A weekly podcast with the latest e-commerce news and events. Episode 308 is breakdown of Amazon’s Q2 2023 earnings.
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Amazon reported a strong quarter across the board for Q2, soundly exceeding analyst expectations and retail industry averages. In this episode we break down the 1p and 3p retail performance, AWS, and the Ads. We go into depth around Amazon disruption reorganization (to a regional model), Amazon’s newest efforts in grocery, and health care.
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Episode 308 of the Jason & Scot show was recorded on Thursday, August 4, 2023.
Transcript
Jason:
[0:23] Welcome to the Jason and Scot show this is episode a 308 being recorded on Thursday August 3rd 2023 that’s a lot of Threes I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot:
[0:40] Hey Jason and welcome back Jason and Scott showed listeners well Jason today is one of my four favorite days of the year it is Amazon earnings day.
Jason:
[0:51] I was going to guess it’s the 4th Halloween okay.
Scot:
[0:54] Nope good guess and today was a real doozy so we have a lot to talk about and of course it wouldn’t be a Jason and Scot show without.
Jason:
[1:05] Amazon news your margin is there opportunity.
Scot:
[1:18] That’s right sometimes I hear from listeners why do you guys spend so much time talking about Amazon well my rationale is a it’s one of my favorite subjects did be not only is Amazon the biggest retailer but it represents over half of e-commerce and for our listeners I think their data is pretty much the standard compared to even anything like comscore or adobe, just by definition of them having so much data that it is the basically the best source for what’s going on and then given our macro environment we’re at the tail end of the last show you were talking about how it’s setting up for kind of a bad holiday so we’re heading into this it’s a critical quarter and for me Q to see what Amazon is done really sets us up for the back half of the year.
And especially holiday.
So kind of a canary in the coal mine and right now there’s all this confusing data coming out about the consumer you see things that sentiment is down travel to starting to tip over housing is slowing so there’s some negative but yet credit card spend is going pretty well and so this is probably the best read we’re going to get on the consumer heading into holiday.
[2:39] So I think of it as Scott foreshadowing the whole industry that’s why we like to spend a lot of time on it, so the other thing I’ll point out is it’s been kind of a rough period for Amazon the last, probably 6/4 a day that things have slowed down post covid they’ve struggled they’ve done some layoffs but having watched Amazon if we zoom zoom out having followed them since 97 they’re really good at reading the room and if the market and the externalities are saying you’re free to invest they will invest like crazy and you know and by saying that I mean they’ll focus on Revenue growth implementing infrastructure but then when the macro turns – and they can move to harvest pretty quickly so, a lot of that kind of goes as good as Wall Street so Wall Street will love them and give them a lot of rope and they’ll invest invest invest and then while she starts to worry they’re like oh my gosh this is scary your spending so much things are doing this and then they will turn very quickly and can then get into Harvest mode and produce results that’s a really a big theme for this quarter so that’s part of the set of the other part of the setup is we have some eCommerce data coming into this what is that, what are those tea leaves tell us before we jump into Amazon.
Jason:
[4:00] Yeah so we have data from the US Department of Commerce through June and it is a really complicated story so that the top line is a little bit of a worrisome sign so year-to-date January through June of this year retail sales are 1.9 percent higher than they were during that same period last year so time now to put that in perspective in the 10 years leading up to covid we average retail growth of 4% a year so so far this year the growth is less than half of the industry average and then the last three years of growth the last 3 years of Cook post covid were the biggest three years of retail growth in the history of retail so we had these three monster years and now for the first time we have a six month period That’s, well off the average and, Q2 was worse than q1 now you know people always say well what about inflation in these numbers if you adjust all these numbers back to 2019 dollars to sort of take inflation out of it, retail sales this year are actually down 2.8 percent from last year so so.
[5:15] All of the Mir growth we have this year is really due to its unusually high inflation now big caveat there, the information news is actually pretty solid in inflation in June is only up three percent year over year which.
