BrainTrust Query: Is Amazon.com's Grocery Beta a Harbinger of Trade Promotions to Come?

By James Tenser, Principal, VSN Strategies

My email a few days ago included an unusual offer from Amazon.com - a $10 promotional credit on a purchase of $29 or more worth of Harmony snacks.

I confess to being a bit jaded about marketing matters, but this one stopped me for several reasons: First was the designation "Grocery" at the top of the page. Second was the message indicating that I was targeted because I had "purchased food or books on hiking, camping, or surfing in the past." Third was the co-marketing nature of the promotion.

I reached for another handful of trail mix and whipped out my magnifying glass.

I soon discovered that this promotion marked a soft launch of Amazon.com's Grocery beta. There's been no press release or announcement. "Beta" means it's almost ready for a formal launch but subject to a few tweaks based on early user experience.

A company spokesperson confirmed that the non-perishable grocery offering is new and distinct from the gourmet products offering that has been available from Amazon.com for some time. Grocery orders are fulfilled like most other categories of goods - from Amazon.com's own U.S. distribution centers - and delivered via the standard methods used for books, toys, CDs and the 30 or so other categories it offers. About 10,000 items are offered, many in large package sizes. Gourmet products are handled separately through partnerships with several retailers.

A look at the Grocery tab (click here to view) reveals some nifty features, including easy browsing by brand or category, shopping list functionality, and a grocery "best-sellers" list. The shopping list works with three other Amazon consumables categories: Beauty, Gourmet and Health and Personal Care. A scan of the best-sellers showed various disposable diapers in 12 of the top 20 slots. The Amazon spokesperson said this can change hourly, depending on site activity.

I also noted with interest several other branded promotions that seemed designed to promote stock-ups. Two separate deals for Lipton Tea and Annie Chun food products, like the Harmony offer from my email, both had high hurdle rates of $29 to attain the $10 promotional benefit. There was also a promotion on Pampers, Luvs and Kandoo baby products - spend $99 now and get $30 off a future purchase. Seems like that might partly explain the best-sellers list.

Moderator's Query: What do we make of this latest tributary to Amazon.com? Will it be a competitive threat to other retailers? Which ones? How will consumers accept targeted email trade promotions based on prior purchase behavior? Will Amazon shoppers be sufficiently motivated by store credits rather than price breaks?

As a long-time watcher of the online grocery sector, this one fascinates me. In some ways it resembles Netgrocer.com from 1990-2000, as it offers only non-perishable products and ships by third parties.

But it's different too: Amazon's Grocery beta is designed for affluent bulk shoppers, like the well-heeled folk who load their SUVs up once a month at Costco with household staples by the case. Who else buys $21 worth (4.5 lbs.) of organic granola at one time?

This group may be motivated by future store credits as promotional rewards if they expect to spend those credits on books or future consumables. But offers like these also pre-suppose a loyal relationship with Amazon.com. Until Amazon cracks the code on delivering perishables too, it will be dealing with split shoppers - with divided loyalties. - James Tenser - Moderator