Jeff Cunningham, i feel like a lot of the points are valid but the true genius of the network effect play wasn’t touched near enough
amazon and ecommerce failed at grocery for this very reason
here is a more in-depth look at what i mean:
“Amazon’s existing supply and demand structure was lacking. Despite the most advanced logistics network in the world, Amazon couldn’t quite get grocery.
The reason lies in the nature of the product. Selling widgets is easy. 1,2, 2000… it doesn’t matter how much inventory and what type of products you stock. As long as you wait long enough, eventually you will sell them. It isn’t ideal but with enough money, turn time (speed of sales) is not critical.
This isn’t true with food. Milk spoils. Eggs break or go bad and bananas are blobs after a few days. Groceries have to go fast or the business collapses.”…
Now [with Whole Foods] Amazon can leverage their vast customer base without risk of spoilage.
An example. Let’s say Whole Foods offers 3 products: bread, milk and cheese. And they sell 10 of each every week. Now Amazon can start listing bread, milk and cheese online. As online customers discover these options they can start to buy.
If Amazon decides to offer 3 extra units per product, now Whole Foods holds 13 of each per week. If nobody on Amazon.com bites, Amazon slashes prices in store and liquidates the product — no harm done. If however they sell out in a day, they can start to slowly scale up inventory — mitigating risk by first proving out demand.
And if the bread, milk and cheese get bought but the speed is slow, Amazon can pour FREE advertising through the platform and running marketing campaigns to boost awareness.
This phenomenon means Amazon’s supply and demand sides can increase proportionally and create a killer food flywheel, just like they did with retail.