[5:32] You know before all this inflation stuff started the Fed was always trying to keep inflation between two point two and three percent so.
[5:39] Information down and three percent if it if it stays down there is pretty encouraging but from a retail standpoint, you have this weird thing you have the macroeconomics getting better there’s a lot more economists saying we’re not going into a recession we somehow managed a soft Landing you’ve got the inflation numbers coming way down all the wages and employment numbers have continued to be robust so you’re all these favorable macroeconomics and now the consumer has stopped spending and you hear every retail are talking about how, consumers are trading down a cheaper Goods they’re buying more needs and less wants and all of these sorts of things and so.
If you if you kind of look at the retail industry average.
There are two retailers that have hit consistently been outperforming the industry average and those two retailers are Walmart and Amazon which are the two, largest retailers in the United States of America.
Um there’s some controversy over who’s actually bigger but we’ll leave that for another show if the bottom line is if the two biggest retailers in the market are both outperforming the industry average.
That’s a bad sign for the rest of the retailers.
Scot:
[6:54] Someone’s losing share.
Jason:
[6:55] Exactly exactly and I would note we don’t talk about it a ton on the show but then there’s two Chinese companies that are.
Dramatically grabbing share really quick so she and and and Tim ooh so you know outside of those four.
It’s not looking super up to Mystic for, for retail so I was super curious to hear not only how Amazon did but what they’re what guidance they gave for Q3 and what they were seeing in terms of consumer spending because we do have this weird paradox.
Macroeconomics getting better, but retail spending getting worse so that being said like what what did Amazon report Scott.
Scot:
[7:40] Well it’s an interesting quarter because again for like the last six quarters are 18 months it’s been kind of using Wall Street language Wall Street always comes in with expectations and then you either meet those beat them or miss them and or sometimes I’ll call it in line if you meet their expectations well this was this was pretty much an unprecedented four-way beat with a raise and that’s that last part is what about next quarter so the current quarter is did you how did you do and then did you for future Revenue expectations did you stay in line with those or did you raise them so this was kind of like one of the best quarters you can have using all the Wall Street language and I say a four way beat so number one is earnings per share, while she was expecting 35 cents and they handily beat that at 65 cents so that’s the first one the second one is revenue revenue came in at 134 billion versus 131a clear beat.
[8:41] AWS Revenue there was a lot of worry around this because Microsoft was really showing their first of all Microsoft had to break out as your separately for the first time and it used to be all clumped in together in this kind of cloud bucket, where they could kind of have office they’re hiding what was going on with Azure so now that Microsoft had to call, carve out Azure it has been slowing down very dramatically so everyone was very worried about that a WS beat the expectation was 21.8 and they came in at 22.
I will talk a little bit more about the growth things and some other color there third-party exceeded expectation the only thing that was really kind of in line is online store Revenue but the margin improvements if you can’t go back to that EPS were so dramatic that everyone was fine with Alan being I think it was like.
[9:30] Point two percent miss or something it was like basically in line so that was the only piece that didn’t beat and everyone was fine with that because all these other things really swamped the outcome there and then to cap that off the midpoint we’ll talk about it but this represents about 11% growth all in for this quarter and the next quarter they guide for growth for 11 to 13 so they’re basically saying hey we beat your expectations this quarter and things are accelerating into Q3 so and then they also on the bottom line that guided up for next quarter as well so that went really really well um and that was a pretty amazing so let’s peel the onion and see what we can learn you want to take us through the retail business.
Jason:
[10:18] Yeah for sure so the the retail business globally grew 11% so that last year this in this quarter they grew nine percent so accelerated growth, North America grew 11 per sent an international grew ten percent International really struggle this time last year they actually had a 12% decline last year and so so in general pretty robust growth now, these are the revenue numbers which returned mine everyone Amazons and Marketplace they don’t report all of their sales as Revenue they only report, one piece sales and then the fees they earn on 3-piece sales so it’s not it’s not a perfect.
