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We tend to function according to what we perceive. Commercial distribution companies operate as if Amazon did not exist, as if the Internet did not belong to them. The coronavirus and the repeated crises of raw materials and inflation have improved their businesses, increasing their sales and results. Everything seems to be fine. Observing their daily life, we have the feeling that ‘Amazon’ is not a threat to them, because they operate with the logic of the past: they do not have digital sales and if they do, they develop it from the same. stores and in this way, they save costs and improve the operating account with the “additional sales” brought to them by digitized customers.
The distribution of digital sales from the same stores is a suitable solution if the Internet channel does not increase its share, if they are considered atypical sales. In this case, the right thing is to manage digital sales from stores, because these atypical sales allow improving the profitability of the heavy structures that are inferred from the large commercial premises they use: with the same costs, extraordinary sales are realized. .
The problem begins to appear when atypical sales become typical, when extraordinary becomes commonplace, when sales through the digital channel begin to have a corresponding percentage of participation. And this is where doubts, risks and future strategies arise to minimize risk and steer the company into the future.
Market share
Will the Internet channel that forms the heart of Amazon have more than 50% market share? This is the main question to consider. A large number of people continue to think about the past and not about the future. They do not fully translate what they see at home to what they do in their companies. If our children and grandchildren are digitized (because they were born with the chip in their affections) the world will be, the markets will be regulated by their postulates and the Internet channel will triumph in all products that do not require interaction with the buyer and that leave from the playful nature that sometimes comes with purchasing certain types of items.
If the above is the case, if the trend is confirmed, if the Internet channel will have a relevant share of the market and the delivery of products from stores continues, the costs will skyrocket because the fixed structures of the stores (rent, investments, depreciation, personnel , electricity, water, security…) will contribute additional costs that will reduce the profitability of the business. Or in other words, store cost structures are adequate to sell products in stores, but they are prohibitively expensive to operate as local logistics warehouses to get the product to the digitized customer.
Either Mercadona is crazy or everyone else is, because he’s the only one who hears the noise break. He is the only one who considers that ‘Amazon’ is a real threat to his business and therefore he is becoming an expert of ‘Amazon’ in the distribution of all his products. Yes, Mercadona is developing a new business based on digital sales, which are extracted from the Internet, and therefore, day by day it is becoming a competitor of “Amazon”, offering competitive advantages arising from its brand, price and price . quality of service. Yes, the price, because the same will continue to be a differentiating feature pursued by the relentless consumer who wants to achieve 3B products ‘Good, nice and cheap‘, and, moreover, aims to achieve it consistently, regardless of patriotic attributes.
Changes
It’s hard to motivate change when things are going well and right. What Mercadona is doing suggests a kind of madness, an overheat, because it addresses an extremely high investment in the digital channel, when things work perfectly in the analogue channel. You are creating a new business, duplicating managers, warehouses, suppliers, distribution logistics and creating a new framework to regulate transactions with your human teams. This means that if a customer lives above a Mercadona store in Xàtiva (for example) and places an order through the Internet channel, instead of having it delivered from the store, they will receive it from the digital channel warehouse that is in Sagunt. That is, instead of preparing the order from the store and taking it in the elevator, they prepare it in the warehouse of the digital channel and load it into a van that will have to travel more than 100 kilometers. Is it crazy or is it what the business wants?
It’s not madness, but a strategic bet. Mercadona is investing in the future when the present is apparently correct, but which contributes to social behavior that predicts great turbulence in the future, radical changes and trends that may endanger the normal development of large commercial distribution companies.
Old companies?
Are modern distribution companies becoming obsolete? I fear that commercial distribution companies are in danger of dying out for the same reasons that their predecessors, grocery stores and the like, disappeared. Traditional stores had to close because they did not want to see the present with a projection of the future. They sought excuses, tall tales and inventions to connect with a past that new times revealed their operational inefficiency.
Modern commercial distribution can become old and traditional and look for excuses not to see the behaviors that take place on the street, in bars, in private homes, within their companies, in the cultural space and in all public and private institutions, which are arranged. from the digital space.
The future is not the repetition of the past, especially when new actors appear, who, acting in a fundamentally different way, are able to attract the attention of the consumer, take a significant part of their purchases and also increase their market share. And, of course, they do it at someone’s expense.
