EP347- The Amazon Briefing, Pt 1

0:01 Welcome to the Jason and Scot Show, your source for the latest news and trends in the e-commerce industry. Featuring hosts Jason Retail Geek Goldberg, Chief Commerce Strategy Officer of Publicis, and Scot Wingo, Co-Founder and CEO of ReFiBuy. Here are Jason and Scot. Hey everybody, it is Scot from the Jason and Scot Podcast. One brief word before we jump into this week's episode. Jason and I were invited to an on-site Amazon analyst meeting in Seattle, live, with a whole group of executives. We covered Amazon Grocery, Amazon Prime, Alexa Plus, as well as what's going on with Amazon Prime Air.

0:47 A lot to cover. The primary focus was grocery and how everything fit in there. Right after a two-day marathon session with Amazon, we sat down to record a podcast where we did a deep dive on everything we learned. And really, because the topic was grocery, it ends up being pretty much a deep dive on grocery with some ancillary things done in there, all through the lens of Amazon. Because it is such a meaty topic and one of Jason's favorites, this ended up being a 90-minute plus recording session. So what we decided to do is split it into two shorter episodes. This is going to be part one, and in this episode, we cover how Amazon finally cracked the grocery code, the end of the weekly grocery trip, Walmart's 30-year gamble, and why it matters today, and Amazon's new playbook for the value shopper.

1:44 I hope you enjoyed the episode. We had a really great trip out to Seattle and learned a ton and got to meet a lot of interesting new folks. Welcome to the Jason and Scot Show. This episode is being recorded on Wednesday, August 19th. I'm your host, Jason Retail Geek Goldberg, and as usual, I'm literally here with your co-host, Scot Wingo. Hey, Jason, and welcome back, Jason and Scot Show listeners. Jason, we haven't recorded the podcast, I think, for like, what are we on? Like, we're in the 350s of our episodes. Feels like 10,000. Yeah, maybe like 10 of them have been in person. And then we've been in person together so much, kind of randomly. We were at NRF Nexus, and then we both got invited.

2:26 We didn't realize it until I think we were recording a podcast that we were both coming out here to Amazon. So we're out here. We had a briefing, an executive briefing that talked about mostly grocery, which was very much in your wheelhouse, but a lot of prime. And what we're here to do is share some of the things that we learned there and some of the thoughts that we had from that while they're fresh in our mind. Yeah, yeah, yeah. Really, those 10 shows we've done together are my favorite 10 shows, and you were saying they were your least favorite shows. I never said that. I will also apologize if this is a little echoey. We're coming to you live from a, it was hard to find a place to record, but we were able to find a WeWork, but we're in a relatively small room, so it's going to be a little echoey.

3:08 We were briefly in Andy Jesse's office and then a security guard. Yeah. Very politely relocated us. And then there's a whole restraining order, but we'll talk about that later. So why is grocery so important to all these retailers, yeah well grocery is a huge chunk of consumer spending depending on how you count it's like 20 percent of, discretionary spend but it's also the most frequent spend that we do so you may be in market for a tv every you know three to five years you might buy new clothes every season or every quarter but traditionally, you went grocery shopping every week, at.

3:53 Least in the U.S., and increasingly, people are starting to grocery shop even much more frequently than weekly. So more than anything else, the grocery category for consumer spending in the U.S. Drives frequency, and frequency drives familiarity and loyalty. So every retailer wants to own as big a share of the consumer's stomach as possible because it's the most direct line we have to their heart. What's, is it working? So let's talk about Walmart first. Like let's set up with Walmart. So Walmart is the largest grocer now, right? Yeah, by a significant margin. Walmart sells more groceries in the US than anyone else.

4:34 There's a largely great untold story, but Sam Walton built a very large, successful business as a discount retailer. His big insight was people wanted to pay less. And so he did something revolutionary. He sold products at a lower price than the list price, which was largely unheard of back then. And so he built a really successful, amazing business. Largely based on this idea of being a discounter, but he did not sell perishables. They only sold the subset of grocery that we would call the center of store, the paper towels, the cleaning products, the pet products, but you couldn't get your bananas or your cold beverages or your milk from Walmart.

5:17 And so one of Sam's successors as CEO, David Glass, made a huge strategic decision to have walmart add grocery, to their assortment and at the time everyone thought that was incredibly stupid groceries are way lower margin than, most of the products walmart sold and they're much more complicated they have a much more complicated supply chain and they're perishable they literally like lose value and you know cease to be valuable while they're sitting on the shelf and so for all these reasons people are like it's way harder why would you do that when you're doing so well in these other things about when was that like when did walmart enter the grocery seriously with yeah this would have been in the, late 80s okay so what we'll call the successful transition 1990-ish memory serves and so uh.

6:04 Walmart sort of added grocery and they got the exact result that we're now talking about suddenly people were going to walmart much more frequently because you may have done a monthly shop at walmart when they were a discount general merchant But now you were doing a weekly shop at Walmart because they were the best place for you to get all your groceries to stretch your family budget further than any place else. And they very quickly overtook all the big traditional national grocers in the US. So you think of the today, what today is mostly Kroger and Albertsons are the two big, big nationals back then. There were a few more, right? You know, I think Safeway and Vons were all separate entities back in that day.