[11:09] Now match to to the sort of Industry retail data I said but it’s a close approximation so, on average retail grows four percent a quarter the last two quarters retails grown you know less than half of that and Amazon comes in at 10 or 11 percent growth.
So that’s you know a pretty healthy outperforming that the industry average is and, you’re essentially taking share from the rest of retail now often just a side note.
Obviously the vast majority of Amazon sales are online traditionally online grows much faster than.
[11:48] Brick and mortar so historically we would see ten to fifteen percent online sales but post pandemic that’s actually slowed down quite a bit and so, online sales this year are probably averaging around.
Seven and a half our eight percent and so Amazon’s growth not only did it beat brick-and-mortar it actually beat the industry average, even for e-commerce so that that is very robust, they spent a lot of time both in their their press release and also in their earnings call talking about their focus on efficiencies, and you know the all the work and efficiencies reorganization of their supply chain you know changing of Labor models, that those others efficiencies are starting to bear fruit because, the profitability was significantly up for.
[12:52] For the retail business for this segment so I want to say no for North America they ended up earning like 3.2 billion and earn income.
So you know some quarters they don’t learn any so 3.2 is a healthy number.
[13:10] For their growth and for people that aren’t following it.
Part of these efficiencies is a super interesting story essentially what Amazon has decided and what they now seem to have successfully executed is that having a national Supply.
[13:27] Chain and a national order fulfillment network is not the right way to structure themselves so in the old world they had one order fulfillment system that covered the whole nation you could really want some, delicious Green Tea Oreos you know that are only in the warehouse in California and you order those and Amazon figures out had a, get those Oreos to you in 2 days from the warehouse in California, and increasingly what Amazon said is you know customers really want speed we have to get faster in most cases where promising next day or same day to day is.
Is you know a promise from 10 years ago and in order to do that efficiency efficiently and save money, we have to have those Green Tea Oreos really close to Scott to start things off and so we’re going to drop a bomb on our own industry-leading fulfillment Network and we’re going to redesign it as a set of regional networks so that the vast majority of good Scott orders come from a much shorter distance and so one of the, the impressive results of that effort today is this quarter Amazon said that like despite all this growth and increasing order volumes that they actually drove 20% less miles than they did this quarter last year.
[14:42] So they’re very successfully getting the goods, closer to the consumer and to put you in put it in perspective how many Goods that is they announced that they now have over 300 million, items that are eligible for Amazon Prime and over fifty percent of those items get delivered same day or next day.
Scot:
[15:07] Yeah I thought that part was pretty amazing and what they’ve done is they’ve split the country into eight regions they actually were pretty and the call to get into some pretty interesting detail on this end and I thought that was interesting because I usually pretty pretty tight-lipped on this so then so they’ve taken their National optimization you talked about and they’re almost running each region has its own country so they’re doing more of the load balancing inside of there so in addition to the 20 percent fewer miles there touching the packages 20% less and you now get 76 percent of the units are in the union are in the region and just a while ago it was 66.
[15:50] And then what he’s what he’s basically saying is that’s a big efficiency and then within there another efficiency is they’re leveraging the same day where houses so things used to go from these really big distribution centers to the smaller ones and now we’re going to these much smaller ones and they can now inject things in there and he said those are streamlined and they can get an item from the order coming in to delivery in as little as 11 minutes and those are even closer to the consumer so that it’s almost he didn’t say this but I kind of envisioned as eight regions are split up into eight more regions almost with these tiny you know within points being some of these other ones they basically said this is working so well we’re going to double the number of these small last-mile fulfillment centers so that was I don’t think Wall Street heard that because that’s you know whenever Amazon says double that’s a big number because they have like 200 ish of the big fulfillment centers I don’t know how many small ones are but Amazon doubling anything is Nan.
