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'Relentless': Amazon's former name suits

'Relentless': Amazon's former name suits
June 21, 2017
'Relentless': Amazon's former name suits

Its corporate history suggests Relentless.com remains the better descriptor. Amazon's (US:AMZN) takeover of Whole Foods (US:WFM), detailed in this week's news section, sent tremors through the grocery industry, on both sides of the Atlantic.

Excuse me if you think you've heard this one before. A year ago, in a column entitled, 'Don't play down the Amazon threat' (17 Jun 2016), I argued that our major food retailers had good cause to be nervous about the UK launch of Amazon's fresh food service. Our cover feature on 'The Amazon Risk' (24 Nov 2016) went further, highlighting potential losers across the logistics, retail and media sectors.

The major UK grocers' strategic moves during the past couple of years can be seen, in part at least, as a response to the disruptive threat embodied by Amazon. J Sainsbury's (SBRY) purchase of Home Retail (HOME) looked very much like a defensive move to establish a multichannel retailer of scale. Tesco's (TSCO) takeover of wholesaler Booker is an attempt to consolidate its dominance in fresh food, which delivered 1.6 per cent year-on-year volume growth in the first quarter.

News that Sainsbury's is now targeting the convenience chain Nisa - whose members run almost 3,000 small stores - is also a part of this land-grab. In Nisa's latest annual report, chief executive Nick Read said that with the online evolution of food retail, "consumers increasingly see the convenience sector as a destination shop rather than just for top-up". To meet customers' changing needs, the big players in the UK grocery sector are clearly trying to future-proof their distribution channels, while grabbing market share to exert pressure on pricing.

That might not be enough. The early history of Amazon demonstrates its ability to stomach investment in prices and its online infrastructure for much longer than its bricks-and-mortar competitors in the bookselling space, such as Barnes & Noble (US:BKS). Amazon used its hard-won online clout to push heavily down on publisher fees - especially small publishers that were most dependent on the business - and to encourage them to digitise their books for its Kindle tablet, before slapping a flat $9.99 fee on their ebooks (although this dominance has since moderated).

When shoe retailer Zappos.com initially resisted its advances, Mr Stone's book describes how Amazon launched its own website, Endless.com, and offered free shipping and returns that Zappos.com then matched. Eventually the target capitulated amid the pressures of the financial crisis.

For me, these episodes demonstrate that Amazon's forays into all corners of the retail sector do not have to be successful in the traditional, profitable sense, in order for them to have a profound impact on the companies already established. The company can change the rules and the prices of the game through its innovation, and its ability to invest heavily even if hitting near-term profitability.

This is not to say that Amazon will definitely meet the expectations that are being put on it in the market - a recent feature in The Economist made the point that the company "will have to grow faster than almost any big company in modern history to justify its valuation". But in a retail market that is becoming ever more geared towards online, Amazon demonstrates that a singular focus on the modern, digital customer is an easier sell than the management teams trying to drag an aged business into the brave new world. But you can't blame a grocer for trying.