6:45 So Walmart captured frequency and they leveraged that frequency to grow their entire business. And they became much larger than the largest specialty grocer in the U.S. So Kroger is the largest pure grocer in the U.S., but Walmart sells more than twice as much food as Kroger does. And so then when Walmart lost e-commerce, they lost e-commerce without perishables. And in fact, fun fact, for those of you that have had the misfortune of following me for a long time, I used to talk, I used to show the homepage for Walmart, which was quite shocking because the home e-commerce page for Walmart would frequently promote their biggest in-store deal.

7:29 So I would show a picture of steak and a huge rollback price on a surprisingly low price on a steak. And the reason that that was surprising was because Walmart didn't sell steak online. But, and so while the website was working as an e-commerce site, Walmart knew it was also driving in-store visits. And so they would promote these groceries on the website, but you had to go to the store and buy the steak. And so it took quite a while after they launched general merchandise and they launched a marketplace, which you'd be more familiar with than I, and they start getting traction on the marketplace. They're selling all this general merchandise and eventually they decided to add grocery And they, part of the insight was maybe people don't want us to deliver all the groceries because we're going to charge extra for that.

8:15 That's going to be more expensive. It's not a habit in America, but maybe people like the convenience of ordering the groceries from soccer practice and picking them up on their way home. So we've called that most of the U S we call that click and collect or curbside pickup focus, online pickup in store. More generally in food, they, for some reason they call it different because in the old, for almost everything but food you went in the store to get it and for food they met you at the curb so weird distinction fun fact in the uk we'd call it click and collect in in asia we call it online online walmart likes to invent their own words for everything so at walmart it was called online grocery pickup ogp.

8:55 And ogp became very popular walmart launched a really popular series of ads called famous trucks where they showed all these like you know famous vehicles from movies like the Scooby-Doo Mobile and the Batmobile and, the Back to the Future, a DeLorean coming into Walmart's parking lot and picking up groceries. And that launching of grocery, I would argue, was a huge accelerator of e-commerce at Walmart. They built a big durable business in general merchandise, but their growth rate was not like out of the stratosphere. And once they started adding grocery, they suddenly became one of the fastest growing e-commerce sites in the U.S., even though they were at the time the third or fourth largest e-commerce site in the U.S.

9:43 And so grocery was a huge accelerator of new food for them. And, you know, of course, Amazon continues to sell a lot of those center of store items on their website. And so I would say at the beginning of the pandemic, even at the end of the pandemic, Walmart and Amazon were the two largest online grocers in the U.S. Huge disproportionate amount of sales. There's a third meaningful player, which is Instacart. But they're complicated because they're more of a marketplace for a bunch of other grocery stores. So Walmart and Amazon were the two direct grocers. And everyone's always talking about Walmart versus Amazon and who's bigger. and there was a lot of disagreement about who was growing faster, who was bigger.

10:24 But the dirty secret was they almost weren't competing with each other because the overwhelming majority of stuff that Walmart was selling was perishables and a big part of it was perishables. Came to the store and picked up via online grocery pickup, and the overwhelming majority of grocery items that amazon was selling were, ambient shelf stable items that mostly weren't edible right so yeah we learned they call those consumables yes yes one one super confusing yes although i think there's some some debate about what they should call them yeah but yeah Yeah. And so so I would say they had this sort of they each had their own strengths.

11:06 And I think what's been super interesting to see play out in the last two years is they both have kind of maximized the growth they could get with their strength. And so they're both sort of attacking each other's strengths right now. So we've seen Walmart lean into trying to get a much bigger share of the cart and not just the consumables and bundle more general merchandise. They used to have a grocery app that was gold, if I'm remembering right, and the general merchandise app that was blue. And you used to have to decide which app you were going to run to go shopping. So there are two walled gardens. They merge those two apps and they let you start bundling things together in a cart. And at the same time, about two, two and a half years ago, Amazon made a big investment in adding temperature control environments into all of their fastest delivery fulfillment centers.

11:56 So generally they call fulfillment centers FCs, but they call the ones that store items for. Same day deliveries, what they call SSD, sub same day. They put refrigerators and freezers in every one of those. And they took a bunch of the inventory that used to only be available from Amazon Fresh stores or from Whole Foods stores. And they literally put it in the fulfillment center with all the other fast ship sub same day items. And so suddenly for Walmart, that unlocked selling the entire grocery list. At the same time, Walmart was trying to sell the same grocery list, but they attacked it kind of from opposite strengths, if you will. Okay. Even, even Amazon had the SSDs. Yes. Sorry. Did I, I'm good.

12:39 Yeah. What, going back to Walmart, what data is there that shows that there's a lot of attached rates? So if people are going for the grocery, they get the GM, the general merchandise. I'm not sure there's necessarily like a super clean data source that I would point to. And obviously like everyone tries to read the TV. It's like Walmart's not disclosing what their actual sales are on Amazon. Walmart has very reliably disclosed their e-commerce overall growth rate in all of their earnings calls. And in several of their earnings calls, they call out the individual growth rates of specific categories. And so what we always see is grocery was always that fastest growing category every time they called it out.

