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Transcript
Peter Crosby (00:00):
Welcome to Unpacking the Digital Shelf, where we explore brand manufacturing in the digital age.
Peter Crosby (00:16):
Hey everyone. Peter Crosby here from The Digital Shelf Institute. Every quarter, the e-commerce Education consultancy alum group consolidates the output of expert conversations, annual reports, and the latest data to create their e-commerce insider quarterly report, or e I q. It's Chaa block full of the most current insights into the present and future of e-commerce. Andrea Lei, founder and c e o of alum Group joined Lauren Leach and me to share her takeaways from their Q2 research. Andrea, welcome back another quarter, another set of trends. Thank you so much for joining us.
Andrea Leigh (00:52):
Thanks for having me, Peter.
Peter Crosby (00:54):
So we are gonna be digging into the trends from Q2 and, uh, we have a lot to talk about manufacturers demanding more from retailers to AI to, anyway, let's, let's dive right in. What are you seeing, uh, from the manufacturer's side of the house over this past quarter?
Andrea Leigh (01:11):
Yeah, this was a big quarter. I think. Um, you know, we're seeing a lot of changes in shopper behavior. There's been an explosion of ai. We had a couple of big conferences this quarter, including Shop Talk and the National Association of Chain Drugstore Conference, as well as several others. Um, so it's a big quarter to recap and, uh, and as you know, we put together our quarterly e-commerce insider quarterly report. So we'll be going through some of the trends from that today. Um, and talking through some of those. So from the supplier side, I mean, we kind of to, to recap a few different things. We're definitely seeing, um, a pull on sort of the retail media, uh, landscape. And what I mean by pull is the manufacturers are really applying a lot of pressure to the retail media networks. So as advertisers asking for more and asking for better metricing, uh, and especially across different retail media platforms as well as, um, you know, better targeting capabilities, larger audience reach, more ad types, all the things, uh, because as retail media is becoming a bigger part of their media budgets and, and, uh, you know, becoming increasingly important way to reach shoppers, the manufacturers are demanding more.
(02:32):
And so, um, you know, one, one thing that we're seeing there is, uh, you know, a couple of, a couple of kind of sub trends. We're seeing the retail media expenditure in a lot of cases become a part of the joint business plan between the manufacturer or supplier and the retailer. And in order for that to not feel like just attacks, which I think to a lot of them, and particularly for the smaller retail media networks, it is feeling a lot more like attacks. They've really got to, to work with the, with the retailer on, you know, on a lot of these new capabilities to make it have like a good r o i and make sure that the expenditure, you know, reaches the customers that they're looking for. Because outside of Amazon and Walmart, the other platforms are still fairly immature. Um, and so, you know, definitely seeing, uh, a lot of increased, um, a lot of increased pressure there. And, you know,
Peter Crosby (03:22):
I think, yeah, I, I, I saw a Reuters article that said that retail media ad revenue is forecast to surpass TV by 2028, which is what a rapid, uh, just shift. And so I, I could understand why accountability for those dollars is becoming much more of an item. And I, I, I think you said that, uh, Unilever, was it that Yeah,
Andrea Leigh (03:49):
Kind of Unilever. So there's a great piece in Business Insider, it'll be in the, um, recommended, you know, sort of further reading or resources section of our report. But there's a great business insider article that profiled Unilever where they were basically saying, um, no more <laugh>, you know, we're, we're done, we're done, uh, at, we're done with working with across all these re retail media platforms and not having consistent metricing and, and not being able to compare apples to apples. And you know, I think when we did the prep for this, Peter, we were talking a little bit about how there is some standardization that's being kind of pushed out a little bit, um, uh, maybe, you know, feels, it feels kind of late, but it is sort of a new, it is a newer ad, um, you know, ad uh, vehicle for a lot of manufacturers.
Lauren Livak (04:38):
Do you see that a lot of brands are, are scared to have those conversations with retailers? Because I guess I've seen a shift over the past couple of years, right? Where it's like the retail, the retailers really kind of owned the, the J B P process and they own kind of like what the brand can invest in, what they're requiring them to do. And now I feel like the brands kind of have a little bit more power because the retailers were really relying on them from a retail media budget perspective to help their own growth. So I feel like the tides have kind of shifted a bit. Would, would you agree?
