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The Jason & Scot Show - E-Commerce And Retail News

Join hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder & Executive Chairman at Channel Advisor, as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
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Now displaying: February, 2019
Feb 12, 2019

Digital Alcohol with Diageo and Drizly 

Jason & Scot will be podcasting live from the eTail West which is held Feb 19-22 in sunny Palm Springs, CA. As a special gift to listeners, you can use the code JASONSCOT for 20% off.

This episode is a deep dive into the digital alcohol market with Diageo and Drizly.

Taylor Burton (@TBurton86) is the VP of Strategic Partnerships at Drizly, the world's largest alcohol marketplace to shop beer, wine and spirits, currently available in 95 cities.

Wayne Blum (@waynegblum) is is the Director, U.S eCommerce strategy and partnerships at Diageo,  A global leader in beverage alcohol, with over 200+ brands.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 163 of the Jason & Scot show was recorded on Monday, February 11th, 2019.

Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer and Scot Wingo, CEO of GetSpiffy and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

http://jasonandscot.com 

New beta feature - Google Automated Transcription of the show:

Transcript

Jason:
[0:24] Welcome to the Jason and Scott show this is episode 163 being recorded on Monday, February 11th
2019 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot:
[0:39] Hey Jason and welcome back Jason Scott show listeners as a reminder we are going to be at etail West and as a special gift to listeners you can use the code Jason Scott that's Jason Scott on Scott for 20% off
but that's next week and let's talk about today long time listener to the show will know that we have been talking about Brands going direct or direct consumer as a strategy for a very long time since I think 2016 started.
And you also know we are huge fans of the digital native vertical brand Trend as well,
so today on the show we are going to take a deep dive into a huge segment of the beverage industry the spirits your space one of Jason's favorite second only maybe the coffee will find out that will be a question.

Jason:
[1:27] Yep that you don't have to keep those two separate.

Scot:
[1:29] I'll turn it up down up down
understand the space and what's going on we are excited to have the rare to guest on the show
so Crown Royal Johnnie Walker Smirnoff
my personal favorites Guinness for strength what do all these brands have in common that have a single parent company
they're one of the largest global spear companies and that's just some of the highlights that I picked out there Brands there were so many that the show would have gone long if we covered all the brands we're excited to have on the show
Wayne Blum who is the director of e-commerce strategy and Partnerships with Diageo.

Wayne:
[2:13] Thank you guys I appreciate it and I am excited to be here because the e-commerce space is one in which I'm super passionate about and figuring it out for.
Beverage alcohol is is an incredible opportunity for Diageo so excited to be here thank you.

Scot:
[2:31] Great happy and as listeners also know I am a big believer in the on-demand economy and one of the top companies in that space that intersects with the alcohol Spirits world is drizly.
And they provide on-demand Spirits so join us some drizly we have Taylor Burton and he is the VP of strategic Partnerships welcome to the show Taylor.

Taylor:
[2:51] Hey guys long time listener first-time got Russia have me on today.

Jason:
[2:55] The awesome to have you here Taylor
appreciate you both taking time out to educate our listeners about this exciting and I would say somewhat emerging space
for those of you that haven't listened to the show before we always like to get things started with a brief background about how you
came to the space so maybe Wayne you want to give us your sort of a path to Diageo.

Wayne:
[3:19] So I just ruined the audio 2017 to.
Take on this econ strategy Partnerships real but prior to Diageo I had worked for Nestle focused on.
Direct-to-consumer and was running e-commerce digital operations and and platform.
Abilities for either largest GDP in the beverage segments and you know I really kind of chart to figure out.
You know what is the future of consumer goods through econ and particularly how the last mile,
play and so that's kind of been formed by thinking is I started to focus out that out,
and then before Nestle I was with American Express for quite some time and that was either really where I learned a lot about,
digital working with consumer data for Target in optimization loyalty like I value CRM,
what is a fundamental tools of understanding e-commerce promotional Marketing in the digit in the landscape today.

Scot:
[4:27] Brickell so when I went from chocolate to Spirits Taylor did you have an interesting of a background as as winded.