13:21 But the other super fast growing category was third party general merchandise. It was the marketplace growing. And so these two businesses kind of together were the growth thrivers and there's, you know, a reasonable assumption, but I don't necessarily have data to prove it. That Walmart was successfully selling both items to those same shoppers. The other thing I've learned about grocery that's interesting compared to other categories generally is there's all these third-party data sources. So say a little bit about those and what you – you always have interesting opinions on these things. Like what's your – do you trust me to this stuff? Some of it is like there's this odd data sharing mechanism. Yeah, it's super tricky. And it's one of these things where nothing paints a completely clear, reliable picture.

14:10 They're all useful if you understand their limitations. And the most useful thing is to kind of look at them in the aggregate, like to look at them all as a pool of signals that are trying to tell you. Trying to triangulate. Yeah. So I obviously, I talk a lot about the U.S. Department of Commerce data and U.S. Department of Commerce reports data on sales every month. There's a huge flaw in how they report it. Every retailer is classified as a category of retailer. And so all of their sales go in that category. So Walmart's a general merchant, whether they sell online or offline, it goes to the general merchandise. And grocery goes in there? Grocery goes in there as well. Okay. And so there's a separate, they don't actually talk grocery. The NIC code is called food and beverage, but, but, Trover is a food and beverage retailer. So their sales go in food and beverage and Amazon is a non-store retailer. So in this monthly data, Although they all sell each other's products, they all get reported as having sales in separate categories.

15:07 The same entity, the Census Bureau, tries to, disaggregate that data specifically for e-commerce and say, this percentage of Walmart sales were grocery, this percentage of Walmart sales were general merchandise, this percent of sales were apparel. They don't disclose individual retailers' estimates, but they aggregate all those estimates. And so quarterly, they publish what we call the e-commerce report. And there they tell us much more accurately what they think e-commerce sales were for the quarter, but also how the e-commerce sales broke down across all these categories. So that is one source. It has some significant flaws in it, but it's very consistent.

15:50 They've been doing it for a long time. They have the extra force of law to compel people to try to provide accurate data. So that's helpful. And so it's a foundational data source I use as a starting point for all these things. Not super granular, not super timely, has some well-known significant flaws in it. So then you have a bunch of for-profit companies that have other pieces of the pie. We have what we call credit card panels. So there's today, I think, four or five companies. There's Affirm, there's Ernest, there's Numerator, there's MasterCard Spending Pulse. And they all have panels of millions of users' credit card receipts. And so they get very accurate data about the amount of spend that happened on a credit card at an individual retail.

16:37 Unfortunately, they don't get to see the items on that receipt. And so they don't know, did someone buy apparel from Walmart or did they buy... Groceries from Walmart, and they don't see cash. And, you know, there's still a meaningful amount of spending that happens via cash. So they have to use math to try to estimate the cash portion and do all these things. So credit card panels are another useful source. Usually those aren't free. So you usually have to subscribe to them. And most big retailers and brands are going to use them as part of the mix. There are companies that have done partnerships with the retailer and the retailer sells them anonymous data. And so they're getting data from the actual cash registers. And so that data actually has item level data in it, right?

17:24 That's credit card cash. Exactly. Exactly. So it has a much more granular picture. At various times, different retailers are willing to sell their data in there. No retailer wants to be so big that their data can be disaggregated when it's in there, though, right? And so there have been times when Walmart has participated. There's been times when they don't. And when they don't, it's not a very accurate snapshot of all of the U.S. But it's another good data source that tells us a piece of that story. And it can be used as a validation for some of these other data sources. And then more recently with e-commerce, there are companies that scan digital receipts.

18:04 So these will be companies that you might, they might be above board and would get people to opt in for some, you know, in exchange for some benefit. You share all your receipts with this company and then they anonymize your data and sell it. More often than we would like, it's somewhat nefarious. They tell you some other benefit to have you give them the credentials to your email and they make it somewhat secretive that they're also collecting all your spending data and selling that. So they're definitely gray to black hat providers in the digital receipt space, but digital receipts can have a lot more granular data in them.

18:48 If you look closely at your Amazon receipts, you'll find that Amazon, to hide the data, actually doesn't send you a digital receipt that is itemized. And so there's a whole war. So those are the main data sources. There's also some like survey stuff and some things like that. But what you're really likely, and by the way, a few companies have aggregated a bunch of these data sources together. What is Nielsen and Sarkama? I don't know where they fall in this spectrum. So they, I was gonna say today, they probably own three kinds of products. So they're gonna own both. A scanner data database that's getting receipts from retailers.

19:30 They're going to own a user panel that's getting reported spending from the panel or from a credit card company that they've done a licensing deal with. And they probably are going to own a digital receipt panel. So they're, they may take those as three separate products that you use on your own, or they may try to aggregate the data and model it to paint a broader picture. As I'm talking, I realize there's one other kind of data source that's super useful in this, which is like e-commerce traffic data. So most famously, that's SimilarWeb. SimilarWeb doesn't really know what you spend, but they know how much traffic Kroger gets versus Albertsons. And so you can make some assumptions based on that. Yeah, they use panel data.