Andrea Leigh (05:12):
Absolutely, Lauren, I think you nailed it. I mean, the, the retailers as they're seeing more business shift to e-commerce, that's a more expensive channel for them. And so they, they are really becoming dependent on the retail media revenue. Um, and so, you know, I think that the manufacturer or the advertiser kind of holds the cards a little bit more than maybe they did in the past. Uh, and you know, particularly with Amazon and Walmart where those expenditures are pretty significant, I think those advertisers are in a really strong position. Um, we did a share group a couple months back with a bunch of big CPG and you know, this topic of how to measure this and how to show ROI within your organization and how to really explain it was, um, front and center with the, you know, we're, it's a, it's a different, um, it's a different type of advertising.
(06:06):
It, it doesn't have kind of the same metrics that other types of advertising have. And I think one of the challenges is each of the platforms is so different. And so if you're, you know, you might be advertising on Instacart in order to access like a particular shopper, maybe you're going after like a younger demographic, you might be advertising on Amazon, maybe more, maybe in that, on that platform you're a market leader and you're looking to defend your position, um, you know, maybe you're advertising on Walmart to, to accomplish something else. And so if you're, if you're looking at ROI across all of those platforms, um, it's not gonna really tell you if you're doing your job right, <laugh>, you almost need to move to like an objective based measurement, which is what we, we are recommending for brands. It's harder because it's not consistent and you sort of have to hand build those scorecards.
(06:53):
But um, you know, you wanna know if you're accomplishing that goal on Instacart and on Amazon and on Walmart. Um, and so looking at metrics based on, on objectives is, is pretty key. Also, each of the retail media networks have different attribution windows. So even if you did kind of look at them, you can't really get an apples to apples. Um, and then, uh, some of them have unique metrics that are pretty cool to their own platforms, you know, like, uh, you know, the share of baskets and, and card ads and um, and things like that. So, so there's some cool stuff that you can take advantage of if you're not trying to cram everyone into the same scorecard. And we sit through so many demos of all these tech companies that are trying to figure out how to package this really well for su the supplier and advertiser community. And we haven't really seen anyone doing it super well, you know, um, getting it all in one in one place and maybe some super high level KPIs, but it's not gonna be enough to help you inform your strategy.
Peter Crosby (07:49):
Well, we'll see if the I A b, you know, standardization efforts go anywhere, sometimes those things die. But I think it does seem like it's in both parties interests or all parties interests to try and find a way to get to the standardization, particularly if the industry actually wants to reach that exceeding TV by 2028. Cuz without sort of more accountability and scrutiny, it's not, I don't see it, it can't get there cuz it won't be just Unilever putting their foot down. It's gonna be everyone cuz they can't prove the value.
Andrea Leigh (08:22):
Absolutely. Peter. And if you're in the position as an advertiser of fighting for the budget within your organization and there isn't a level of standardization, you know, you're, it's cha it's really challenging to yeah. Kind of manage that negotiation internally.
Peter Crosby (08:35):
So if, if that's kind of the expense management side to a certain degree, um, what do you, what trends were you hearing about sort of on the, the driving growth side?
Andrea Leigh (08:44):
Yeah, yeah, I mean obviously retail media cuz that's, um, you know, that's also gonna be on the, on the demand side driving side. But one thing that we heard really loud and clear coming out of the conferences and our with suppliers was around this desire to try to drive unit growth. Um, you know, I think that with inflation and coming out of the pandemic, a lot of manufacturers relied pretty heavily on promotional strategies to continue to drive demand and those are not, are approving to be unsustainable long term. And so, I mean, you can't be on promo all the time, <laugh>, and it just really will e eventually erode your profit margins. So we're seeing a couple of different things to drive unit growth, um, and just to drive growth in general, we're seeing a little bit more targeting as it relates to digital couponing.
(09:30):
Most of the retailers now offer, you know, capabilities around digital couponing and, and allow the advertiser or the brand to target a little more carefully. So just getting a little bit more targeted about some of the couponing. Um, and then within most, within the grocery and consumable space, getting into that past purchases for that shopper is really critical. You know, Instacart sites that about a third of their, of their cart ads come from past purchases and that the average list of past purchases exceeds a hundred items. And so there's a real math equation that an advertiser has to do to figure out, you know, what, um, you know, how do you look at the lifetime value of that activity? So how do you look long term at, you know, if you're able to acquire that customer one time and then you know, you're gonna get sort of an annuity of orders being in that past purchase area, you know, how do you drive that behavior?
