Amazon surprised some with its purchase of Whole Foods for $13.4 billion. I predict the online giant will launch a similar attack on the B2B eCommerce market by purchasing a brick-and-mortar wholesale distributor — WW Grainger, say — some time over the next 18 months.
But even if that day doesn’t come for two or three years, there’s no doubting the massive threat to any and all industrial suppliers that Amazon would pose with a bricks-and-mortar presence in communities around the country.
Amazon already is a formidable foe to most industrial suppliers. This member of what one tech columnist calls the “Frightful Five” has a market cap of nearly $800 billion and sits on $30 billion in cash and short-term securities. Last year, its Amazon Business division surpassed $1 billion in annual sales and claimed more than 300,000 registered corporate buyers. The perceived threat of Amazon caused Grainger, a 90-year-old stalwart whose shares are traded on the New York Stock Exchange, to slash prices after its stock hit a six-year old low.
Why would Amazon move to B2B rather than make a purchase in another market? Because the B2B market is enormous, representing an estimated $7 trillion. The distribution industry, while fragmented, represents a market valued in the hundreds of billions of dollars. There are doubtless other enticing targets for a company with the reach, might and insight of Amazon, but Wall Street analysts and the financial press seem convinced that B2B is a target.
The financial website Seeking Alpha published a story asking if Grainger would be “Amazon’s next victim?” and CNBC ran a similar article (“Amazon juggernaut sets its sights on its next victim: The middleman”). CNBC added Fastenal, another large industrial supply company, to the list of potential targets, along with Genuine Parts, a distributor of car-replacement parts. In April, Forbes listed Grainger as one of five companies on what it called Amazon’s 2018 “shopping list.”
The big losses grocery chains around the country have posted since the Whole Foods acquisition show what happens when Amazon goes after a market. But B2B retailers would be wise to recognize what really happened on that deal. It was less Amazon entering the grocery retail market than Whole Foods entering the tech market. Amazon is now arming Whole Foods with the planet’s most sophisticated analytics and other cutting-edge technologies, giving Amazon a sandbox in which to try out all kinds of innovative technologies as it gets even smarter about consumer retail.
Amazon didn’t acquire Whole Foods because it wanted to sell more cucumbers and kale. And the retail giant won’t acquire a company like Grainger just to sell more plastic pipes. Its B2B target will become a playpen in which it can experiment on a market that represents hundreds of billions of dollars in sales — a base of operations for changing the face of distribution and the future of B2B.
Today B2B brick-and-mortar distributors have a few advantages: their relationships, their know-how, their hands-on customer service. Their drivers know their customers by name, and they make sure there’s always someone ready to pick up the phone to handle a problem. Good luck calling Amazon’s customer service! Successful B2B retailers act as consultants, making recommendations and offering regulars a kind of concierge service.
But imagine competing with a larger competitor that also has Amazon’s technological know-how. What if it acquired a Grainger, with its salesforce of 5,000 people across the U.S.? Now its mastery of online commerce would augment that hands-on concierge service and its analytics would search relentlessly for new industrial-distribution areas to conquer. Big data is the oil of the new era, and no one’s better than Amazon at drilling into data and using it to improve customer service.
Defending against Amazon in the short-term
There are a few steps B2B distributors can take in the short-run to defend against Amazon. One of the dirty secrets about Amazon is its product content is good but not great. They heavily rely on their suppliers and marketplace vendors for their content creation, which is at best inconsistent and often mediocre. Better product content drives more eCommerce. That could mean the basics, such as cleaner product descriptions and specs, standardization of naming conventions and crisp photos taken from various angles.
It also could mean CAD drawings of products, 3D perspectives, videos, and companion information about compatibility and potential alternatives. Then there are more creative ways of thinking about content creation. Winning these days means content discovered in mechanisms beyond the browser. An example of this is the embedding of product content or purchase information on a Bluetooth low-energy beacon or a micro-QR code. These kinds of new modalities will prepare you for when eCommerce moves away from browsers and enters the physical world. If you’re looking to provide personalized customer experiences like Amazon, you’re going to start with product information management or PIM. This core component of an eCommerce initiative is critical to how you merchandise large, complex catalogs of product data. A PIM also provides taxonomy management and the ability to manage accessories, alternatives, substitutes and replacement parts for online ordering.
A company with foresight can start further preparing steps to at least match Amazon’s tech capabilities. Consider teaming up with Google or another voice-recognition solution provider to offset what you can be sure is coming: B2B ordering via the Amazon Echo. Another preemptive action a forward-looking B2B retailer can take: Enlist an on-demand rush delivery service. In October, Amazon announced “Business Prime Shipping,” an upgrade to its shipping service for business customers. Soon UPS or FedEx may not be enough. Distributors may need to provide customers with a same-day delivery option to match Amazon’s offer.
In Part Two, I’ll offer a more ambitious longer-term plan for fending off Amazon.