20:14 Yeah. In the end, there are a couple of companies that try to specifically estimate e-commerce for specific retailers and disaggregate it. So they literally will tell you, we think Walmart did X, we think Kroger did Y. And so those are companies like Comscore. The Internet Retail 1000 does that. I know RefiBuy did an interesting data partnership with them recently, which people should check out. There's a European company called ECDB. It was started by the founders of Statistica. And I actually think they have a really good version of this. And unlike those other companies, they do it globally. And also Euromonitor has a product in the space. So, so again, if you're a company, a customer insights person or strategy person for a big brand that sells to a lot of retailers or a retailer you probably have access to this broad range of data sources and you're trying to, understand the limitations of each and figure out what you can learn from each yeah so a brand will say, i'm pampers and i want to go see how i'm doing across the spectrum of retailers with versus huggies and all the other you know what's my share of diapers and they They look into all these data sources and try to peer across.

21:28 Yes, and this will come as a huge shock to you, Scot, because I know you have this belief that all big companies are super efficient. But it would be super common that you might walk into a company and find out that they had eight subscriptions to the same data source. And then they have all these data sources, and yet people that should be making important decisions based on this data have no access to any of them. Yeah, because the Pampers people and the Swifter people all have it. They don't talk to each other. Exactly. Gotcha. Even with the Pampers or maybe like the pumpkin spice Pampers people. Yeah. And the customer insights team might've rented it for one purpose, but the supply chain planning people don't get it. Or the account planning people or whatever.

22:11 That's really good background. So that brings us up to today. Well, actually that brings us up to August 2nd. So on August 2nd, we did our very popular Q2 Amazon results. And you and I both perked up our ears. Number one, during that call, Jassy was like a 9 out of 10, and sometimes he would get up to an 11, especially with AWS and AI. One of his 9 out of 10 comments was he said, we have seen a trajectory change. And this is kind of language like they've never used, right? So this is why it stood out to us. There was like three instances of this drink of call, but this is the one specific to grocery. And he was talking about grocery. And he said, with grocery, we've seen a trajectory change in the business.

22:53 And he was very excited to then kind of talk about it. So one of the things I asked her one today was like, what is causing that trajectory change? And so that's one of the things I wanted to get into here and kind of go through some. So some of the data and all this is publicly pre-release. This is nothing under NDA or anything. So they've talked about monthly active perishable customers are up 50% since the start of the year. So that's just 2026. It's like not even year over year. That's like in a six month, which you would assume if you trajectorize that, it's like well over 100% or something. Same day orders are averaging three times more per units per order.

23:34 So the attached rate or the basket quantity size is kind of bigger. Fresh groceries are now six of the top 20 best sellers on Amazon. You used to almost never see that it was always kindle devices and now i don't know if it's bananas or avocados whatever it is but that's going in grocery space bananas is almost always the number one yeah online game stores weird yep then you can tell they're so the, the typical amazon playbook is basically from the 1997 shareholder layer where he basically said we believe people want more selection they want stuff fast and they like low prices, so that's like the three pillars of Amazon it has been since the founding of the company and it seems like they've bought the Amazon engine into bear and they've they've tried a lot so they're, what did we decide 15 years into this maybe 20 into trying grocery and in typical Amazon fashion when they when they want to do something and another thing to think about is, Amazon can't go after small opportunities right So they couldn't go after, like, what's a.

24:39 I don't know, roofing nails or some kind of niche category. When you were a multi-trillion dollar market cap business, you have to take trillion dollar swings. You have to go find. Because the rate has to be meaningful. Yeah, you have to go find $200 billion of revenue. Well, there's only so much. Now you start looking at GDP and you're like, well, what do we not have? What do we want? What do we not want? There's big sections of GDP. One of them is healthcare. They talk a little bit about that. That's outside of what we're doing. They're just nibbling away at that. They've had a lot of false starts, but they decided that grocery had to be one of those. And they've, they've in very typical Amazon fashion, they've gotten in there and they failed a lot. They've tried all the things and now it seems to be working.

25:23 What, what do you think is the unlock for that? Well, I think we know, I think they've kind of talked about it in a bunch of the earnings calls. It's, it's. Adding the perishable fulfillment to their SSDs so that, you know, they weren't just selling the ambient stuff, but they were selling the proteins and the milks. And that, like, caused them to be a true competitor to all the other grocery alternatives for the first time. And they executed it at scale. It's really an untold story, a success story of the last two years.

26:04 You and I have objective understanding of how big the Amazon Fulfillment Network is. Most people have no earthly idea, but it's, even for us, I don't think we can fully appreciate how big it really is. It's just overwhelming. It's mind-boggling. And so to say like, oh man, we're going to add two more climates to the vast majority of all our points of distribution. Like that would have been a non-starter in most companies like someone would have proposed that and they would have gone like i'd rather invest in inventing rockets to go to mars right because it's way more likely, but amazon like has is known for for taking swings at these big challenges and they, essentially reinvented their whole distribution system to be multi-climate and i would almost characterize their earnings call as them being a little giddy with how well it's worked out.