(10:23):
What's the right set of activities? And for most manufacturers we're hearing, um, layering activities. So maybe a retail media advertisement paired with maybe a, um, some kind of digital coupon or on Amazon paired with maybe a first discount on a subscribe and save, but, you know, making sure that you're kind of getting into that shoppers, um, basket the first time so that you can continue to drive purchases there. And so that, that's kind of more on the unit growth side. And then there's also, we also have been seeing some interesting things on the, on just the driving, you know, more revenue side, which is around premiumization, and I think we talked about that a little bit last quarter, but brands really trying to add features and bells and whistles to some of their products, um, to capture that higher price point and to drive more, you know, incremental value for the consumer, um, by adding, you know, by adding, you know, features to the product.
(11:16):
So we've seen some brands get pretty creative. I think the example we looked at last quarter was WD 40 was doing, had like added a new nozzle kind of type to their product to make it easier to apply. Um, you know, there's, there are a lot of examples of that where some brands are saying, okay, like, I get that we're in kind of a tough economic spot right now with con consumer behavior, but what if we also tried to just go after the consumers who are in less of a tough economic spot <laugh>. Um, and it makes sense, right? Like that's, I think having, um, making sure you have something in your portfolio for all of the types of shoppers right now feels like a pretty smart,
Lauren Livak (11:54):
And Andrea, in a, in a past report you talked about how consumers are more likely to trust the opinion of influencers versus their friends and family, which was a very alarming stat for me, <laugh>. Uh, but to just revisit that, uh, there's a lot happening in the influencer space as well. Can you, can you talk a bit about some of those trends?
Andrea Leigh (12:12):
Yes, absolutely. That was our big shopper trend for the quarter, the influence of influencers. So, uh, 49% of shoppers depend on influencer recommendations now, and I think you're right, last quarter we, we said something about the report showing that they had influencers had just overtaken friends and family as the top source for product information. It's a little bit disproportionate to women. So 86% of women use social media for purchasing advice. So that's a little bit further upstream, you know, maybe you're not quite at the point of, of activation, but you're kind of doing more research. Um, and then within that group, 36% of shoppers are researching products on social media. So, um, and, and then there was a great Meltwater report that talked about, um, you know, just sort of how brands are responding to that. So, um, more than half of marketers saying that influencer marketing helps them acquire better customers, two thirds say that they're planning to spend more in that space.
(13:09):
Um, so just a lot of activity, you know, here on, on the influencer on the influencer side. And we recently did a really great interview with McCann, um, on their social commerce with their social commerce leader, um, which will, we're doing a social commerce course right now, that'll be out in a couple of months. They talked a lot about the influencer community. It's a lot more complex than it seems, and probably brands listening to this know this already. But, you know, you've got like sort of these macro influencers on one end of the spectrum, which is like, the old version of that would be like Jared, the subway guy, if you guys remember Jared. But, um, you know, you've got sort of like these folks with a big reach and you're really banking on them, or maybe like celebrity endorsements. Those tend to give you a lot of awareness.
(13:51):
They're kind of upper funnel, but they don't necessarily drive a lot of activation. And then at way down at the bottom of the funnel, you have kind of more like friends and family or sales associates who are doing, you know, a little bit more, very, very targeted, um, audience building, very, very targeted recommendations. And they're, uh, they converted a really high rate but have a much smaller following. And so I think the, the, the real challenge here for brands who are getting into this space is how do you scale this? Because it's, it's really hard, you know, you've got these nano influencers that have to kind of be managed one way and then, you know, these, uh, macro influencers that are in, it's like a completely different type of marketing. And so we've sat through some demos recently of some, um, companies that are building like kind of a match.com for influencers and, um, and brands to kind of match them up.
(14:41):
There's another really cool tool that is, um, allowing brands to kind of scrape like all social media avenues and see where they're being tagged and then be able to repost some of that organic content from some of the, maybe the nano or micro influencers out to their different social channels. Um, so there's, there's some really interesting things having happening there. Um, and so I would, you know, my, our suggestion of brands would be to look for those partners and look for those tools that really help you scale this, this type of, of a, of a program. And, um, and we, you know, we are seeing that it's more effective for, you know, um, a little a according to our interview with McCann, it's, it's a little more challenging and a little less effective for some of the consumables products, a little more effective and, um, driving greater activation, certainly in like the fashion and apparel and accessory space, but also in hard goods and, and some other categories as well.
