Amazon is Flexing Its FMCG Muscle - So How Can Retailers Compete?

Change has come to Supermarketland once more

After establishing a beachhead in the UK and US online grocery landscapes over the past few years with Amazon Fresh, the online retail giant's recent purchase of Whole Foods has supermarkets on both sides of the pond running scared

As the digital world's most recognised online retail brand - with its huge arsenal of digital marketing firepower, deep pockets, and patient leadership - launches the most legitimate assault yet on the world of traditional grocery retail, big-name supermarkets will be asking themselves how they’ll cling on to their market share.

If the world's reigning grocery retail heavyweights don’t adapt and evolve, the combination of Amazon Fresh's bold move into the FMCG space and the Grocery retail firepower of the Whole Foods brand could well prove disastrous.

Panic Stations!

Rolled out in the UK last year, Amazon Fresh has taken a slow, methodical approach to its move into the grocery space. Even in the US, Amazon's homeland, the company managed to capture less than a 1% share of the country's expected $795b food and drink sales for 2016.

But by gobbling up Whole Foods, with its established distribution network and 450+ brick and mortar locations in the US, Canada and the UK, Amazon now expects to be a top 5 US grocer within the next five years. Domination in the UK and Canada surely won't be far behind.

What appeared at first to be a slow creep into the FMCG/CPG grocery market in several major cities now bears the clear hallmarks of an aggressive takeover.

Meanwhile, the UK’s "Big Four" (Tesco, Sainsbury's, Asda and Morrisons) have so far shown little inclination to back down, investing large sums to stake their respective claims in the online FMCG retail space.

Standing Up To The Giant

So where should traditional grocery retailers focus their marketing efforts to defend their turf against Amazon's latest assault? Should they focus on promoting the benefits of the traditional in-store shopping experience, or push harder for market share in the online shopping arena? Can the Big Four afford the risk of alienating either the growing online grocery brigade or the traditional in-store army? Will traditional in-store grocery shopping ever be cool again?

These are tough questions to answer, particularly when looking at the current data. 37% of Brits surveyed by IDG (Institute of Grocery Distribution) in May 2016 reported having purchased a food or grocery product from Amazon in the past month, a 2% increase over May 2015. In that same survey, 42% of respondents stated that they could potentially be converted to online grocery shopping.

Those are impressive numbers, indicative of a significant industry trend which can't be ignored. Amazon is focused squarely on the long game here. Amazon has very deep pockets and can comfortably dig in for a war of attrition with the Big Four while establishing itself in the UK’s grocery sector.

The Big Four, on the other hand, have already been tightening their belts for the better part of a decade and can ill afford to take this approach.

Attempting to beat Amazon at its own game is a big risk to take. Now is the time for forward thinking and ingenuity from the Big Four’s collective brain trusts. Third party products like Adimo demonstrate that innovative marketing approaches can shortcut the journey to purchase, making life easier for shoppers whilst improving loyalty and measurability for brands and retailers.

But that is only part of a story of where established grocery retailers have thus far fallen short. Their focus on lowering prices to gain an edge neglects the fact that consumers also view user experience as another crucial aspect of value perception. By collaborating directly with brands, retailers can source new customers from entirely new channels, all whilst making their sign-up and purchase processes simpler with shortcuts like pre-built online shopping baskets, meal plans and other simple changes that give the user far more value. Such approaches could go a long way toward helping to acquire and retain customers more effectively, which in the long run is a far more sustainable approach to retaining market share. Should established grocery retailers begin to adopt these practices, they may just be able to hold their own.

For the world's reigning grocery retailers, and indeed traditional retail grocery stores worldwide, the digital options for changing the way they market themselves and their services are plentiful. The time has come to choose a new marketing path and walk it.