27:00 I think that they shared all those engagement stats about how much more important and central they are to customers' lives and how many occasional infrequent customers became, super frequent core customers to Amazon because of perishables. And I think they shared a bunch of data in the Hardings call about it being a new acquisition tool for them. So that, you know, there's only that many people that weren't already Amazon customers, but that they were adding a bunch of new Amazon customers to file whose first order involved perishables. So I would clearly say the big unlock was this perishable thing.

27:41 They did also take, they sort of had three wall gardens of shopping. They had a Whole Foods experience. They had an Amazon Fresh experience and they had an Amazon Core experience. And they've imperfectly merged those experiences. So it's probably a work in progress, but they essentially have eliminated one of those entirely, Amazon Fresh. And they now have a pretty good joint experience. So I would somewhat say, that Amazon's adding perishables online very much, to me, mirrors Walmart adding perishables to their store a number of decades ago. And Walmart closing their wild gardens and making a universal experience and.

28:24 Amazon doing the same. I think there's some parallels there. So you're seeing these two large successful retailers from start at different places, but end up with somewhat similar playbooks. And I should point out a bunch of other good operators have tried these same tactics and failed miserably, right? So, you know, Target's been trying to win grocery for a long time and really had limited success in grocery. And so they do have a much poorer frequency of visit than either of these other two retailers we're not talking about. Yeah. The other thing, one of them talked about this kind of like pyramid of delivery where you've got your normal fulfillment centers, and maybe that's your two-day base, and it's got lots of selection at the base of the pyramid.

29:09 And then you get into your SSDs, your selection goes down a lot, but now you're into like that one-day kind of window. Then you've got, what do they call like little ones that are like right in your neighborhood? So they have a newer service. So sub same day, they've been offering for a few years, they have a newer service they launched internationally. Like I want to say India was the first market, but they've now brought to the U S called Amazon now. I'm slightly annoyed by the name because they've used that same name for four other products that didn't work. But Amazon now is 30 minute delivery. It's a much more constrained inventory. So if you think a full Amazon fulfillment center that offers, you know. Hundreds of millions of items and is over a million square feet is one kind of fulfillment center.

29:55 Sub same day, you know, probably as an assortment that's closer to a Walmart or a Hy-Vee or something like that. And it's going to be a little closer to your home. And then these rush, these now stores are going to have the smallest assortment, thousands of items, and they're going to be really close to your home, right? So that might be the out of business pharmacy store, or the nail salon, a 10,000 square foot retail store in a strip mall might, you know, get purchased by Amazon and become a- This is, to be clear, this is dark. Like there's no like front door and you can't go shop this. Correct. Yes. And you, the likely there'd be no signage to indicate it.

30:35 There'd be a suspicious amount of traffic out the back parking lot. Yeah. And for a lot of those, everyone's familiar with the DSPs, which is where you get the branded vans. And then they supplement those with flex drivers, which are like their gig drivers. I believe that those little analysis stations are all flex drivers. Yeah, so a big difference. At one of those big flex fulfillment centers, when you're loading up that van, you might have 30 customer orders or 100 customer orders in that van, and you do a route. That guy might go away for eight hours and do 100 deliveries. Out of these smaller locations, that flex driver, that contractor, probably has one to three orders in there.

31:17 Car, right? And so it's a much shorter trip. That's actually like quite a bit faster, right? If you're the last delivery of those hundred deliveries, it's going to be a while before you get your goods. But everyone's going to get their goods pretty quickly after that, that driver leaves that, that, uh, Amazon now depot. If you get close, by the way, some 30-minute could be eight minutes. Another thing I thought was interesting is they talked about changing consumer behavior. And you probably know more about this than I do. Number one, there's GLPs have changed the whole world. Yeah. There used to be kind of like fringe articles about that. Now it's like everyone kind of realizes what's happening. Yeah. And then number two, they talked about how the consumer is grocery shopping. Talk a little bit about some of the things there. Yeah. Well, so two things.

31:59 I feel like we really should do a deep dive in GLP ones at some point. It's a super interesting thing, and it's only going to become more important in the years to come. I have been saying for a long time, just talking about digital commerce in general, that we used to go shopping. And now because of digital, we always are shopping. Right. And that was a kind of a fun throwaway line. But think about how that impacts grocery in a very unique, specific way over everything else. Right. So if you go apparel shopping, you're probably going to buy one of four skews. Like even if you go to the mall and you come home with bags of goods, you might have eight skews. Right. And that might be a monthly trip or something like that.

32:42 So instead of if if that's what you did when you went shopping, if you always are shopping for apparel, you're just kind of mentally deciding what you're going to buy as you're doing scrolling on TikTok or you might add those those things. And so the one visit to the mall might get replaced with one e-commerce trip, right? When you go grocery shopping, you buy 60 to 100 items, right? And so traditionally in the U.S., grocery was a weekly shop, right? Because you can't make it a monthly shop because you can't predict exactly what you're going to consume. And there's perishables and things that expire. And milk only has a 21-day shelf life and all these things.

33:22 So it turned out to be about weekly. That you'd go and you'd do a big shop every week. And if you screwed up and forgot something, you would do a fill-in shop between that weekly shop. When you always are shopping, if you suddenly can add one item to a cart and have it show up in three hours, in one hour, in 30 minutes, and you just fill in as you go. Like, it literally replaces this big shop with all these ad hoc little shops. And in our current environment, if you're a busy time starter family and you maybe don't know how many times you're going to sit down for dinner this week, it's more convenient to be able to buy the items you need for today and tomorrow today than it is to plan a week in advance.