Peter Crosby (15:38):
So, um, moving on now to two of my favorite letters in the alphabet, A and I, uh, <laugh>, it's so much going on in the AI space, I think you, you, uh, you've now named your section AI Palooza with everyth. That's,
Andrea Leigh (15:54):
Yeah. Thank you. Thank you for that, Peter. That was a great,
Peter Crosby (15:56):
Brilliant report. This, someone came up with that, I dunno who that was, uh, but <laugh>, but yeah, what is happening that's of note in, in this area and is it all worth the hype, Andrea?
Andrea Leigh (16:08):
Oh gosh. Well, I mean there's a lot of, there's a lot of viewpoints on that. Yes. I think, um, well at first I think it's important to note that it, artificial intelligence and generative AI is not new. You know, there's, this is something that's been around for a long time, but what's new are the applications that sit on top of it and make it accessible, like the whole explosion of chat G P T and, and, and others. So this isn't new. I, I mean, um, you know, different companies have been using AI in a lot of different ways, and we'll talk in, in a bit a, a little bit about how Amazon's been using it. But, you know, there are a lot of ways that e-commerce retailers and manufacturers have been using ai. Um, you know, you can, there are, it's a part of personalization.
(16:51):
Um, you know, there's, there's content generation and, and I know, uh, some companies are already using, have been using AI to write things like product page information. Um, you know, and then there's kind of the ones we've seen before, like the virtual try-on and things like image and video generation and then the, the chat bots on the websites. You know, can I help you find what you're looking for? Uh, some, some lesser known kind of areas that e-commerce retailers have been using. AI is around inventory management, so analyzing historical sales, data market trends, et cetera, fraud detection. There's a, there's a lot happening here. And we recently did an interview, um, with, uh, with a subject matter expert on AI fsi. And, um, we have a video linked in our, uh, in our e-commerce inside quarterly report that folks can look at where he goes on to Instacart or he goes on to chat G B T and he asks chat G B T to, um, to make a, a meal plan for him for the week, you know, with all of his dietary requirements.
(17:53):
Then he asks it to organize it, uh, into a table, then he asks it to make a categorized shopping list, and then he asks it to buy it for him. It actually takes him directly to an Instacart plugin where you go to it, you go to Insta, Instacart, everything's preloaded in your cart. You can choose different brands if you'd like, and then you can check out. And so, um, anyway, he was telling, I'll come back to that example in a minute, but he was telling us that, you know, the, the thing that's so interesting about AI is it can take unstructured data and it can create structure around it. It's, it's very good at doing that. And so when you think about that, um, you know, you can start to think about sort of the different ways that this is gonna impact, um, impact commerce.
(18:36):
And I think a few of the ways, you know, if you're, if you're thinking about, um, the fundamental building blocks of e-commerce <laugh>, you're looking at things like, uh, product information, um, you're looking at, uh, you know, you're looking at the, the content on the product page, you're looking at nutritional information and, and some of those things that we've spent a lot of time hand building taxonomy around like nutritional information, you know, tagging all of our products that are gluten-free as gluten-free and the retailer websites, that's not gonna matter anymore because generative AI will allow that, um, unstructured data to be very, you know, to become structured. So some interest. So I think some really interesting things, um, happening there. I also think that the retailers that are, oh, go ahead Peter. Yeah,
Peter Crosby (19:24):
No, I was just, uh, two things that are coming to mind. One is sort of, you know, we talked about this a little bit when we, when we prepped the i, is this, the death of taxonomy like I is, is sort of the, if you put everything in your content, do you really need that sort of structured data anymore in a way? Like maybe it's, I don't know, I, I'm, I dunno whether this is a useful conjecture or not, cuz probably not. I can feel all of my M d m friends kind of <laugh> uh, sort of shaking in their boots right now, but I've just yeah, it does in some ways could modify over time what it means, what the set of product information you need is. Does, does that resonate with you at all?