Taylor:
[4:35] Did not come from chocolate and spirits
company timer spaceship part of my last three years leading the charge in the partnership. Drizly on eBay,
I'm working on the gator products specifically helping Merchants great offers within the platform to Target see how users based off their purchase history
the great opportunity for me to come over I'm a check to apply that to what is the relatively new space.

Scot:
[5:09] Causes of vintage Meg Whitman Dara eBay PayPal.

Taylor:
[5:13] A little bit after her I started there about six and a half years ago about 3 and then jump.

Scot:
[5:23] What's at the Bay Area kind of side of things or did you get it from.

Taylor:
[5:26] I work out of New York.
A lot of them and partner drive if they stopped here on the east coast and actually started off
I do. She purchased by PayPal surround advertising.

Jason:
[5:45] That's cool so and I don't want to say anything about it it feels like you are falling all of the traditional vices so I have some theories about what what your next step in your career going to be.

Wayne:
[5:54] I'll be interested to hear that but maybe that's one for after the podcast.

Jason:
[5:59] Exactly maybe we'll do that offline.

Scot:
[6:02] Vaping vaping and cannabis are hot.

Jason:
[6:06] Yeah yes we careful in this category bringing up the whole cannabis things to work we're not going to go there
but when I do feel like regular e-commerce is maybe a little bit too easy and so I I suspect there are some unique challenges around regulation in the distribution model in the alcohol and Spirits category am I right and can you tell us a little bit about,
about that how that changes the business.

Wayne:
[6:31] Yeah so just lay the regulatory environment means that we have to think about things differently right so the US has this three-tiered system that,
essentially says Diageo is going to fill Brands and create these these great products and then,
working at we're going to sell those products through to a distributor who then sells them through to retailers and so across the street to your system we essentially by law go the traditional router.
Selling a product directly to a retailer putting it into their warehouse and then having him the fill out for retail distribution or.
Corporate direct Chef when were looking at beverage alcohol 3 Commerce in the regulatory environment do we play with it at most effectively.
And if you like it what's happening with last-mile this is this is essentially our opportunity particularly for beer and spirits and in my opinion so.
The products being close to Consumers and then the Retailer's learning how to fill them compliantly as you need to do for beverage alcohol she doesn't understand,
that presents the opportunity for for this type of Orissa expanded econ shop.

Jason:
[7:48] Fair enough so in like a general merchandise you used to have two prevalent models you have you know,
a direct-to-consumer model where you know you have tons of Brands launching their own website selling their own Goods direct to the consumer so that's.
Caspar Warby Parker bonobos never give retailers that own the goods and sell those goods direct to the consumer like at Target and then of course she have these really prevalent Marketplace models like Amazon and Alibaba,
where where did you lie you're just kind of introducing the buyer to the seller and that the.
The seller actually you know who owns the transaction because of that that regulation and.
Turn of the locality and fragment of nature that relationship it seems.
Way more likely that we won't or or won't see as quickly any of those sort of direct-to-consumer models.
In in alcohol and that that you know maybe more of the momentum is on the marketplace I am I reading that right or is that an oversimplification.

Wayne:
[8:54] No that's that's exactly that's so the momentum is going to come from the likes of a walmart.com who scales are grocery business,
and has the beverage alcohol category available to add to the basket or it's going to come from.
Some played some small instances like wine who asked of a trustee Wisin who does ability to go direct to Consumer and Wineries and stand up their own web site in and build a brand that goes to.
When were thinking beer and Spirits were really thinking about the last mile either through direct retailer or the Emmys.
That operate like a three-piece up like a dress.

Jason:
[9:41] Yep like the two of the things that they feel like they are super important in this faced so if you're an alcoholic if you're a licensed seller of alcohol you take on a bunch of obligations when you sell that alcohol to a consumer or Aids verification,
you know potentially some liability around over-serving and some of these things and so have you if you have a liquor license and you sell online,
you still have those same obligations and so it it maybe makes things.
More risky or more messy to Outsource some of that last mile to a third party because you still have those,
does liabilities attached in you could potentially you know be at risk for significant regulatory fines or even the loss of your liquor license.