34:10 And if you have economic uncertainty in your life, there's even more reason that you might want to shop in smaller bites so that you have less waste, you have less breakage, you have less out of pocket at a time. You can manage your cash flow better. So for all of these reasons. The advent of digital commerce and the speed of service has meant that we're fundamentally reteaching people how to shop for groceries. And that big stock-up trip is largely going away for a lot of American families. And it's being replaced by these ad hoc trips, which interestingly was more common originally in, for example, Europe, where you might have lived really close to a local market and you might have, gone to that baker three times a week to get fresh bread or the butcher two times a week or whatever the case is.

35:02 Yeah, so inside of that, we used to have kind of like your one grocer, you would do your big stock of that. And now industry research shows that the average consumer has three to four trips, but more than half consumers don't really have a primary grocer. They're kind of like, oh, I happen to be a soccer practice this over by this Walmart I'll pick up. Yeah. That would be my little, my little fill up. And then over here on, you know, maybe, uh, maybe your husband's on a business trip and you're just going to hit the, you don't have, you can't just leave the kids, so you're going to do an online order or whatever. Yeah. That I feel like that's another ramification. If you're doing a weekly trip.

35:43 You're going to look at the 60 to 100 items you plan to buy and say, what's the best compromise? What's the one location that can best fulfill these 100 items, right? They don't have my favorite milk, but they have a good enough milk. They've got my favorite kid snacks. They've got my favorite produce, right? And so you did a bunch of subconscious calculus in your math and Kroger won or Walmart won or Amazon won, right? But now that you're buying items, item by item, meal by meal, you don't have to sub-optimize and pick the best fit for all 100 items. You can get each item from the best source. So if there's four. Try to label Trader Joe's items that you really love.

36:26 You can get those things at Trader Joe's. Probably a bad example because they're like the one grocer in America that you can't get digitally. But you could go to Trader Joe's for those four items. If you love the organic produce from Whole Foods, you could get the organic produce from Whole Foods. If you love the convenience that Walmart will open your front door, walk into your house, and put your giant kegs of iced coffee that you need to restock every day- Hypothetically. In the refrigerator for you, so that they didn't go bad, even though you weren't necessarily home when the delivery happened, you might give that order to Walmart, right? And so you could, the. The switch from big shops to a lot more frequent small shops is also expanding, the breadth of providers that most consumers use.

37:14 And so for your point, many fewer consumers than ever before even can articulate that they have a favorite or primary grocer because they do all this other shopping. The other thing we haven't talked about yet, which is changing with all this too, is just our relationship with food and where we get our calories is also being disrupted, right? So I think of this as a metaphor of swim lanes. They're like, hey, you're going to cook a meal at home? You're going to a grocery store. That's one lane to the pool, all the grocery stores. You want to cook a meal at home, but you're not very good at planning it? You want to buy a meal kit. That's a tiny little swim lane with the meal kit guys in it, right? And you'd get all your ingredients and you'd cook a meal at home there.

37:56 You want to eat a meal on your way home from soccer practice to just make your kids quiet and you're too tired to cook dinner? You're going to stop at a QSR, a quick serve restaurant like McDonald's, and eat the fries in the car on your way home. You want a special meal with your family? You're going to go to Applebee's on a Friday night and sit down and dine there. And they each had their own swim lane, pizza delivery. And so the pizza guys all compete with the pizza guys, the QSRs with the QSRs, the grocers with the grocers. In the same way that digital has disrupted the big shop, it's disrupted how we get all this food. Restaurant sales are way up, but the dirty secret is more than 35% of all restaurant sales don't get eaten in the restaurant.

38:40 They get eaten at your home. So it's what we call restaurant off-prem consumption, right? And so now that restaurant is competing for calories with the grocery store. Get the ready-to-eat meal from the restaurant and eat it at home instead of make a meal from the grocery store. And the grocery stores have responded by saying, we make amazing meals. Sam's Club is a big part of America's favorite pizza place. Costco is, of course, America's favorite hot dog provider. There's amazing prepared foods. You can get great sushi at Whole Foods, right? It seems like everyone's battling for a street check-in. Yes, and all of America wants to eat as much chicken as humanly possible, an obscene amount of chicken. We don't even want it. I don't want to even give you a mental image for how much chicken.

39:29 But the thing is that everyone's TAM, total aggressible market, has greatly expanded. If you're Walmart, you used to just sell the 40% of calories people consumed at home. Now you can sell 100% of the calories. But at the same time, you used to just be competing with three other grocers. Now you're competing with all the fast casual restaurants and the QSRs and the restaurant delivery services. And so it's become the wild west. Like everything is fragmented. You have to win each food occasion as opposed to winning that aggregate food opportunity. Let's put some numbers. We've talked about Perishable Unlock and how that's been one of the big, you know, the change in trajectory.