Andrea Leigh (20:10):
Absolutely. I mean, if you think about, yeah, absolutely. So now it's less about making sure that you have the right keywords on the page and, and it's more about truth, right? Because it's, because depending on how a retailer would implement this, I mean, probably most of them are gonna contain it to the information on their site. But if you're searching chat G P T and you're asking it, you know, tell me, um, you know, tell me the three, give me the top three pairs of comfort sandals with arch support and the come in black leather and you know, whatever else, other requirements you wanna give it. It's not just gonna be scraping product information, it's gonna be scraping other sru unstructured content such as product, um, you know, uh, information across social media. Um, you might be scraping like Reddit, Reddit forums, like it's going across all sources of information.
(20:57):
And so I, I think you end up with like the, the products that are actually relevant are the ones that win instead of the ones that are, have the right keywords on their product pages. And that to me is super interesting cuz that kind of flies in the face of how we've been doing e-commerce, which has been such a keyword heavy, um, you know, it's all been about keywords and winning the search, but now it's all about context. And in addition, I think the thing that's so interesting about generative AI is that it's, um, it's iterative. So before you would have to run a search on an e-commerce retailer website and you would say, I want, you know, black leather sandals and then you wouldn't like what you got and you'd have to start over and you'd say black leather sandals with straps or you know, whatever. It more, it add more qualifiers, but it's generative AI is iterative. So you can say and show, just show me these ones, just show me these ones. And you can start to refine, um, through like natural language. And I think that is another thing that, um, that's really gonna change how we think about search cuz it's like it's less keyword again, less keyword driven.
Peter Crosby (22:01):
Yeah. And I, and I think it's, it's also potentially the democratization of conversational commerce. So, you know, yeah that has been rele not relegated, but it sort of was Petri dishing over in the Alexas of the world and in text messaging interactions, but has never really broken through cuz it's still not truly conversational. And it's also, uh, I I don't think it takes advantage of that sort of unstructured Oh okay. You can just keep piling on way that now these new tools are allowing us to do. And I do wonder if kind of the, the whole shopping experience is going to change to be that, like, instead of throwing all this stuff at you, um, Jason Delray has written a book from Recode called Winner Sell All, which is about sort of the battles between Walmart and Amazon. And one of the ways he describes sort of the current experience of it, of Walmart and Amazon are like, it's a bizarre, it's like a, you know, walking into this huge mart with Barkers yelling at you everywhere and there's just no nothing to do with you. And I feel like this has the potential of turning it entirely on his head where you're the only one in the bazaar <laugh> and, and you just, I don't dunno.
Andrea Leigh (23:24):
Well, and it's your bizarre. It's like it's all the things are recommended specifically to you. I, I absolutely Peter, I think that's a great, great insight and um, and you know, if you, if you're looking at some of the research around some of the younger shoppers, they're starting on social media, they don't wanna start on places like Amazon, like we've been trained do that cuz we had to, we didn't have another choice. So we were like, we have to start on these big marketplaces and run these searches and then go through the endless scroll. And, um, I heard Scott Galloway talking about this last year and he said choices, attacks, you know, having to, having to v vet through, you know, uh, 500, um, uh, search results on a particular item is not a fun way to spend your time. And young, the younger demographics are not interested in doing that.
(24:13):
They're, they're going to TikTok and being a lot more surgical about, you know, what, what they're looking for. And, uh, and I think AI has the opportunity to really transform that customer experience. And if you've, if anyone listening to this has not gone on to chat G B T and tried to shop for something, I highly recommend that you do it because it is such a better experience. It is not, um, it does not, it only works for the retailers that have plugins right now. And Instacart is one of the only ones that I know of. But that's another big takeaway is that the retailers that are gonna win are the ones that are willing to experiment with this and create plugins for some of these applications and incorporate some of this into their, into their own search. I mean, Instacart's been probably the one that's been at least been the most, they've had the most publicity around what they're doing.
(25:00):
You know, you can just a, you can go right on their site and ask, you know, what should I make for dinner tonight? And it'll, it'll kind of engage with you a little bit. Um, and then obviously the plugin for Chachi bt, but the faster other retailers get there, um, you know, the faster this will happen. But then there's this other kind of counter tension, which is the e-commerce retailers aren't gonna be in a hurry to implement some of this until they can monetize it because it, it, there's no retail media in it yet. So I think we might have to wait a little bit.
Peter Crosby (25:27):
I would also say though, I'm sorry Laura, I just get this, okay, go ahead. One last thing. No, I know I, I've been talking too much, but, um, the, the other thing that will be absolutely necessary for that future is retailers and brands working together, um, much more autom automatically than they are today. Like actually, like everyone's going to need an API of some kind so that they can collaborate with brands on the content and the information that they need and handing results back so that this rising tide lifts all boats. And that's a good five seven year investment over the next several years to make that happen. But that, that's, without that they'll be creating, um, uh, creating this space where they don't have enough information to drive the experiences that are being asked for. And I'll get off my soapbox then. Go ahead.
