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Enterprise Marketing & Promotions Management

Amazon vs. Kroger, Confrontation in Columbus

By / June 2016


Click vs Brick & Click. A Market Confrontation that Jeff Bezos is not Prepared to Lose and Kroger Cannot Afford to Lose


Will Amazon Krunch Kroger or Will Kroger Annihilate Amazon?


    1. Amazon, a 22 year old company, is investing over $1 billion for infrastructure in the Columbus market. Amazon Prime and Amazon Prime Now services went live in Columbus as of May 2016. Customers now have a choice of 1 hour or 2 hour delivery windows on several thousand items, same day delivery on 1 million and 2 day delivery of 30 million products that include consumable grocery and perishables items.In addition to two major state of the art robotic warehouses in the range of 800,000 to 1 million sq. ft., Amazon is building 3 data centers in the Columbus area which will house their cloud and analytic services the will employ 1,000 data scientists. They also just signed a contract at a regional airport situated between Columbus and Cincinnati which will service their newly announced fleet of Boeing cargo aircraft.
    2. Kroger, a 107 year old company, is probably Amazon’s most competitive competitor to date. Columbus is a major Kroger market. Kroger has 122 stores in the market with 7.8 million sq. feet of brick and mortar retail space and has initiated its own e-order-store pickup or home delivery service. Kroger is also investing heavily, $290 million for 5 new stores or upgrades in the market, as it prepares its market share defense. Kroger has had over 12 years of consecutive identical store sales YOY growth in 31 states, an unmatched record in the industry. Kroger is a very well run and ‘smart’ company with a dedicated core of employees. They have the tools and experience to protect and grow market share… and they will do whatever it takes.
    3. Kroger has a very sophisticated frequent shopper loyalty program and data analytics group that delivers billions of personalized offers and information to its customers each year. Kroger is a broad based retailer running multiple retail formats in 31 states. Kroger is the number 2 jeweler in the country and their Fred Meyer group on the west coast is a very successful general merchandise and grocery supercenter retailer. Kroger also has pharmacies and walk-in clinics in many of their stores.

Amazon is currently ranked 29th and Kroger is ranked 20th on the Fortune 500

The Tremendous Scale of the ‘Click’ Threat to Legacy Retailing

Run Down Store

‘Click’ retailing does not have to have a 50% market share to wreak havoc on the economics of brick and mortar retail. A 5% share starts to create trouble. If existing brick and mortar retailers do not mount an effective counter or neutralizing-strategy and e-commerce earns a 10-15-20%, share, B&M stores are then in serious, serious P&L trouble.


Trending Trends and Historical Facts:

  • According to Cowen & Co, food and beverage-Retailing is forecast to be $33 billion or about 4.6% of total food and beverage CPG sales in 2016. According to L2 Research, CPG e-commerce sales in the US grew 42% in 2015 thanks in part to a shift in consumer behavior led by millennials who increasingly drive on-line purchasing increases.
  • In a May 2016 a Morgan Stanley Research report noted: ‘Based on Euromonitor and US Government Retail Sales data, Internet Retailers (led by Amazon) have added $27.8 B to their apparel revenue since 2005, while department stores have lost $29.6bn. This share loss appears at risk of accelerating given 1) Amazon’s bigger push into fashion, and 2) consumer willingness/acceptance to shop fashion through Amazon. Thus, we expect total department store revenue declines to accelerate from -6.5% annually over the past 10 years to a -8.5% CAGR through 2020. We forecast dept. stores will comprise just ~7% of the total U.S. apparel market in 2020 vs. ~26% in 2005 and ~11% today.’ [Note: Investment bank, Cowen, & Co analyst John Blackledge projects that Amazon will leapfrog Macy’s in 2017 to become the #1 U.S. apparel retailer.]
  • Amazon started selling books online in 1994. Of the two category killer bookstores, Barnes & Noble and Borders, only B&N is left. Over the last 20 years the number of independent booksellers has been halved. Online book sales are now over 51% of book sales. Amazon is now experimenting with hybrid B&M book stores to increase their sales penetration in both the physical and digital book market.

Enter Amazon Columbus

Prime Now

  • Columbus Ohio customers now have a choice of 1 hour or 2 hour delivery windows on several thousand items, same day delivery on 1 million and 2 day delivery of 30 million products that include consumable grocery and perishables items.
  • Amazon Prime was launched in 2005. It now has over 50 million members paying $99 per year for membership benefits like free shipping and media. The loyalty factor: Ninety-six (96%) percent of those who have paid for a Prime subscription for two years renew for a third, according to data released today by Consumer Intelligence Research Partners. Amazon’s retention of first-year subscribers is ninety-one percent (91%). Seventy-three (73%) percent of customers sign up after free 30-day trials.

