Never Say Never About Buying Groceries on Amazon

According to Louise Tutelian of Yahoo Finance, two of the top four categories of items to avoid buying from Amazon are Groceries and Cleaning supplies. She makes price comparisons between items on Amazon and on other etailers including Peapod and FreshDirect, as well as bricks and mortar stores including Meijer and Alberston's. Unfortunately, Ms. Tutelian made two mistakes; comparing apples and oranges and using the word "never".

Comparing Apples and Oranges
Ms. Tutelian compared purchasing grocery items and cleaning supplies from Amazon.com to Peapod, FreshDirect, Meijer and Albertsons. A more accurate comparison would be comparing purchases from AmazonFresh to these other retailers. AmazonFresh, similar to Peapod and FreshDirect, delivers fresh produce, groceries, and cleaning supplies directly to consumer's homes. AmazonFresh even offers a "Pre-Dawn" delivery, bringing items to the customer's doorstep prior to 6:00 AM so they're there when the customer wakes up. Groceries are kept fresh in temperature-controlled reusable totes. Frozen items stay frozen and chilled items stay chilled.

AmazonFresh is not available everywhere in the US (neither is Peapod or FreshDirect) however, based on Amazon's growing distribution network they will be national relatively soon. Amazon has already been delivering groceries in the U.K. and Germany for the past 18 months.

Using Ms. Tutelian's shopping comparison items on AmazonFresh, this writer found the following:

Prices for Heinz Ketchup 20oz Bottle

• FreshDirect - $2.85
• Peapod - 2.39
• AmazonFresh - 2.12

Prices for Busch Baked Beans 28oz Can

• Meijer - $1.84 per can for a case of 4 (not sold by single can)
• AmazonFresh - $2.11 for 1 can/ $1.71 per can for a case of 12

Prices for Mr Clean Cleaner 40oz Bottle

• Albertson's - 40oz summer citrus all purpose cleaner $3.99
• AmazonFresh - 40oz lemon all purpose cleaner $3.21

As you can see, AmazonFresh compares very favorably against these other home delivery e-retailers. Ms. Tutelian is correct that purchasing certain items from Amazon's Marketplace may result in higher prices. Currently marketplace vendors are free to set their own prices, but Amazon is in the process of regulating Marketplace vendors and working with manufacturers and consultancies such as etailing solutions to standardize pricing. In addition, easy access to online price checking can save consumers from making price purchasing errors.

Never Say Never
In her narrow focus on item prices, Ms. Tutelian has missed the big picture. The home delivery of groceries and cleaning supplies is in the early stages of a growing consumer trend that offers convenience and cost savings far beyond the price of individual items.

A majority of leading grocery retailers (including Safeway, Von's, Genuardi's, Safeway, Von's, Meijer) are rolling out home delivery with major incentives such as free delivery and additional home delivery coupons to get consumers on board. Wal-Mart offers home delivery of a limited number of dry goods, including breakfast cereals, beverages, snacks and candy, that it fulfills from warehouses or has drop-shipped by suppliers. Those items are delivered to customers through either Wal-Mart’s own trucks or contracted carriers.

As noted above we are in the early stages of this dramatic consumer trend. Online e-tailers are just beginning to refine the supply chain and home delivery process. They are also just beginning, helped by companies such as etailing solutions, to understand how to market online consumer product goods to consumers. Price will always be an important factor, especially in this economy, however the internet has altered the equation by using technology to save customers time through efficent ordering and money by saving gas.

Ms Tutelian, I do not know where you live or your specific circumstance, however I can safely predict an online grocery shopping trip is in your future.

If you want to read consumers reviews of AmazonFresh check out these reviews on YELP

Amazon Gets It's Way- For Now

Amazon is Able to Delay CA Sales Tax for One Year
California lawmakers approved a last-minute bill this past Friday that delays the state's "Amazon Tax," as it was unofficially dubbed, until September 2012. Amazon.com – chief opponent of the June 2011 California law that attempted to force online retailers to collect sales tax from state residents – has agreed to resume business with its California affiliates in exchange for the temporary moratorium.

Here are the highlights:

• After spending $5 million to gather signatures, Amazon has agreed to drop plans to fight the tax using California's referendum process.
• According to Paul Misener, vice president of global public policy for Amazon, "This bipartisan, win-win legislation will allow Amazon to bring thousands of jobs and hundreds of millions of investment dollars to California, and welcome back to work tens of thousands of California-based advertising affiliates,"
• Amazon now has until September 2012 to try and get Congress to make a judgement on the matter. If Amazon is successful in lobbying legislators to agree that online retailers need not pay sales tax– then California will defer to the federal action.
• If Amazon is unsuccessful at the federal level, California will start attempting to collect sales tax from Amazon, a process that's familiar to Amazon across a number of other states, including North Dakota, Kansas, and Kentucky. 

Interestingly, customers have been required to report a "Use Tax" for tax-free goods they purchase online, (although none ever do) so the entire issue is theoretically moot for an average Amazon shopper. As written in previos posts about this issue, there is an estimated $200 million in tax revenue that California should be earning from online shopping. California has already figured this revenue into its budget, thus collecting is a priority.

