Battle of titans, digital transformation, and online-offline business integration

A few weeks ago, Amazon launched its express two-hour delivery service Amazon Prime Now in Singapore, marking its first foray in Southeast Asia. Amazon has already a respectable presence in Europe and India. However, the entry into Southeast Asia is particularly noteworthy and surrounded by some excitement, because it is one of the first markets where the American and Chinese tech giants Amazon and Alibaba will rival directly. We are likely to see a lot of business and technological experiments and innovations in Singapore that may eventually expand to other markets. For instance, in anticipation to Amazon’s entry, Alibaba’s Lazada Group teamed up with Uber Technologies and Netflix to launch the subscription-based loyalty program LiveUp in Singapore. The program links services from Uber and Netflix to online grocer RedMart and Alibaba’s Taobao online marketplace. This is the first time the U.S. companies Uber Technologies and Netflix jointly participate in an online rewards program.

Amazon launched its innovative express delivery service Prime Now in New York back in 2014. Since then, Amazon has expanded the service to several other major U.S. cities, as well as European cities such as London, Berlin, Milan, and Madrid. Prime Now allows customers to place their orders without leaving the house or having to add any cost. To serve the newest market, Amazon opened its largest Prime Now warehouse (100,000 square feet) to date in Singapore near Jurong district. The video below provides an inside look at how the service works. Some of the main characteristics of the Prime Now hubs that are common to other Amazon’s fulfillment centers is the "random stow", where products are randomly stowed into bins; However, different from its other fulfillment centers, which typically rely on robots to shuffle shelves and locate goods, Prime Now fulfillment hubs relies on humans.

The entry into the new market is well-justified. According to data by Google and Temasek, the e-commerce sector in the region is poised to grow over 50% in the coming years. While Singapore has a population of only 5 million, it is considered a gateway to a region of 600 million people. However, there are important regional differences that will impose challenges to potential expansion plans, such as regulatory differences, language barriers, and logistical difficulties. In addition, Singapore has a established e-commerce payment system, which is not the case for some of the other countries in Southeast Asia. It seems that, at least for now, Amazon will partner with third-party providers to deal with last-mile logistics.

Amazon and Alibaba are set to create a disruptive transformation in the industry. It has been said that Singapore has become the proxy for a much bigger battle between these very innovative and competent competitors. This will likely be good for customers, but probably not so much for smaller retailers. There are many regional smaller players in the industry, but we are likely to see consolidations through acquisitions in the coming years, as competitive pressure intensifies.

Meanwhile, in this side of the globe, we continue to see much speculation about the rationale underlying Amazon’s purchase of Whole Foods. We can find all kinds of speculations in the press, from securing brick-and-mortar customer data, providing an additional service that farmers or small manufacturers might use to sell, warehouse, and ship their products, to turning Whole Foods into a distribution center for grocery-delivery service. While some believe the latter possibility to be unlikely, we may find instructive to reflect on the fresh-food focused Hema supermarket, Alibaba’s experiment in integrating online and offline grocery in China.

Alibaba has advanced this “new retail” model for the last 2 years and currently has 10 stores in Shanghai, 2 in Beijing, and 1 in Ningbo. This business model combines customer data and smart logistics technology to integrate online and offline shopping. While customer data is used to personalize product page, on the delivery side, artificial intelligence is used to plan delivery routes. Similar to Amazon Now, customers download the mobile app, which links directly to a customer’s Taobao or Alipay account. The grocery focus on fresh food from around the world. You can use your Hema app to scan a product’s code and learn a broad range of information about a product, to include origin and recommendations of similar products based on the item you have on your hands.

Image: E. Bernardes

A big attraction seems to be the seafood section, which follows China’s long tradition of hand-picking the freshest sea food for consumption. You can choose your lobster, for instance, and even have it prepared for takeout or consumption in the store. At checkout, paying for your items with cash is accepted, but frowned upon. The preferred payment method is through apps, of course.

Image: E. Bernardes

While the bricks-and-mortars shopping experience is quite convenient, the best innovations are delivered online. The stores also serve as fulfillment centers. You can place your orders through the app, then workers run around the store collecting the items for delivery. Each store serves thousands of orders a day within a radius of about one and half miles within 30 minutes.

Image: E. Bernardes

Each order fulfillment specialist has a scanner and a delivery bag with a unique bar code on it corresponding to an order. After picking the items, they drop the reusable bags on a conveyor belt that carries orders to a delivery center in the back on the store, where delivery employees load them on their scooters. The store’s sales per unit area is said to be three-to-five times those of other supermarkets. During the time I stayed observing the system work, there were always employees running around with bags from online shoppers.

Image: E. Bernardes

Will Amazon introduce similar innovation with the acquisition of Whole Foods? Hema stores doubling as fulfillment centers for its Hema app seems suggestive. At any rate, the integration of online-offline business offer some interesting areas for research and food for thought for practitioners and businesses, what do you think? Amazon's acquisition of Whole Foods may also constitute a game-changer for food manufacturers and producers, may it not? How smaller manufacturers and producers, particularly, may be impacted by the initiatives? As digital transformation continues to advance into industries such as manufacturing, retailing, and healthcare, we will continue to see creative destruction and disruptive innovation at its best. Another interesting example of this dynamic is AmazonGo and BingoBox in China, provided by Michael Spencer. Exciting things to come!!