[16:55] Trivial number of dollars they’re going to invest you didn’t say over what time period you want your when ordering covid they said they were double and they went from like 120 fulfillment centers took to actually literally doubled those pretty quickly so it’s going to be interesting to watch that build-out I haven’t seen one of those I’ve seen them Beck’s I haven’t been in one of been on the back end of one to watch the flex drivers that that’s kind of what they used to do for Flex drivers so be interesting to see how they scale that and I would like to go got a visit one I don’t I don’t know if any of the dsps which spend a lot of time with dsps here at spiffy so I’ve got to see this side of the world a lot more than I did in the software e-commerce world and there at the big fulfillment centers at these delivery stations that are called bolted on the side haven’t seen how they pick up from some of these but I’m making it a mission.
Learn more about this.
Jason:
[17:48] Dsps are the third party delivery services that Amazon uses yeah.
Scot:
[17:52] Delivery service professionals yeah so that was interesting.
Jason:
[17:57] And a reminder for the big fulfillment centers Amazon actually offers tours you can sign up and get a tour I don’t think they haven’t seen them ever offer tours on any of the other formats but there are some bootleg videos out on the internet if you know where to look I’ll see if I can find some for the show notes that that show like like one of the general contractors that builds these facilities put some videos on their website of, of the finished facilities before they open.
Scot:
[18:28] Yep so that’s kind of the retail business let’s mix it up usually I cover third party but let’s kick it over you to run through them.
Jason:
[18:37] Yeah are you okay with me talking about marketplaces I feel like as a Hall of Fame member you you this is like when mess a wet the other guy take the penalty kick.
Scot:
[18:45] I’m an auto guy now I don’t know what this what is a 3 P3 what are the three p’s.
Jason:
[18:51] Yeah so another milestone for Amazon’s Marketplace.
They hit a new high for the percentage of their total sales that came from third parties so the mix is now 60% third parties 40% first party so that that’s continuing along long-standing trend.
The third party is continuing to grow and being the most important part of the.
The assortment makes at Amazon I don’t have the number in front of me but my memory is that the.
The growth in 3p Services was actually faster than the retail growth as well so sort of implies that the volume went up but also Amazons.
Doing even better at collecting more fees from all those three p providers so that the marketplace continues to be robust and important.
You know one that always gets a lot of the energy on these earnings calls is a WS and there’s kind of an interesting story going going on so so first of all, the the Wall Street expectation was for AWS to grow eight percent this quarter and they announced that a WS grew 12% so.
Massive beat from that perspective.
Um and so then you go well is 12% good growth well a year ago they were growing at like 33 percent so twelve percent doesn’t sound all that impressive compared to 33 percent.
But what you have to remember is.
[20:20] The rate of growth has been significantly slowing down quarter after quarter and last quarter q1.
[20:27] That growth was 16 percent and when they announced that growth was 16%, they really put dosed a bunch of cold water on investors because they said and we already have a month of data since the end of that quarter and it’s slowed down more since then so I think that really is what spooked.
The the investor community and that’s where that sort of 8% expectation came from so 12 percent growth is kind of an indication that the growth rate although you know swelling down is stabilizing.
Um and I think they’re they don’t give guidance on these individual segments but they.
Made a nod to the fact that we’re probably not going to see the growth rate slowed down dramatically from this, they do pay a lot of lip service to the fact that, it’s a very big number and you can’t grow in double digits anymore by just getting organic growth that like in order to, continue to grow double digits you need to acquire a lot of net new customers and you need to acquire a lot of net new workloads, but the good news is you know they have a very robust narrative about why there are a lot of customers and additional workloads to acquire and spoiler alert.
You know a huge amount of them are related to generative Ai and a large language models where.
[21:54] Amazon is investing a lot in things a lot of the future is going to be in these these three hosted layers of AI services that companies use to build AI Solutions on top.
[22:06] So so you know I think their sales focus is going to be is less about getting more money from existing customers and more about getting.
New customers and new workloads on a go-forward basis for a WS, um I do want to say you add up the numbers for AWS and it’s 88 billion dollar a year business that’s the Run rate right now.
