gravity pools, personalized spas, and rigorous exercise and diet facilities.

Bader Saeed Hareb, Chief Executive Officer (CEO), Investment Sector, Dubai Healthcare City , said, “We welcome our new wellness partner WorldCare who brings international systems and healthcare expertise that will strengthen what we already offer within the free zone. Unique concepts like WorldCare are a step in the right direction to ensure long-term sustainability and to develop a health and wellness destination that improves quality of life and sense of community.”

Hareb added, “As projects take shape, there will be a significant impact on the overall health of our communities, giving impetus to more opportunities to develop unique wellness concepts.”
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About Dubai Healthcare City ( DHCC )
Dubai Healthcare City ( DHCC ) is a free zone committed to creating a health and wellness destination.

Since its launch in 2002 by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, the free zone has worked towards its vision to become an internationally recognized location of choice for quality healthcare and an integrated center of excellence for clinical and wellness services, medical education and research.

Located in the heart of Dubai, the world’s largest healthcare free zone comprises two phases. Phase 1, dedicated to healthcare and medical education, occupies 4.1 million square feet in Oud Metha, and Phase 2, which is dedicated to wellness, occupies 22 million square feet in Al Jadaf, overlooking the historic Dubai Creek.

The free zone is governed by the Dubai Healthcare City Authority (DHCA) and regulated by the independent regulatory body, Dubai Healthcare City Authority – Regulation (DHCR), whose quality standards are accredited by the International Society for Quality in Healthcare (ISQua).

DHCC has close to 160 clinical partners including hospitals, outpatient medical centers and diagnostic laboratories across 150 plus specialties with licensed professionals from almost 90 countries, strengthening its medical tourism portfolio. Representing its network of support partners, close to 200 retail and non-clinical facilities serve the free zone.

DHCC is also home to academic institution the Mohammed Bin Rashid University of Medicine and Health Sciences, part of the Mohammed Bin Rashid Academic Medical Center. The free zone’s integrated environment provides leverage for potential partners to set up operations to promote health and wellness.
To learn more, log on to www.dhcc.ae.

About WorldCare International, Inc.
WorldCare’s mission is to improve the quality of health care worldwide by maximizing timely, efficient and strategic access to the best in health care. For over 20 years, WorldCare has empowered members and physicians with the clinical information and resources needed to make more informed medical decisions. WorldCare’s online medical second opinion service does this by digitally connecting millions of members worldwide with specialists at world-class medical centers within the WorldCare Consortium®. These teams of specialists and sub-specialists, with the experience that best matches each member’s needs, review the member’s medical records and diagnostics, confirm the diagnosis, recommend optimal treatments and empower members and their treating physicians with the information and resources needed to make informed medical decisions. WorldCare’s services are available through health plans, employers or insurers. 


For media enquiries, please contact:
Dubai Healthcare City
Carolina D’Souza / Awad Al Atatra
PR & Communications Department
+971 4 391 1999 / +971 4 375 6264
media@dhcc.ae