CPG Customers- Loyal No Longer

Customer loyalty is about attracting the right customer, getting them to buy, buy often, buy in higher quantities and bring even more customers to your brand. However not all loyal customers are equal. Research by Catalina Marketing and Pointer Media Network showed that a surprisingly small number of loyal consumers – just 2.5% of shoppers for the average brand – make up 80% of brand sales. These frequent purchasing highly loyal customers are critical to the sales success of a product. The challenge for todays CPG marketers is that there is a large and increasing erosion of customer loyalty. A study by the CMO Council and Pointer Media Network found:

• Loyalty erosion and consumer defection are pervasive and costly problems for CPG brands, and their impact is increasing dramatically in the current economy.
• For the average brand in this study, 52% of highly loyal consumers in 2007 either reduced loyalty or completely defected from the brand in 2008.
• Only four out of ten brands retained 50% or more of their highly loyal consumers from year to year.
• For the average brand, approximately one-third of all highly loyal consumers in 2007 completely defected to another brand in the same category in 2008.
• The current economic downturn is having a significant impact on brand loyalty. Many leading brands experienced a drop in the total number of highly loyal consumers between 2007 and 2008.
• Loyalty and consumer churn have a huge impact on brand revenue and value. Some major brands could have increased overall revenues by more than 20% in 2008 if they had eliminated churn among high loyal consumers.
• Precision marketing strategies for engaging loyal and high volume brand buyers are now playing a major role in improving consumer loyalty and value.

The cause for loyalty erosion are varied. Many brand marketers and retailers place the majority of the cause on financial strains and economic worries which they believe are driving once loyal consumers away from their brands. These marketers and retailers note that coupon redemption rates, after several years of decline, are now increasing again, indicating consumers have become more cost and value conscious in the current economic downturn. Store brands are also contributing to erosion of loyalty among loyal private brand customers. Store brands prices as well as an improving perception of quality has lead to a steady migration of loyal customers from private brands to store brands.

A new and as yet un-studied factor is customer's exposure to a wider range of brands online. E-retailers, such as Amazon, stock a wider selection of brands in almost all CPG categories than can be found in a bricks and mortar store. These new brands market themselves with defection causing characteristics such as “organic”,“heart-healthy” or “family-size”. These smaller brands, can compete with major brands for page placement, most popular, best selling, and quality reviews. Coupled with convenient and often free home delivery, defection to these brands is just a mouse click away.

Customer churn is a large and growing challenge for todays leading CPG brands. Not only do they have to manager brick and mortar retailers but they need to get ahead of the loyalty challenges connected to e-retailers as well. With consumer's ability to get product ratings, price compare, and order products directly from their mobile phones maintaining loyal customers is changing as quickly as 4G networks can deliver data.

A taxing Question - Update

This is a follow on entry to a previous blog post about taxing online sales.
Amazon has taken off the gloves in its fight to prevent California from collecting taxes on its online sales. Amazon, with a stock market valuation of $100 billion, is arguing that it is a violation of state constitution and is appealing directly to voters arguing that it should not be required to collect taxes. California lawmakers, seeing a large reservoir of taxable dollars, is significantly upping the ante by using an "urgency" clause to go after Amazon and other online retailers. If legislators can get the new measure passed by a two-thirds majority by Friday it will trump Amazon's attempt to get a voter referendum. Here are the salient issues and maneuvers according to the NY Times:

• Any Californian who buys a book or a DVD player from Amazon is supposed to pay a use tax when filing state taxes. In practice, however, few do. For years, the issue has been simmering. In addition, the state passed a law at the beginning of the summer requiring online retailers with a physical presence in the state to collect sales taxes. Amazon denies that its subsidiaries in the state, which include a unit that designed the Kindle, constitute such a presence.
• To sway legislators, Amazon is trying to head off the urgency measure by drafting new legislation that is more to its liking and pledging, if California drops the tax issue for a few years, the retailer will build two warehouses in the state and hire 7,000 workers. The warehouses would ordinarily be the kind of physical presence in the state that would clearly require it to collect sales taxes, but Amazon’s proposed measure would guarantee the retailer an exemption. Gov. Jerry Brown and the Democrats have already rejected the offer.
• California has already put the the $200 million in tax money into its new budget. (Local communities stand to reap an additional $100 million.) Amazon fears that a defeat in California will sway legislators across the country, and that it will lose a critical pricing advantage. It is fighting a similar measure in New York in the courts.
• Opposing Amazon are traditional retailers as big as Wal-Mart and as small as the neighborhood bookstore. “Amazon is killing our business in bricks-and-mortar stores,” said Bill Dombrowski, head of the California Retailers Association, which was the driving force behind the original law.
• The California Retailers Association will most likely sue to have Amazon’s referendum canceled, arguing that the state constitution forbids using a referendum to tamper with the budget.
• Amazon easily collected the half-million signatures necessary to put the issue on ballots next June. Since people will in essence be voting on whether to pay an additional 8 or 9 percent when they buy online, Amazon could easily triumph among voters who are watching their wallets.
• In the two months since the California law took effect, Amazon has declined to start collecting sales tax in California. Once it submits the signatures for the referendum and they are verified, the law will be suspended until the vote.
• Senator Hancock and other Democrats say they have stopped shopping at Amazon. “This is getting pretty acrimonious,” said the California treasurer, Bill Lockyer, who said he was also boycotting the retailer. “It’s snarly.”

As mentioned above, Amazon is being pressed by a number of states including New York to collect taxes. The tax issue outcome in California will have an impact on how the other states go after this significant tax revenue. In the e-retailing world, the online only retailers such as Amazon and e-bay are opposed by other large e-retailers with large revenues and bricks and mortar locations trying to level the tax playing field. This is a critical issue to e-retailers, retailers, state treasurers and consumers. Stay tuned.