{"id":633874,"date":"2018-09-06T00:00:00","date_gmt":"2018-09-05T22:00:00","guid":{"rendered":"https:\/\/www.ie.edu\/insights\/latest-news\/articles\/neither-amazon-nor-mercadona-the-future-of-food-retail-is-amaz-ona\/"},"modified":"2019-02-06T12:34:02","modified_gmt":"2019-02-06T11:34:02","slug":"neither-amazon-nor-mercadona-the-future-of-food-retail-is-amaz-ona","status":"publish","type":"articles","link":"https:\/\/www.ie.edu\/insights\/articles\/neither-amazon-nor-mercadona-the-future-of-food-retail-is-amaz-ona\/","title":{"rendered":"Neither Amazon nor Mercadona: The Future of Food Retail Is \u2018Amaz-ona\u2019"},"featured_media":636290,"template":"","meta":{"_has_post_settings":[]},"schools":[31],"areas":[16,22,24],"subjects":[],"class_list":["post-633874","articles","type-articles","status-publish","has-post-thumbnail","hentry","schools-exponential-learning","areas-competitiveness-growth","areas-sales-marketing","areas-strategy"],"custom-fields":{"wpcf-article-leadin":["Thomas loves cheese and wine. He buys them here and there. \u201cHere\u201d is his neighborhood supermarket, and \u201cthere\u201d is a virtual supermarket with a vast product assortment: Amazon. There are millions of people just like Thomas: commercially promiscuous shoppers who source their weekly groceries from a combination of physical and online stores. Can a traditional supermarket in any country compete with a retailer like Amazon? Who will win the battle?"],"wpcf-article-body":["We analyzed the last few annual financial<\/a> reports from companies in various geographical areas. Some of these companies\u2014like Carrefour and Dia\u2014were more international, while others\u2014like El Corte Ingl\u00e9s, Mercadona, and Eroski\u2014were more local, and each had a different retail value proposition. We then compared the results of this analysis with data from Amazon, which offers a very different range of products and is making forays into the grocery sector. Our conclusion: no matter which country Amazon was competing in and which companies we compared it to, the key factor was not geography but business vision. The future of food retail will be Amaz-ona:<\/em> a hybrid of Amazon and Mercadona. Why? Because the key is to develop clear proposals and offer more\u2014not fewer\u2014channels.\r\n\r\n \r\n\r\nA battle of channels and offerings<\/strong>\r\n\r\nThe firms we analyzed differed in terms of product range, geographical presence, size, etc. Nevertheless, if we look at the numbers in relative terms, this analysis can help us make decisions about how we want to compete (see Table 1 for an overview of the value drivers).\r\n\r\n\"Ni\r\n\r\nWe decided to structure our analysis around four variables that represent the key drivers of value in the retail business (naturally, the combination of these four variables determines a company\u2019s health):\r\n
    \r\n \t
  1. Gross margin:<\/span> the difference between revenue and cost of goods sold, in relation to sale<\/a> price.<\/li>\r\n \t
  2. Operational efficiency:<\/span> an indicator that combines the cost per employee and the sales<\/a> generated by each employee. Operational efficiency increases when average wages are low, but also when there is a relationship between sales and number of employees.<\/li>\r\n \t
  3. Structural efficiency:<\/span> the relationship between a company\u2019s operating profit and gross margin. The higher the value of this indicator, the better the management of the company\u2019s structural costs, especially those associated with personnel, retail premises, maintenance, rent, and management in general.<\/li>\r\n \t
  4. Retail model:<\/span> the relationship between the cost of a company\u2019s points of sale<\/a> and its total assets. The higher the value of this indicator, the greater the importance of the company\u2019s retail premises in relation to its other assets (for example, stock, investment in logistical infrastructure, etc.).<\/li>\r\n<\/ol>\r\nThe most interesting conclusion of our study is that brick-and-mortar supermarkets have a bright future ahead, although the supermarket of tomorrow will be quite different from today\u2019s. You could call it Amaz-ona<\/em> or Merca-zon,<\/em> because it will combine the online and offline models. Among traditional firms, those which have a clear model\u2014for example, a strong store brand\u2014will be better positioned to compete in the future. Such is the case of Mercadona, a chain recognized worldwide for its extraordinary store brand. The company\u2019s (very good) profitability is based on its operational efficiency\u2014particularly its high sales<\/a> per employee\u2014as well as the optimal sizing of its stores in relation to the number of employees assigned to each location.\r\n\r\nWhat happens when we bring Amazon into this analysis? First, a couple facts about the American retail giant: In 2016, Amazon had an overall gross margin of 35%, whereas the average figure for the other chains we analyzed was 26%. As for the efficiency of the companies\u2019 workers and retail establishments, revenue per employee was more than \u20ac450,000 at Amazon, compared with an average of \u20ac203,000 for the offline businesses. So is everything stacked in Amazon\u2019s favor? Will it win the battle? No, it also has disadvantages:\r\n