40:17 So again, these are some of the publicly available stats that they've already put out there. Monthly active perishable customers are up 50% since the start of the year. We talked about that one. Same day orders containing perishables average 3% 3x more units. Oh, wait, we talked about these. Okay, here's one. Same day grocery now reaches 2,300 U.S. cities with 40 times the selection of a big box store. That's pretty interesting. And that now has made Amazon the number two grocery. So, but they're north of, how relative, isn't Walmart like 400 billion and Amazon's half of it? Yeah, depending on how you count.

40:59 Yeah. Right. About 450. Just kind of, it's not, it's not close. They're not like inches away from it. No, but arguably Amazon is now a bigger grocer than Troop. Right. And so, so the company that exclusively focuses on groceries is only the third largest grocer in America, which goes to this aggregation story. Right. That people want to get as much one that are favoring the people that can solve multiple problems as opposed to only solve one problem. That that being said, two things are happening in Amazon that are both favorable and super interesting. But it's it's easy and somewhat convenient that they get completed. Right. So Amazon has always been somewhat big in grocery. But remember, grocery is a amorphous category. Pet food is grocery. Paper towels are grocery.

41:47 Cleaning products are grocery. Arguably replenishable apparel like socks and underwear are grocery for many people. Right. And so when you think about Amazon's strengths, they've had some real, real strengths. Pet food in that grocery assortment. They've had some relative weaknesses like perishables. And so on one hand, Amazon is legitimately rapidly scaling their perishables at an unimaginable rate and props to them and congratulations to them for that. They get to quote huge growth over a tiny number. Yeah. Right. And so on one hand, if that's all they were talking about, I would kind of call them out on it.

42:30 Their overall grocery is growing meaningful and they've always been a meaningfully sized grocer. And they, again, they bought whole foods, which is four or 5% of the grocery market by themselves. Right. So. The fact that they're still rapidly growing grocery and they're as big as they are is a testament to how they're winning the hearts and minds of consumers. Don't conflate the incredible speed of their perishable growth with the impressive speed of their overall grocery or, as people are increasingly coming to call it, their everyday essentials growth. This was your second year at this event, my first. I thought they all seemed pretty excited and energetic. Now, we're talking to the tippy-top of the crew there.

43:16 You have a year-over-year comparison. Do you think they were more excited this year than last year? Were they more giddy? Jesse was giddy. I think they were very excited. I think they have more proof points this year. I think they knew what they had last year, but they didn't necessarily have the evidence that consumers were embracing what they had. And I have no idea what private conversations they had with their big bosses like Andy, Jesse, and Doug Harrington, but those guys weren't necessarily spending a lot of ink publicly talking about these initiatives, right? Now, you hear every senior executive at Amazon talking about a top initiative and a top success is the incredible growth they're having in Everyday Essentials and Perishables.

44:02 And so I think I'm really happy for all these guys that are in the grocery space and the everyday essential space at Amazon because they, in some cases, have been plugging away in this space quietly for 20 years. And suddenly they're the most popular kid at the earnings call, right? And they have the best success metrics. And so totally rightfully so, it probably feels good to do that. I do, I get this. These are all really smart people. It's annoying. These big retailers, like how sort of impressive their teams are and how deep their benches are. I do think nobody's claiming victory yet. I think they're super happy with where they are. They're super happy with the trajectory and the momentum.

44:46 But again, they're taking a swing at such a ginormous cam that I don't think any of them are going, check, we won that one. Let's move on to the next thing. I think they're all saying, how do we pour gas on this and do it even better? And one of the things I particularly admire about Amazon is they're a pretty self-critical true. Like when I've had candid conversations with them about things that I feel like are less than perfect in their offering or their experience, they're more critical about those things than I am. So we've covered, of the three pillars, we've covered selection and delivery speed. The third one is value. So, you know, part of this is they're competing with Walmart, whose whole thing is everyday low prices. So that's going to be, you know, a nice fight basically to get any value out of them.

45:34 So to that point, there's a Profitero study. Profitero, I guess, has a basket that they monitor over time. And they basically say that they're the lowest priced retailer for nine years in a row, averaging 14% below other retailers. I don't think that's a grocery. I don't know if that's a grocery basket. I don't think it is. There's a lot of data though, even on grocery that says they're very competitive and many times they're kind of... They for sure are. A shout out to my good friends at Profitero. As most listeners will probably know, they're part of my pupus family. So I get to work with all those guys every day.

46:14 They certainly enjoy it every year when Andy mentions them in their earnings calls. The art of measuring price is very difficult, and specifically grocery. Because, again, the 100 items the Wingo family buys are different than the 100 items the Goldberg family buys are different than the 100 items most of our viewers are buying, right? And prices can be different in different parts of the country and through different fulfillment systems and all these things. So there's no perfect apples to apples, but there's a lot of third parties that do studies on a particular basket of groceries. And Walmart does, I'm sorry, Amazon does well at all of them.

46:56 And they win a number of them, right? So they are for sure in the fight for, low prices. Of course, Walmart is always near the top of those lists. There are other grocers that have come to the U.S., Aldi, Lidl, that are also very excellent low-price operators. So there's a lot of competition for low price. I think one of the challenges and opportunities that Amazon uniquely has is they kind of have two brands. Amazon, I would argue, is an EDLP brand themselves, largely because of the marketplace. They've got 12 sellers all beating each other's brains out to get to the lowest price. and you get to see that fight in public and you get to see, see the lowest price on that buy box.

