Amazon does A LOT.

Ebooks… 

Online shopping… 

Cloud services…

Movies on demand…

Music…

Smart phones…

These are just some of the industries that this giant has come to dominate…

But their most recent move may be the most ambitious yet.

Amazon is aggressively moving into the $8 trillion world of wholesaling and distribution.

AmazonSupply was established in April 2012 with only half million products. That number has now risen to 2.2 million, and covers 17 different market segments!

Unlike some of their more public projects – like six new television shows or the latest Fire Phone – Amazon has been very quiet about this foray into the world of B2B distribution.

According to a recent Forbes.com article by Clare O’Connor, CEO Jeff Bezos has only mentioned 26 words in public about AmazonSupply. That’s pretty surprising, considering the size of the market and the potential for Amazon to be a very disruptive influence…

Amazon’s move into wholesaling and distribution demonstrates why businesses need to be agile and responsive to market trends if they are to survive and thrive in the 21st century marketplace.

In the 2000s, it was relatively “sexy” industries (like music or advertising) that had their business models turned upside down. In 2014, it’s the so-called “boring” businesses – like wholesaling – that are feeling the transformative effects of new technology.

How Wholesalers And Distributors Can Compete

I’ve said it before and I’ll say it again: competing on price is a race to the bottom…

Wholesale and distribution tend to be high volume, low margin businesses. You can typically expect to have margins somewhere between 2% and 4%.

But according to a recent study by Boston Consulting Group, AmazonSupply’s prices for common items are approximately 25% lower than their competitors!

Amazon has a reputation for selling products at a loss in order to win market share… And they have the capital and the long-term vision to undercut even larger wholesalers.

The vast majority of American wholesalers are either regional or family run businesses. Most of them have annual revenues of $50 million or less. Not insignificant by any means, but when compared with the $74 billion in revenue that Amazon posted last year, they are relative minnows.

So, if competing on price isn’t even an option,
how can smaller distributors win and retain customers?

The key is to identify their Unique Advantage Point (UAP). It’s that one special thing that makes a company unique, and something that Amazon (or any other competitor) cannot easily replicate.

One possibility is leveraging superior product knowledge… Amazon is useful if you already know what you’re looking for, and extremely useful for price shopping…

But what if you don’t know which product is best for your situation? This is an opportunity for smart wholesalers to offer guidance that a massive company like Amazon is not.

It’s an opportunity to provide businesses with personalized information, exactly what they need to make an informed buying decision.

Wholesalers also have an opportunity to compete based on delivery time…

Amazon might be developing drones to speed products to their customers, but smaller wholesalers have the advantage of having distribution channels already in place. If they want to keep their current customers, they need to make sure that they are delivering on time, every time.

Smaller wholesalers can benefit from not having to offer everything…

Why is this an advantage?

Because it means that they can dominate their particular product category!

Smaller wholesalers understand exactly what range of products their customers are going to need – and can ensure that they are always available.

Amazon is undoubtedly a tough competitor. Wholesalers are going to have to be on top of their game if they are going to keep up, but discounting is not the answer… It’s only a recipe for inadequate service and poor delivery rates.

Time For A New Playbook?

Wholesalers and distributors won’t be alone in facing unexpected competitors and new technology…

If we continue on the same path, no industry will go untouched.

In many cases, what worked in the past just isn’t going to be enough…

To win in this new environment, businesses are going to need a whole new playbook.

In your corner,

Charlie