And they make about 25 percent gross margin on that business so that that 88 billion dollar business is spinning off 21 billion dollars a year in profit.
And everyone always talks about how AWS is by far the most profitable business at Amazon so keep that 21 billion dollar number in the back of your head because the next segment that Amazon talked about is ads, and while AWS is growing at 12% they announced that the ad business is growing at 22 percent.
Um so that puts, the the ad business at like a 41 42 billion dollar run rate.
And that the speculation is that the ad business is about a 75% gross margin.
Business and so if they’re at a 41 billion dollar run rate that means they’re spinning off 30 billion dollars in profit.
[23:25] For the ads business so Thirty 1 billion dollars in earning come from ads versus 22 billion dollars in.
Or 21 billion dollars in profit from AWS so.
Quit talking about a WS being the most profitable business than Amazon ads is the most profitable business and is growing almost twice as fast.
And there’s another of my favorite facts about that ad business is.
You know so again they’re selling 44 billion dollars worth of ads you know where they get all the eyeballs that they they have to sell those ads.
[24:03] Buy them from Google for 20 billion dollars.
So so here’s like an awesome business, the Amazon is one of the largest advertisers in the world they spend twenty billion dollars I’m sorry 22 billion dollars on ads to get people to come to all their services, and consume them for profit right so, so you run ads and you get people to buy stuff on Amazon you run ads and you get people to sign up for AWS you run ads and you get people to sign up for Amazon Prime Those ads do all this heavy lifting for all these different business units and then after you’ve monetize that, that a dollar you then sell that ad dollar back for a profit through this ad business so you want to talk about the network effect and how powerful it is this to me is just an an awesome example of business engineering and you know I think.
Often misunderstood aspect of the Amazon profit machine.
Scot:
[25:01] Yes pretty amazing quarter for ads the they’re just really Trout’s snap used to be in the conversation and Twitter and it’s really just Facebook Google and it was on it.
Jason:
[25:11] I mean Amazon’s a much bigger ad business than Microsoft and Bing.
Scot:
[25:15] Absolutely another tidbit from the call we had talked about this and if you remember we had we had a guest on from Guardian baseball and he was talking about this was right one by with prime came out and you were super skeptical that anyone would adopt.
Jason:
[25:35] Yeah and what should you do anytime I’m skeptical about a new idea.
Scot:
[25:39] Go long on it go.
Jason:
[25:40] Invest in it.
Scot:
[25:41] Yeah.
So first of all I saw a tweet earlier and this is from everyone’s favorite follow bearded egg F ba and a couple other people had similar tweets but he actually had used the software that scrapes all these websites, and he reported there’s over 2,200 sites that now have by with Prime and then jassi’s comments he said quote, merchants in early trials use by both Prime saw their Shopper conversion increased 25% on average which makes a real difference in their business Merchants who participated in Prime Day activities, experience 10x increase in Daily by with prime orders, so there was a knock on effect that if you had by the Prime on your website then people found you and and rattled over and you saw a really nice kind of ripple effect from the prime day efforts I thought that was an interesting tidbit so they’re like like everything Amazon and I haven’t followed the features but I’m sure if you remember Matt was complaining that you couldn’t turn it on and off for certain excuse there was some feedback he had and maybe it didn’t work with attributes like a parent-child skews I’m sure they fix all that or else it wouldn’t be on this mini website so it sounds like that’s really getting some some traction.
Jason:
[27:00] Yeah I do I still think.
To cite Lira but my double down on my earlier skepticism there still are some rough edges to the customer experience right so it still is a purse Q experience which is a little weird like you know some products on the on the website you can get fast shipping for and some, some products you can’t and it’s hard to know what they are until you put them in your cart so that’s kind of the the old shop Runner.