47:37 I think most people are pretty confident. I'm never going to get wildly screwed on Amazon. Sometimes I'm going to get the lowest price, but I'm always going to get a pretty competitive, good price from Amazon. And so I would argue Amazon largely is in a strong EDLP brand. Whole Foods historically was not. Whole Foods is very overtly. Premium experience quality provider. Most people that aren't deep in the grocery space will totally underappreciate all the quality standards that Whole Foods has and all the vendors that they can make a fortune on that they refuse to sell because they don't meet the 300 health rules that Whole Foods has for every product in the store. So they're definitely a premium provider and they hate this, but they used to have a reputation for being an extremely expensive a premium provider.

48:26 And so there are all these derogatory terms about whole paycheck and they've worked hard to reestablish themselves as a good value premium provider. And I think they mostly have been pretty successful with that. I think I hear a lot more narrative about them being overpriced, but they're not where you'd go if you wanted to stretch your dollar to the absolute farthest, right? I actually think they might be more competitive on those everyday essentials. And especially if you're focused on Whole Foods private brands on like-to-likes, they are definitely in the hunt-on price. But the problem is you can get a way better grade of beef there than you can at an Aldi.

49:06 And so if you walk there and you suddenly see the best beef and decide you want to have the best beef for your family, you're going to end up spending more in a Whole Foods visit than you are in an Aldi visit. Not because Whole Foods is unfairly priced, but because they have more attractive, expensive stuff. And so, so I would say Whole Foods is never going to be the rock bottom competitor to Aldi. Amazon probably can be close to that, right? And so if Amazon can thread the needle with these grocery offerings, they can keep the premium cachet of Whole Foods as a. A good value for a premium product and they can position amazon as a really competitive everyday low price provider but i i think that's a hard it's a hard thing to do both of those under one roof, yeah one little sidebar since you bought a private label i thought was interesting was they did have one of the ladies that runs that and i thought she was excellent you know when she started they had this like massive portfolio of private brands this is like not amazon prime this is like within the grocery segment, the consumables.

50:13 And they've consolidated that into five. So they've got 365, which is the one they inherited from Whole Foods. They've got Whole Foods Market, Whole Foods Market Kitchens, which maybe they could consolidate that one. I guess one's prepared meals and one isn't. Amazon Grocery and Amazon Saver. And so they've kind of compressed those into their lanes and are working on that. They, most of the, most of that Amazon grocery and Amazon Saver is this $5 under type stuff. Let's see. Then they also have a little accelerator fund where they try to get more entrepreneurs into the stores and, and basically fund them to bring in, interesting new things that fit the new taste profiles that are going on.

50:55 I thought that was kind of interesting. I think one of the fun things about grocery, and I think Whole Foods in particular is good at this. In so many categories, I talk a lot in parallel about a Shein, right? And they kind of broke the traditional model. Instead of convincing the whole world what to wear and then making that, they just listen to what people want to wear on TikTok and they make it super quick. So instead of creating demand for a product, they detect the demand and fulfill the demand really quickly. And in most categories, that's almost impossible to do because we all have these super long supply chains. But one category where you kind of can do it is in consumables.

51:35 Like you have to make the milk within 21 days of drinking the milk, right? So there's not an 18 month supply chain for milk and the supply chain varies for different foods with like different level of processing and all these things. But there's the food chain, the supply chains for food is a lot faster and more agile in most cases than many other product categories. And the raw ingredients to make recipes are always available. So one thing Whole Foods can do is they can detect all these new trends in food and how people are eating. The biggest one right now, this one's not going to seem like a micro trend, but like largely because of the GLP ones and everyone's health consciousness, creatine and protein are huge trends right now.

52:21 Whole Foods has always sold great proteins and creatine, but you can bet those products are moving to the front of the store right now, right? Like you can bet the merchandising strategies and the digital shelves are all prominently featuring these on-trend food items, right? And so I would say every grocer tries to do this. Whole Foods is a particularly good practitioner of recognizing these niche trend, food trends early. And one of the things that's a legacy of Whole Foods, even before Amazon captured them, is Whole Foods, although they were a national chain, didn't try to respond to national trends. They empowered every store manager to respond to the local trends.

53:01 And the food trends in Seattle are very different than the food trends in Austin. And so I feel like a lot of that legacy still exists in there. It's been scaled and centralized a little bit more today, but I think they're pretty good at the trend watching and the trend responding. Hey, everybody. It is Scot again. Thanks for listening to part one of our two-part deep dive into grocery through an Amazon list. As a reminder, this now concludes part one. Coming soon in part two, we will cover the rest of the conversation where we go over how does Prime impact Amazon Grocery?

53:41 Drones, what more do you need to say? Amazon versus ChatGVT. And which AI agent is going to own your life context and why does that matter for going forward? We hope you enjoyed part one. Part two is on the way shortly. Stay tuned. You've been listening to The Jason and Scot Show. For all the latest news and trends on e-commerce and shopper marketing, subscribe to us in iTunes or visit jasonandscot.com.