Andrea Leigh (26:15):
No, you're totally right, Peter. I mean, right now it's such an onerous process Yes. To give the retailer your information so that it's searchable. And what if that was not the case? What if it just pulled everything? What if the retailer could look at the manufacturer website and just their, their AI could just point to that and pull whatever is there and take that unstructured data and, and make it more structured through ai? I mean, it, it really opens up a lot of, in terms of the ways of working between suppliers and e-commerce. Indeed,
Lauren Livak (26:48):
The only point I was gonna make to that was loyalty has already declined significantly from a brand perspective, right? Like, especially the younger generation don't really have a lot of loyalty to brands. And it's more of what is the right purchase for me right now? How is what we're talking about right now going to fundamentally change how brands build their brand, right? And how they build brand loyalty and how they build market share in their category. Like, I, it's just gonna fundamentally change things. If AI is going to personally recommend something or we're going to use tools to become more personalized, you're not going to get 500 results. To your point, Andrea, you're going to get one or two. So that's gonna make it even more challenging for brands to get in front of consumers.
Andrea Leigh (27:37):
It may, it may not. I mean, it's probably gonna give a little bit of an advantage to some of the brands that don't normally get in front of consumers that maybe are more relevant and more, you know, appropriate to what that shopper's looking for. So I think it's, I think what Peter said this earlier, you said you can, it's gonna democratize, you know, the, the shopping experience a little bit across, across the brands and, and I completely agree with that. But I mean, at the end of the day, like retailers need to monetize their traffic and they'll find ways to do that. So I, I think there'll still be opportunities for brands to get in front of, in front of consumers to run coupons to do a lot of the same things that they're doing now. Cuz those are big revenue streams for the retailers and they're not gonna let those go.
Lauren Livak (28:19):
They'll always find a way
Andrea Leigh (28:21):
<laugh>, they'll always find a way <laugh>.
Lauren Livak (28:22):
And, uh, Andrea last but not least, what is happening with Amazon? I know they had their earnings call recently, so what were some of the trends on the Amazon side?
Andrea Leigh (28:31):
Yeah, so I think if you, if you listen to the ca well I, I'll just give like a few high level notes and then we'll drill into some of the AI stuff cuz I think that's the most interesting. They had a nice profit rebound. Um, they, their op profit and net income both came up and, um, and they did a, they did a lot of headcount reductions so that that helped a lot over the last, you know, couple of quarters. Um, there they also saw a big improvement in free cash flow, which in my, I mean Amazon's always really optimized for free cash flow. I think that is their innovation fund. They, there's other ways to fund innovation certainly, but um, free, ca free having a lot of free cash flow helps, uh, helps be able to be expedient about that. Um, their growth slowed a little bit from a revenue perspective.
(29:15):
They had some pretty big gains in three p Uh, the business is diff definitely shifting from a one P business to more of a three P business. The three P unit sales were higher than the one P sales. That's been true for a little while now and advertising grew 20% year over year. That was even an acceleration over last quarter. So I, I mean it kind of flies in the face of what we're hearing from brands where they're like, we are not gonna keep, you know, increasing our spend at this amount. But clearly some of 'em are. And uh, and so they're seeing some nice growth there. But I think there's some neat stuff that they announced at the new fronts advertising conference. They're getting better at placing ads off site. There's a lot of upsides still there. Most of the brands that we're working with are still spending the lion's share of their Amazon advertising budgets on search based advertising or onsite advertising.
(30:01):
But demand side platform has really been taking off as well. Um, but the real star on the earnings call was aws. So it's the growth slowed in it, um, down to down to 16%. They had been in the thirties and forties in previous quarters, but the base is getting quite big and it's not the loss, they clarified that it's not the loss of clients, it's that they are, uh, working with the clients to reduce the client's expenses, which are ki which is kind of the right thing to do long-term. And they called out that they thought it was the right thing to do long-term. It's just interesting cuz that's not how we see Amazon partner with vendors typically, but on the AWS side, you know, they're, they're taking more of a partnership approach, which I think shows kind of some learning and growth on their side.