[27:32] For if you will but I do want to say two things both Amazon and Shopify are leaning into these, conversion rates way better when you have by with Prime on your website or when you have shop pay on your website and you know you have to ask yourself what they’re comparing that to write because, it should surprise no one that conversion rate when the customer has stored payment information available is much higher than when they don’t have stored payment information so the magic question is if you already had shop, pay and PayPal on your site and then you added by with prime did by with prime perform 25% better than PayPal.
Um or are they only saying by with prime prefer performs better than nothing because performing better than nothing isn’t, quite as impressive in my book and I do want to say well well they are making progress with by with Prime and the 2500, Merchants is impressive just a reminder there’s 2.5 million merchants on Amazon so the fact that 2,500 of them are using it you know does not exactly mean it’s caught fire.
Scot:
[28:44] So still skeptical.
Jason:
[28:46] Yes so again what should you do go double down on the go along.
Scot:
[28:49] Short Amazon Jason you short Amazon I’ll go alone.
Jason:
[28:54] Yeah that.
Scot:
[28:55] Prime is not going to work thesis and I’ll go on.
Jason:
[28:58] Yes I don’t I don’t think you’re giving me helpful investment advice.
So that was all the main stuff I saw in the earnings calls was there anything else you wanted to cover because I think there is a few other tidbits of Amazon news.
Scot:
[29:15] I saw Grocery and I had a feeling that your ears were too perked up I I fell asleep during that part so I’ll kick it over to you.
Jason:
[29:21] Oh my god do you not eat.
Scot:
[29:23] I do but groceries is everyone’s least favorite chore.
Jason:
[29:28] Scot doesn’t want to say it but he has people that get his groceries for him that’s what’s going on here he hasn’t been to a grocery store in like 10 years.
Scot:
[29:35] Every every meal is from Chick-fil-A so I don’t have to go through.
Jason:
[29:37] That seems like it would be a pretty fun for a little while but I have a feeling that the there would wear off, so yes Scott you are right I’m super interested in grocery groceries 25 percent of all retail spending it’s the biggest category of spending that Amazon hasn’t won, I think it was about 40 years ago that they acquired Whole Foods do I have that right was it 40 years ago.
Scot:
[30:03] 49
Jason:
[30:05] I’m exaggerating I was over 10 years ago now though.
That they bought at Whole Foods and hopefully just kind of flat since they acquired them it really hasn’t you know turned in anything a reminder Whole Foods is very niche in the grocery space like Whole Foods doesn’t sell Coke they don’t sell Fritos, um and they’re only in a handful of big cities so there the the industry leader in organic produce but they’re not a mainstream.
And one of the things so Amazon made a bunch of announcements that they were retooling their grocery experience and changing some of their offerings.
Two days before the earnings call.
And I’ll come back to what those announcements were but on the earnings call Andy answered some questions about Grocery and he kind of admitted something interesting, Amazon is doing very well at what Amazon usually calls everyday essentials.
And I think the Brian the CFO call that non-climate controlled Goods right so all these shelf-stable things that you tend to buy from a grocery store but you don’t actually eat.
Um Amazon’s pretty good at selling and growing fast and they have a big chunk of that business they are not good at selling.
[31:21] Perishables they’re not good at Selling climate-controlled Stuff they’re not good at selling fresh food online.
Um and what Andy said in answer to one of the analysts questions was, to really meaningfully capture sharing grocery you have to have a broad offering in all the areas of grocery not just the everyday essentials and we don’t believe you can win.
With a broad assortment of groceries without a national footprint of stores.
[31:53] So you know he kind of conceded that the Fulfillment center model and the multi-tiered regional Warehouse model that Amazon is building out.
Is not particularly well suited for the grocery mix and so he said so you know we need to figure out a grocery, and we kind of concluded what we’ve rolled out over the last few years at Amazon Fresh is not a winning grocery concept so we put we put a hold on growth, we went back to the drawing board we invented a bunch of new experiences and now we’re testing those new experiences to see if they are, more appealing to Consumers so the First Market to get these new experiences is Chicago so they just remodeled the the Amazon Fresh stores here in Chicago I’m going to go visit one soon.
