segments

Will Amazon Fresh change how supermarkets do product assortment?



<< Previous Next >>

Recommend This Post 241
Will Amazon Fresh change how supermarkets do product assortment?

Amazon is clearly using its Fresh stores to learn about brick-and-mortar grocery retailing – and because Amazon is such a serious competitor, it’s important to understand how its actions could eventually impact other grocery retailers. We* have studied the merchandising in the first 12 Amazon Fresh stores to look at how they are approaching product assortment, private label, and pricing.

During June and July 2021, we regularly scraped the item and price data from these Amazon Fresh stores (8 in southern California and 4 in the Chicago market) to look at how they are making product assortment and pricing decisions to meet the needs of the customers more efficiently in each store.

How Amazon Fresh stores are doing things differently

In this post, we focus on what we learned about product assortment, but we’ll share many more insights during our upcoming Supermarket News webinar on August 4, 2021 and in future posts.

1. The average product assortment (number of SKUs) in Fresh stores is smaller than in a typical supermarket.

Amazon Fresh stores carry approximately 16,000 items – far less than the 30,000+ in a typical supermarket. The reduced assortment allows Amazon to operate in a smaller footprint and helps increase inventory turns. The reduced variety is noticeable in the smaller number of flavors, package sizes, and facings, but it doesn’t appear to inconvenience the casual shopper because there are still plenty of choices on the shelves.

2. Amazon Fresh produce departments typically carry about 300 different items, but still offer plenty of choice.

The produce department is typically “first in the door,” and it offers an attractive display of fresh product as well as packaged produce. The merchandising is effective, but without the artistic flair found in best practice operators.

The assortment shows how Amazon Fresh is focused on substantially reducing the number of SKUs versus supermarkets, but so far it doesn’t appear that data analytics are being used to fine tune the produce assortment.

3. Amazon Fresh offers a very different mix of products across categories.

Executing a localized assortment is not easy, but it can provide a better shopping experience and drive increased store sales – and Amazon appears to be testing how far it can go in tailoring products and prices to the preferences of each store’s customers.

We measured the percentage of items that were offered across all 12 stores in three categories with different potentials for localized merchandising. At 100%, all the stores would be offering the exact same assortment in the category across the chain; as the percentage drops, it indicates more localization.

We found strong signs that Amazon Fresh is moving towards “fact-driven” localization.

  • BEER: Only 8% of the beer SKUs offered across the chain were found in all 12 stores. Because of differences among distributors and the explosive growth of craft beers, beer was expected to have the greatest variation in product mix across stores. 92% of the items were offered in a smaller number of stores (To learn more detail about how this localization plays out, sign up for the upcoming webinar below.)
  • WINE: Wine also lends itself to localized merchandising. Only 18% of the wines sold in the chain were offered in all 12 stores.
  • CONDIMENTS: Condiments offered less opportunity for localization, and 43% of the items were offered in all 12 stores. That approach is half of the assortment but there was still plenty of tailoring to store-specific audiences.

BMC POV

What impact could this eventually have on grocery merchandising practices?

In its Fresh stores, Amazon appears to be working to simultaneously reduce the number of SKUs and improve customer satisfaction with an optimal mix of products in each store.

  • SKU reduction is lowering operating costs and helping improve return on investment.
  • Satisfaction is being raised by building assortments around product attributes preferred by the customers in each store.

Most traditional grocery retailers would like to reduce SKUs but don’t know how to do that without disappointing customers. If Amazon can give customers more of the product attributes they’re looking for in each store, it will reduce its dependence on name brands and allowed them to improve satisfaction by building the mix of national and private brands that align with customer product attribute expectations for each store.

If and when this happens, we anticipate two big shifts.

  • Grocery retailers will need to devote more attention to product attributes that are most important to their customers in each store.
  • National brands will have to focus their marketing on the product attributes that appeal most to consumers.

The net result could mean fewer SKUs in each store, with each store still capturing a greater share of its customers’ grocery spending, something that was never possible to do before.

*Special shout out (and thanks) to retail analyst, Patrick Fisher, who did all the research and a lot of the analysis for this post. He can be reached at pcfisher1@gmail.com.

Grocery & the Amazon Threat: On demand SN Webinar 

Featuring BMC's Bill Bishop, Retail Analyst Patrick Fisher and Riverbend Retail Consulting Principal Lou Scudere.

WATCH NOW - recorded Aug 4, 2021.

 

Comments RSS

No comments.

Add a Comment *