[Prosecution of a rough and simple snapshot]
At least since Amazon sneaked into the top retailer ranking in most European countries, it is obvious that a digital change or disruption is going on. Whereas especially younger generations seem to welcome the development, it looks like elder generations and companies of the “old” economy might be afraid of the change, which causes a general problem. Let´s put it very simple and general: online pure players are having their origin in coding. They program algorithms and assess by trial and error which product or service is suiting their code best, at the same time not being afraid to jeopardize any analogue structure in the background. Whereas “old” companies are challenged to keep up their structures that grew in the past, that have been working for decades and guaranteed profitable subsistence. Their efforts in digitalization are often driven by fear of losing touch to their market. Which is a major difference in their motivation to digitalize and will most likely impact its pace.
Online platforms and marketplaces are everywhere and the speed at which markets and technologies are completely disrupted increases. Online pure players like Amazon are growing exponentially (in 2017 plus 31% towards 2016) and reinvent themselves every day. In order to keep pace in the online race corporates from the old economy would be forced to grow by the “10x rule”, a philosophy that became widely known through Google founder Larry Page. Not an easy task for traditional retailers if at the same time they want to keep their well established brick-and-mortar business.
In Germany we witnessed several attempts, f.e.: Even though Lidl is Europe´s largest retailer and lidl.de the 6th largest online-retailer in Germany, with an ecommerce-turnover of nearly 600 M€ (2017), its online-share is still small compared to international giants. The Schwarz Group (Lidl, Kaufland) lately withdrew from their e-food activities and stopped its home delivery operations at the end of 2017, now focusing on their stores and mainly nonfood-activities at lidl.de.
There are several more players in the e-food race. Amazon Fresh is running tests in Berlin, Hamburg and Munich, Edeka recently teamed up with Dutch “milk truck” company Picnic to test in more rural areas around Mönchengladbach (a strong ReWe market) and ReWe`s CEO Lionel Souque just invested 80 M€ into building “Scarlet One”, an e-food warehouse handling 20,000 different items in Cologne. None of them is known to be profitable yet, although Picnic claims having established profitable operations in their first market in Netherlands.
At the same time Amazon tries operating brick-and-mortar stores aside their ebusiness. With the acquisition of Whole Foods in 2017 it is now having a leg in European in-store business in the UK. Learning the business and owning a supplier for their Amazon Fresh concept seem to be key drivers for this decision.
The digital transformation seems impossible to stop. But there is a political facet as well as Deloitte in a recent analysis reports to the point:
“Meanwhile, the biggest risk to the region [Europe] is political. In recent elections in many countries, centrist parties have seen their share of the vote decline, while extremist parties on both the left and right have gained share. This makes it more difficult to form coalitions and to find common ground. Thus the prospects for structural reforms of the Eurozone are not good, boding poorly for the ability to react appropriately to the next crisis.“
A description synonymous for the political situation also in Germany and a serious threat to democracy and its structures.
Nevertheless, all changes mentioned above bear massive opportunities as well to those who are able to follow customer demands, move to where the attention is and manage to undergo a fast and effective adaption. And that is what also the discounters quickly learned: Customer access became precious. So precious that Amazon, Facebook and Google started to auction it. If you want to have access to their customers, you need to pay for it. The stock value of the four GAFA companies Google, Amazon, Facebook, Apple is already twice as high as all German DAX-listed companies together. DAX is f.e. including SAP, Mercedes, Siemens, ThyssenKrupp, Lufthansa, just to name a few. And once an online-player won the attention of enough customers and manages to sell product or service X, it immediately goes horizontal and adds Y and Z to the assortment.
The phenomenon of “going horizontal” is not new and can be witnessed at some discounters as well, who after music-streaming subscriptions and phone contracts started to use their customer access and dense network of outlets to provide charging stations for e-cars, hubs for carsharing and – who knows – maybe ports for flying taxis like Lilium in the future.
A battle of rivalling payment systems is going on at the same time. Store concepts without checkout are already in use in China and the US. Singles Day in China is documenting a vision of concepts to come. What will be next? What will retail look like in two years? We all have a toolbox of affordable technology at hand. Let´s use it!
Deloitte – “Global Powers of Retailing 2018”
Photo: pixabay under Creative Commons License
Illustration: EHI, Statista