But they’ve essentially they’ve changed the assortment quite a bit they’ve added more private label and they’ve added more National brands for a grocery store Amazon Fresh doors were really kind of a limited assortment grocery store and so it sounds like.
[32:56] They’re moving they didn’t say numbers but in my mind, they were like a twelve thousand SQ grocer and Kroger is like a 20,000 SQ grocer so they’re there it sounds like they’re moving up to that 20,000 skus.
[33:10] And they’re testing a bunch of new amenities, and one of the big problems you have in grocery especially when consumers are being really cost-conscious is consumers walk into a grocery store with a budget and they want to make sure they don’t overspend that budget.
And just walk out grocery stores you actually don’t find out how much you spent until 15 minutes after you’ve left the store.
[33:35] Which is an awful experience if you’re trying to make sure you stay under 100 dollars.
And so one of the amenities they’ve rolled out is on these Dash cards these digital cards that they let you use in the store they now have a real time running total of what’s in your cart so for the first time you can see.
[33:53] You know how much you spent so there’s a bunch of experiences like that I’ll get a better feel for what the new ones are.
When I go visit but they’re starting to Pilot new grocery Concepts and they’re you know they’ve kind of conceded that they need to scale one of these brick-and-mortar Concepts nationally before they can really be a.
A meaningful winner in the digital grocery space.
But they made a couple other big changes in grocery to one of the biggest complaints and one of the stupidest things about Amazon’s grocery is before you shop for groceries in Amazon you need to get an org chart and understand how Amazon’s organized because, you have to decide in advance if you’re shopping online at Whole Foods or Amazon Fresh and guess what most customers don’t understand the distinction between those two things, and so they had separate carts you actually have three cards on the Amazon website you have a general merchandise Encarta gross Amazon Fresh cart and a Whole Foods car, and it can be really confusing because you just click add to cart on a bunch of stuff and then you go look at your cart and it’s not there because it’s in one of the other car.
So they announced that they’re moving to a universal cart.
I haven’t seen it yet so I can’t speak to exactly what it looks like I have a few a name mean a universal grocery cart I don’t think they’re actually going to mix it in with general merchandise but.
[35:11] Will be eager to see that and then the other announcement they made that is I’m not I mean I just don’t think it’s as big a deal is, um they have opened up grocery delivery from Amazon Fresh to non-prime members so so prior to this week you had to be a prompt Amazon prime number to order from from Amazon Fresh.
And this is kind of interesting because this is a further erosion of Amazon Prime benefits you used to get free delivery, um with Amazon Prime for groceries and about a year ago Amazon caved to try to get more profit, and they added a delivery fee even if you’re a Prime member but they said you can only get delivery of your Prime member now they’re they’re taking that benefit off the scale and I just point that out because.
Amazon’s ordinarily so good at adding new benefits to Prime is kind of rare to see them taking benefits away from Prime so I think that’s interesting in the.
The grocery space anything else that I missed or the jumped out at you about grocery Scott.
Scot:
[36:13] No I thought it was you know.
A lot of people would expect him to throw in the towel because they’ve closed some of these physical store experiments and Jesse did that but they still seem committed to grocery at least the four star or what was that start.
Jason:
[36:30] Yeah five star.
Scot:
[36:31] Faster that is the closed all those right.
And the trimming back the just walk out stores so it’s interesting to see that there they they see something in grocery or it’s just such a big tan they feel like they have to obviously they have Whole Foods but.
Jason:
[36:50] Yeah I do think it’s one of one of their big bets and it was interesting like in some of the narrative Andy kind of he threw something at the grocery teams under the bus.
You know like a lot of his complaints about the Amazon Fresh stores is he’s like we just weren’t good grocery operators that like are.