Information is the New Retailer Currency

Market Insights are Critically Important

In April of this year, Prosper Insights and Technologies, in a quarterly national survey of 5,000 plus, asked those who specified that they had an Amazon Prime Membership to indicate their primary brick and mortar grocery retailer. Note that roughly 1/3rd of each retailer’s customers listed in the chart has a Prime Membership. [ I asked for data from Kroger based on the Columbus expansion of service and included Publix and Winn Dixie because Amazon has already opened a major distribution center on Florida’s west coast and is rumored to begin construction in the Jacksonville market soon. Florida potentially makes an ideal region for Amazon Prime and Prime Now to expand in since over 90% of the population lives in urban areas.]

Prime Membership Chart

Prosper provided the below chart from a March 2016 survey. This prosper chart is a national survey which includes individuals in markets that do not have a strong online shopping availability. In the next few months, I will provide both a national and Ohio view. However, the trend lines by generation are worth noting.

Online Groceries Chart

Gen Z footnote to the above chart: Generation Z or the iGen is right behind the Millennials. This is the first generation to learn to navigate a tablet before they learn to talk, conduct childhood friendships through portable devices and have their young lives chronicled on social media. They are the true digital natives.

Researchers indicate that this is a generation that communicates almost entirely on screens. They are more likely to be watching YouTube than TV. They are just as likely not to use actual words to communicate, GIFS, videos and emojis also do the trick. This is a generation that will prefer to attend college or get additional education online. They want to conduct job interviews online and they are not too keen to work in an office building. And… they prefer to shop online. This is a generation that expects the broader culture must respond and adapt.

Researcher Jason Dorsey of the Center for Generational Kinetics says, “Social trends, especially those driven by technology, ripple from the youngest generation to the oldest. ” [Note the Prosper chart above.]

By 2019 tens of millions of iGens will enter the workforce and by 2020 they will have about $3 trillion in purchasing power.

There is No Other U.S. Competitor Like Amazon. Notes from the 2016 Annual Report:

  • Prime Now offers members one-hour delivery on an important subset of selection, and was launched only 111 days after it was dreamed up. In that time, a small team built a customer-facing app, secured a location for an urban warehouse, determined which 25,000 items to sell, got those items stocked, recruited and on-boarded new staff, tested, iterated, designed new software for internal use – both a warehouse management system and a driver-facing app – and launched in time for the holidays. Today, just 15 months after that first city launch, Prime Now is serving members in more than 30 cities around the world.
  • We’ve grown Prime two-day delivery selection from 1 million items to over 30 million, added Sunday Delivery, and introduced Free Same-Day Delivery on hundreds of thousands of products for customers in more than 35 cities around the world. We’ve added music, photo storage, the Kindle Owners’ Lending Library, and streaming films and TV.
  • Amazon’s catalogue is grouped into dozens of departments. There are over 30mill ion items in the combined Clothing, Shoes & Jewelry department, 24 million in Sports & Outdoors, and 60 million in Home & Kitchen. There are 6.7 million Office Products items, 96 million in Electronics, 1.7 million in the Beauty department, 1.2 million Baby products, and 900 thousand Grocery items.

The Alvarez statement is worth repeating here.


It’s Not Just About Columbus. As Some Things Change… Some Things Don’t

I think there are three possible outcomes in the Columbus market:

  1. Amazon wins!
  2. Kroger wins!
  3. Amazon and Kroger win… and everybody else loses!

Most traditional retail management whether grocery, drug, mass merchant or department store believe they define the customer experience. Wrong! The customer now does. Today, their customer just fades away, little by little as traditional management rationalizes the changing environment.

Therefore, I am betting on outcome 3 above.

One More Thing… In Case You are Wondering… Why Did Amazon Select Columbus Ohio?

Probably two reasons: 1) Strategic market access location and distribution and existing fiber optic network. 2) Tremendous talent pool of technical talent.

Wires Photo

  • Half of the residents of the United States live within 500 miles of Columbus.
  • Columbus was named the most intelligent city in the United States in a 2013 list released by the Intelligent Community Forum. In 2015, Columbus was named the most intelligent city in the world. Columbus ranked first among 400 cities around the world after a year-long evaluation that included a quantitative analysis of extensive data, site inspections and votes from an international jury made up of experts from around the world.
  • Columbus Ohio has the highest metropolitan concentration of Fortune 1000 companies in America and is the home of the research school Ohio State University (OSU) and Battelle, the world’s biggest private research institute.
  • Ohio has more fiber optical broadband installed per capita than any other state in the nation, connecting all of its major cities and research institutions according to the Ohio Academic Resources Network (OARnet).

Contributed by Ron Lunde, Senior Marketing, Advertising Executive & Market Strategy Consultant
Ron held senior management positions in grocery retailing including Supervalu, Grand Union and Price Chopper. He was also a Sr. VP. at the Leo Burnett Advertising agency. Ron is credited with introducing Space and Category Management systems to the industry as well as working with the Price Chopper team to introduce and deploy the first data driven frequent shopper program in the US. He was also a consultant to the Financial Accounting Standards Board in developing the Issues that govern the accounting requirements for all trade promotion and marketing expenditures. Lunde currently serves as a Market Strategy consultant to retailers and CPG brands.


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