(30:43):
Um, and when, uh, it was interesting, like there were a couple of questions on, there was one question on grocery and I think, I think Andy Jasi was kind of like, sure, like physical grocery. Cool. We haven't really found the right model. I feel like a lot of the, a lot of the articles that people wrote about his commentary around grocery were a little more bullish and, um, optimistic than the tone I heard, which was kind of more, we're not really focused on that right now on physical grocery. Uh, and, but he was kind of like, but you know what is interesting is this like 400 billion cloud computing market that's really growing really fast right now. And let me tell you about what we're doing there. And it was very exciting. So he, he talked about how, um, Amazon has actually been in the AI space for a long time within a w s So they, they have, they invest in all parts of the, of the vertical.
(31:35):
They build the chips, which is kind of like the hardware investment. And they have, are constantly working on ways to make those more efficient and um, and, you know, take better advantage of the, like the real estate of the chips. And then they also have been investing in natural language models. They have their own, but they also support third party natural language models. And so that's kind of the middle layer. And then the apps that sit on top, like chat G B T, they also, uh, have their own, but they also support others. And so what I thought was most interesting about that is that they've been in, in this verti all these, this whole vertical for 25 years. So they've been doing it a long time. Um, and they treat it like a marketplace. So they're supporting other people's developments as well. And that's what Amazon does really well, right?
(32:20):
Their platform to bring together buyers and sellers, <laugh> of all kinds of things. You know, you could look at their, their advancements in healthcare the same way. I mean, they're doing virtual appointment scheduling and people, you know, providers can go on there and they can, you know, show their appointment books and users can schedule and they use their platform to let, um, to let that interaction happen. Uh, you know, same thing with some of their, their work in, um, in aws. So I, I thought that, that he went down a little rabbit hole on, on ai, which is a good listen or a read if you, if you check the Motley Fool transcript. Um, it, it was really interesting to hear how it it involved in this space. They have been, it made me very bullish as a shareholder.
Peter Crosby (33:03):
Well also, I I, you know, it's, it's becoming clear the computing power that it takes to do all this AI stuff. You know, it reminds me of some of the conversations that, that the industry has had around what it takes to do blockchain. And, and I'm not smart enough to know whether those can be compared at all in terms of the, the scale of computing power. And you know, I know in the blockchain conversation was like, we're this is gonna destroy the planet if we don't figure out a more efficient way to do this. And, and I'm betting that one of the people who have spent a lot of time thinking about how to conserve computing power and get the most out of it is probably Amazon. And, and I think they, they, they could have a leg up in terms of being where people go to get their hopefully less expensive computing power over time if it's optimized correctly. Does, am I making
Andrea Leigh (33:52):
Absolutely stuff up on absolute yeah, absolutely. Within aws. I mean that's kind of where a lot of their focus has been. And it's not sexy. Like it's not something we all see as consumers, so we don't spend a lot of time thinking about what they're doing there. Um, but they are doing that, they're kind of, they're kind of following a similar model for their cloud computing storage that they do for their warehouses. They're like forward deploying some of the real estate and making it, you know, make, and that allows it to be faster and cheaper for the users. I mean they're, they're approaching it like a, like a very complex supply chain problem, which I think is, is super interesting.
(34:29):
On the AI front though, I think, you know, the takeaway for the manufacturers, I, I, I chatted with a, a pretty big man hardlines manufacturer a couple of days ago and he was like, it's so frustrating working with Amazon because you know, every, it feels like every three to six months they're coming to us with some new investment area and they're like, this is the be all and all and you gotta put all your eggs in this basket. And we do, we put a lot of eggs in the basket and then they discontinue it or they cancel it or ends up being a failure or it doesn't yield what we're expecting. And so I guess my advice to manufacturers would be as, as these retailers are rolling out AI opportunities, we don't know what's gonna happen. We don't know how fast this is gonna take off.
(35:05):
So I would think of them as experiments and, and definitely spread your investments across the technologies with the retailers really carefully. Like make bite-size investments, you know, you don't wanna go all in on, um, on one thing. It's very tempting to wanna be the first mover and I think that can be a really good strategy. But again, bite-size investments and, and definitely consider them experiments. There's not gonna be a lot of data available. You know, we're not gonna be able to see the results really, really quickly or maybe we are and they're gonna be disappointing. Um, so, so I think kind of focusing these as experimentations is important.
