B2b Distribution Must Confront Tomorrow — Today
In his seminal business book “Good to Great”, Jim Collins observed that “great” companies are those that “confront the brutal reality” of their market and situations and do something about it. These companies do not play ostrich; they confront what is happening and take action rather than suffer a slow death by inaction. B2b distribution is not exempt.
JPMorgan analyst John Ivankoe recently released a note stating that Amazon will be pivoting into foodservice distribution. Amazon is building its own foodservice distribution business to go after a piece of the $260 billion independent restaurant supply industry with a particular focus on delivering food and supplies to independent restaurants. FUTURE PROOF YOUR BUSINESS
Distributors Hold On Too Tight To Yesterday’s B2B Best Practices
The road is littered with the carcasses of distributors that have either ignored or reacted too late to Amazon’s entry into their marketplace. Amazon is already one of the nation’s largest B2B distributors and Amazon B2B distribution business is growing at the astonishing rate of 20% per month! In a few years, Amazon, which is currently the world’s largest e-retailer, will likely also be the nation’s largest B2B distributor.
In a less than three years since the creation of Amazon’s B2B distribution business, Amazon has already disrupted medical supply, veterinary supply, auto supply, building supply, lightening supply, and the electronics supply distribution industries. A veritable graveyard of distributors have gone bankrupt along the way. On average, it takes Amazon only about 5 years to begin running out the competition in the markets it enters and many distributors begin filing for Chapter 7 in a period of 5 to 7 years of Amazon’s entry into their market. No one should doubt Amazon’s power to disrupt new industries. Even the august and formally untouchable distribution giant Grainger (Amazon the Cause of Grainger’s Woes) is now being disrupted by Amazon. FUTURE PROOF YOUR BUSINESS
It Will Never Happen To Us.
Wrong. Amazon is already delivering prepared foods to restaurants eateries and grocery retailers. They will be bundling on these distribution services by adding foodservice. Bezos’s wants to shake up this industry as it is ripe for the picking and its fragmentation makes the industry vulnerable.
According to JPMorgan, Amazon will be “adding independent restaurants in their customer set. They buy larger pack sizes, demand larger sizes and are highly repetitive in terms of what they buy as menu inertia is true for most independent restaurants.” According to JPMorgan, “Amazon Prime’s demographic fits well into the typical independent restaurant owner and Amazon can offer better pricing to these independent restaurants.”
Many distributors still don’t view Amazon as the true B2b distribution threat.
The common assumption is that B2B is a much different game than B2C, which Amazon has come to dominate. They claim Amazon can only handle relatively small, shippable items and, in B2B, many items are larger or require more complex shipping and pricing practices. Many companies also assume that Amazon lacks the industry-specific knowledge to sell in B2B markets where relationships tend to matter more than they do in B2C.
Distributors who do not view Amazon as a threat should ask themselves, what part of your business consists of getting an order with a list of product numbers. To Amazon, product numbers merely represent data. Amazon is a technology company that has mastered the analytics dictating where product data is and where it needs to go. If you think that Amazon is not coming into your market; you’re wrong. Amazon is already there. Today, 50% of all B2B product searches already end on Amazon’s platform. That is, your customers are already purchasing from Amazon whether you know it or not. At present, it may be dry goods or small quantity purchases, or same day produce orders that are delivered via Amazon Fresh in select regions in two hours from the point of order, but with each of these transactions, Amazon is gaining the data insights they require to build out their foodservice business. FUTURE PROOF YOUR BUSINESS
Things to Consider
Consider this: Amazon understands the nuisances of the foodservice industry; its complex pricing practices; its need to be serviced via a high touch field sales force; the need to extend credit facilities to its customers. Amazon is now offering credit terms to its B2B customers; Amazon is now hiring a massive field sales force to call directly on its B2B customers. Amazon sees the distribution industry pricing practices as the industry’s Achilles’ heal and will be able to sell your products for less and with more transparency — eating into your margins.
Consider this: Amazon is already building direct relationship with many of your suppliers. Amazon can beautifully showcase supplier products with proven analytics. Amazon can certify product presentation and customer engagements. Amazon can seamlessly showcase new products, lines and SKUs. Amazon can guarantee promotional offerings and discount pricing. Amazon can propel event driven purchasing. Through Amazon, foodservice suppliers can market directly to their foodservice buyers on the spot with special offers and rebates. Amazon will do away with minimum order sizes making order size requirements a thing of the past.
Foodservice distributors see their biggest profit margin with independent restaurants. When Amazon enters the scene, distributors must be ready to defend against losses. While the thought of Amazon entering your market is unsettling, there are steps distributors can take now to defend against Amazon’s disruption of the market.
In today’s world, the brutal reality is that one company is successfully disrupting the way B2B products are sold in industry after industry. That company is called Amazon.
Only a select few distributors are assessing the disruptive forces and asking the truly strategic questions, such as: • How should we be leveraging digital innovations? • What will be the future basis of competition? • How can we energize our business with information technology? • What new business models can we enable with digital?
A Tipping Point Is Near
Prepare for Change. Let us help you navigate this inflection point. Become a visionary distributor of the future.