Our inputs as he called it just weren’t good like the the inventory turns the, you know the inventory waste the labor cost that you know all those things weren’t where they needed to be to be a competitive grocery store and there’s I’m sure a lot of traditional grocers that were listening to this call going amen Andy we told you groceries are really brutal, difficult Cutthroat business and you won’t find it as easy as some of the other businesses you’ve dominated so, I still want to bet against Amazon I still think they’re ultimately going to be a big player in grocery but.
[37:53] And then one other to me really interesting tidbit is Healthcare that Amazon announced last week a new National Healthcare offering which is telemedicine.
Um service and that’s attached to Amazon Pharmacy.
Um so this used to be an in-house experiment that they use to provide health benefits to a bunch of Amazon employees but and then they started offering it to.
You know a few other employers that they had Healthcare agreements with, but now they’ve made it a national authoring that’s available to everyone so you know if you if you need some prescription or you need some some medical advice and you don’t want to go in and see a doctor you can’t get an appointment.
You can you do now use this Amazon Health Service to get a fast and easy.
Um Health Care visit so you know we know Amazon has been kind of.
Kicking the tires on the healthcare industry and they’ve had a couple initiatives they had some Partnerships that they walked away from, but there’s another one where it seems like they haven’t given up on the space and they’re still you know rolling out and trying new things.
Scot:
[39:08] Yeah and I hope they nail this because my my experience with the physical drugstores always terrible.
Jason:
[39:17] Yeah I am not bullish on physical drug stores so again.
You you know oil listeners now know what they should do for the investment there but like.
You know the drug business used to be a retail business you walked into a pharmacy and you got all your prescriptions today the insurance companies mostly try to force you to use mail order.
Pharmacy said the main reason people had to go to.
Pharmacies has kind of gone away and as a retailer if you don’t have to go there to get a farm prescription filled.
The retail drug stores are awful retailers like they, you know they don’t have a good assortment they don’t have a good prize they’re they’re deficient in digital in and if you watch all the moves they’re making, the thing that every retail drugstore is trying to do more than anything else is get out of retail and become a Healthcare company and own an insurance.
So you know a lot of the CEOs of these companies now come from the insurance sides of the business and it it just doesn’t seem like.
The long-term future of us retail is to have you know multiple big National drug stores because the model is kind of waning.
Scot:
[40:28] Yeah yeah we’ll I’ll shut a small tear when they all go out of business and I can get things more efficient.
Jason:
[40:36] Yeah I think at least one is going to have to survive because there are a lot of impromptu emergency get it right now kind of kind of needs but you know maybe down the road we’ll do a grocery in Pharmacy Deep dive.
Scot:
[40:50] Or Amazon will have things so close to you can get it in 15 minutes so you won’t miss it.
Jason:
[40:55] Yeah you know one thing I will say like I thought you were going to say I won’t feel bad if Amazon sells this because Healthcare in America.
Royally screwed and a lot of people you know don’t have in can’t afford access to it so certainly it would be good if they fix that I will say Amazon rule that a service similar to a Walmart service which is really beneficial, they’re now offering generic versions of most chronic prescriptions for a flat five dollar fee and so one thing that has approved a lot in the United States in the last two years.
Between Walmart and Amazon and actually like a big startup that Mark Cuban is running is a lot of these.
You know prescriptions that were Out Of Reach for a lot of low-income people are becoming more affordable which is certainly a good thing.
Scot:
[41:40] Yeah yeah we’ll take care of them but I’d need my experience you better too.
Jason:
[41:44] See how I found a way to end the show on a happy note.
Scot:
[41:47] Yeah World Peace.
Jason:
[41:50] Yeah and that you know last week we had a slightly shorter show and listeners told this they loved getting a little bit less of us and so miraculously we have done it again we brought in a voluminous Amazon earnings call in a pithy 41 minutes, so if you’d like to reward us for our brevity the best way to do that would be to jump on iTunes and give us that five-star review.
Scot:
[42:14] Thanks everyone we hope you enjoyed this Amazon Q2 earnings results and until next time.
Jason:
[42:21] Happy Commercing.
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