Rossmann plans to work with Amazon to list items under its exclusive Prime Now rapid delivery service, Lebensmittel Zeitung reports. This makes Rossmann the first German top ten retailer to co-operate with the e-commerce giant. Rossmann joins smaller grocery retailers Tegut, Basic and Feneberg on the site.
At first, Rossmann plans to sell just 25% of its assortment and only in Berlin. If this proves successful, it may also expand its product selection and make items available in Germany's second Prime Now city, Munich. Neither party has commented on the partnership, which according to Lebensmittel Zeitung had been under negotiation for the past few months.
So, it finally happened. One of the top ten retailers of the German grocery market has entered into a pact with the US behemoth. What convinced Rossmann to join Amazon’s 1-2 hour rapid delivery service Prime Now?
First of all, it’s no secret that Rossmann has been struggling for some time to increase the turnover of its German online shop. In 2016, Rossmann finally recorded a 7% sales increase to around EUR25mn. This improved sales performance was likely achieved through an overhaul of its entire online assortment during 2015. Rossmann refocused on its core competencies while removing a lot of non-food items.
Unfortunately, this improvement was not enough to outperform the online shop of its biggest competitor dm. The number one drugstore operator in Germany quadrupled the turnover of its online shop in 2016 to EUR26mn (LZ Retailytics data). Meanwhile, Rossmann has rolled out its click & collect offer to all of its German stores to better compete with dm’s e-commerce offer. But this appears insufficient for Rossmann to get back on track.
Although Rossmann could work alone to improve the success of its online operations, Amazon has appeared as a new opportunity. This could be a successful arrangement that allows the retailer to reach new customers at low risk. Rather than supplying Amazon direct, Rossmann will be listed as a 'local shop' on Amazon's site in a similar arrangement to that with Basic and Feneberg. It is a low investment opportunity where Amazon provides the platform and logistics to Rossmann and the retailer controls the supply and picking of orders. It is the first drugstore operator to offer its assortment and well-known brands via Amazon Prime Now (at least, for now) and gives loyal Prime members the opportunity to add items as part of a wider online shopping mission on Amazon's platform. For Rossmann, it could prove a volume driver.
Obviously, the arrangement also has its pitfalls. The price Rossmann has to pay for this partnership is firstly that Amazon owns the data and customer relationship. It will also pay a fee to Amazon to use the platform. And although Amazon provides logistics to Rossmann, the picking of online orders will be done from its stores. This can cause the already known problems of instore picking such as inventory challenges and annoyance of customers shopping instore.
We should also not forget that rival health & beauty retailer dm partnered with Amazon in the past to sell its products in a 'shop in shop' online. The partnership ended a few years ago because it was not as successful as anticipated. Under that arrangement, dm acted purely as a wholesaler of its private label products and neither Amazon nor dm put effort into marketing the assortment. These are things Rossmann should do better to maximise the success of this partnership. The fact that Rossmann is acting as a local store seller will certainly help in this regard. The health & beauty player can set the prices, define the assortment and also gets a dedicated page for its products where Prime Now members can click through and browse.
Even though we see some potential challenges, we are optimistic that this partnership will have positive results for Rossmann. If not a sales success, the lessons learned and insight into data such as which customers order online and need fast delivery can be taken by Rossmann and used for the development of its own online shop.
With contributions from Senior Retail Analyst Lisa Byfield-Green