Peter Crosby (35:40):
Andrea, you always have your ear to the ground on the joint business planning that's going on with retailers. Is there any sort of, uh, update, uh, about Amazon's or anything that you've been hearing out there in the world?
Andrea Leigh (35:54):
Um, I think the biggest one on Amazon's is, well I think first, I mean we, we find over and over in our conversations with manufacturers that they tend to stick to the script of what Amazon says should be in the J B P and, and don't do that. I mean, you can bring anything to the table that you want, uh, you know, you can focus on any interests that, that are gonna help you drive your business. And so definitely think about your own asks and, and uh, across department, you know, within your own organization and what you really need from Amazon to be successful. So that would be one thing, one suggestion I would have. And then the other would be, uh, you know, we're really seeing Amazon dis especially the last couple of years, they're like de aggregating the Amazon advertising negotiation from the commercial terms negotiation.
(36:40):
And I think that's Rea puts brands in a, a really like a disa advantageous spot because you're a lot of brands, a lot of big, big brands are, they're advertising's expenditure is their leverage point. And if you've, and if Amazon has forced you to close and sign that contract or commit to an advertising spend and then you go ahead and pursue your commercial terms, you've lost an important point of leverage. And I know at Amazon those are different teams and I know that it's difficult to get the commercial team to recognize the advertising investment, but it's a lot easier if you haven't closed it yet. <laugh>. So trying, trying to keep those on the same timeline I think is a delicate balance and difficult to do. But, um, but I think it, it would, it really, it really gives the manufacturer a lot more of an advantage in the negotiation.
Peter Crosby (37:28):
But do they have any power in terms of saying, I'm not gonna sign this until we have that conversation? Or is that, or is Amazon have more making that impossible?
Andrea Leigh (37:37):
The, the brands have more than they think they do. You know, if you're, if you're spending millions of dollars on advertising on Amazon, um, and you, and you go to that team and you say, you know, we can't, we don't know if we can spend this, we may have to pull some of it back cuz of what we're getting from the commercial team or from, from the vendor management team or vice versa. You know, you go to the vendor management team and you say, well sure I can give you all this but I'm gonna have to pull back this amount in advertising cuz I only have so much to work with for you as a retailer. You know, that definitely gets some attention <laugh> on their side, <laugh> and maybe forces them to work together. Cuz at the end of the day it rolls out to the category leader and they, they take credit for both.
Peter Crosby (38:18):
Yes, leverage use it. Uh, that's the yes message from Andrea as we, as we close out,
Andrea Leigh (38:25):
Find and use your leverage.
Peter Crosby (38:26):
Exactly. Andrea, I can't imagine how much time you and your team put into collating this every quarter and turning it into really helpful insights and advice. And as always, we are grateful for you bringing this on. It's available@aloomgroup.com when you, if you go to the homepage, there's a newsroom section down below. Yeah, down on the bottom. You can find this quarterly report. And like, like Andrea said, for those of you that haven't picked one up yet, it's chockablock full of stuff and these great sort of then third party resources that fed into the takeaways that Andrea's team comes up with. Uh, so, uh, so just, it's such a rich source for your own presentations in to do your educator role in your house about what's happening. So use it w um, widely, uh, to to continue your roles, our listeners as the the educators, uh, of, of your teams internally cuz it's really powerful stuff. Thank you so much.
Andrea Leigh (39:26):
Thanks Peter. Yeah, we have a lot of fun doing this every quarter. We do so many interviews so it's really, we're really accessing a lot of subject matter expertise in building our courses and our curriculum and we, we get to use some of that here and leverage a lot of third party reports and um, a lot of the great knowledge that's out there in our industry for us.
Peter Crosby (39:43):
Well maybe when you're done with your social commerce, um, class, um, we might be able to have a chat with somebody about that, cuz I know it's on everyone's mind trying to figure out where is it sitting now. It's sort of, it's all, you know, it's all over the place and I, it would be great to get some of those learnings at some point.
Andrea Leigh (40:00):
Yeah, absolutely. Okay. Absolutely.
Peter Crosby (40:03):
Well, thanks again, Andrea. We really appreciate it. Thanks again to Andrea for all the wisdom. Their reports are also available in the partner content section under the resources tab on our website, digital shelf institute.org. Come remember, while you're there, why don't you, thanks for being part of our community.
