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October 2018, article published originally in Capital magazine

You will shop at Amaz-ona

One could think digitalization has reached a certain level of maturity. Nothing is furthest from the truth.  We continue to see how its transformation keeps mobilizing thousands of companies. Big and small, lifelong stores, all working to keep up. Simultaneously, new players emerge, both national and international, seeking to shake up the status quo.

Currently, one of the sectors where this change is most noticeable is food retail. What is the future of supermarkets? Will the internet put an en to end big hypers? What about the traditional supermarket? Will we purchase tomatoes and cold meats online and have them delivered to our homes?

In order to understand which food retail has the brightest future, my colleague, Professor Pol Santandreu, and I have analyzed the economic, financial, and management reports of different chains competing in our country: Mercadona, Carrefour, Eroski, and Dia. Also, to understand where these might go, we have thoroughly analyzed Amazon as the ultimate representative of the “new supermarket.” And we have compared them to one another. Of course each of these brands has a different profile, offer, and product portfolio, however we managed to draw some interesting conclusions for their management.

The study included four key factors from these chains – margin, operational efficiency, structural efficiency, and store model – and was divided in two parts. First, we analyzed the “traditional” players. The interesting part of the study came when we compared them to Amazon. Conclusion: The future of food retail will be known as Amaz-ona, a hybrid between Amazon and Mercadona. Why? Because the future is about clear proposals and adding channels, not removing them.

The supermarket of the future will most likely be an Amaz-ona, or a Merca-zon: a store that combines the best of Mercadona and Amazon at the same time

One of the facts that caught our attention (not the only one in a wider study than what we can show here) was that, in 2016, Amazon’s global gross margin was 35% and its sales per employee were about 450.000 €. Offline chains obtained, on average, 26% and 203.000 € respectively. Overwhelming. The American giant reached a higher gross margin and employee efficiency. Does this make it the favorite to win this battle? No. Amazon’s proposal has had to face from the start a series of obstacles particularly relevant in the food industry, where trust is extremely important, especially in produce. The Seattle company knows this, and it’s been working for years to solve these problems (even before it went into the food category):

  • Amazon doesn’t have salespeople, but it has developed customer ratings and reviews. Who better than another customer to tell me what they think about a specific product?
  • You cannot touch the products, but they have incorporated fact sheets and photographs of the products. You can zoom in and watch videos, besides having access to all the product’s details.
  • You cannot take the product with you immediately, but they offer you a wide range of delivery options (delivery in 1, 2, 4, 8, 24, 36 hours… and several collection points).

The interesting thing is that in order to keep overcoming these obstacles, Amazon is embarking on offline. It has purchased a chain with 460 supermarkets and rumors about it purchasing more keep going around. It is not by chance that an online giant bets on the physical, on the contrary: both worlds need each other. There’s no question.

This research helped us conclude that the supermarket of the future will most likely be a Merca-zon: a store that combines the best of Mercadona and Amazon at the same time. From Mercadona, we can learn the importance of powering a highly defined model, having a strong brand, a wide network, and working with great efficiency. From Amazon, we can learn how to overcome the three great online obstacles.

In conclusion, supermarkets have a bright future but they will be different supermarkets. It’s about adapting to what customers want: offering to reach them through their channels, not forcing them to use the ones we want.