Wayne:
[10:22] You guys are assholes they correct their neither is there is definitely a there's definitely additional levels of compliance and complexity that retailers,
do I dress when they are essentially sending this product off to the consumer enough you know that's what I.
The challenge to the product teams to solve that the challenge for their compliance group to figure out how they navigate the right way of implementing checks and balances but
we've actually seen some some really great innovation in this space you know
think I think of companies like an instacart who do hand off the product and they do have the ability to AJ
at the front end so they present the terms and conditions and ask the conservative,
that they hate that they're within the compliant age to purchase but then they also can scan you know a handoff to the consumer on something like a phone invalidate.
This is their driver's license to actually seem really good progress in the DH dating in the the product management,
side of this business so retailers can start testing and expand into this category.

Jason:
[11:32] Awesome I'm excited you're more about that and then one other follow-up it also seems to me like,
as with any new product category like consumer demand and in sort of the you know smart marketers are maybe ahead of the the regulatory bodies a little bit and so it's
it's not always 100% black and white what is or isn't permissible in any locality and so it's it's it's not even as simple as,
here's the rules that you have to follow up on when you'll be fine
every provider has to sort of make their own determination as to their level of risk in whether they're being completely compliance or not right and so you can imagine,
big companies are at more to lose and therefore are more risk-averse than maybe some you know super small startups that aren't well-funded or those. Is that is that also true or my imagining that.

Wayne:
[12:25] No I think it I think solutely correct.
I seen a lot of of what I would stay out of ambiguity and some of the language around what what are and aren't the rules.

[12:38] Looking in this business everything is kind of driven down to the local the state level or even in some cases the local level you have.
Tri Counties for example that you know someone like a shipt or instacart may need to solve a 4 in terms of family make this product available in this ZIP code.
And if someone order bring it outside the zip code you know what are the rules of,
using various types of digital media that were never thought about when you know these laws and regulations put into place many years ago so.
We're definitely in a bit of Uncharted water orgone sort of unmapped territory to some extent but.
At the same time I think consumers are are voting with their wallets shoveling that.
Baby love the aspect of convenience.
And they want to be able to take what they traditionally purchased an r and an in-store traditional retail environment and replicate that for.

[13:44] Full basket delivery and so we think that if you follow the rules if you understand the local laws and then you get creative around how you,
you find new ways to serve the consumer that you know some of the stuff will become more clear and and you know what the category will find its way there,
just like every other complicated category has found its way to to the digital or eCommerce Channel over time.

Scot:
[14:13] Taylor now that Wayne's given us this good overview of of kind of the three-tier system.
Tell us news how does drizly inject into their so it got the bread man's distributors in retail where do you guys fit in I saw the site you're in 101 cities so I'd love to know more about how you skill so quickly all those kinds of questions I look.

Taylor:
[14:33] Yeah well you first start off by saying it and it wasn't as quick as we would have liked to be there we've been at this for over 6 years at this point and I think cautious.
I'm in control broke is really what you see not to buy,
I think it's important that you know players in our position specifically a category leader in the early early to the space,
are really asking for permission before going to head and diving in and doing things that might be in a regulatory gray area large parts.
Drizly business days but also the Retail Partners on our platform as well as the state and local level of been taking phone orders need an online orders for a long time,
you're making and executing and purchase an app like drizly,
it's really no different from a compliance perspective then it is a you know a person walk into a store and showing an ID so all of this being rules will still apply you're looking at a market that software lawyer,
did it simply allowing a customer to shop for that commodity good in this case alcohol level.

[15:41] And what we basically do with integrate with the Retailer's TLX you leverage Braintree at the back end to take the credit card payment from archers Lee consumer
actual retard South and then the retailer is actually the one making the Fulfillment though,
it appeared at the W-2 employee of a retailer in some states worth compliant we have third-party integration set up at the retailer Postmates or doordash or whoever might be,
I'm in the future and eventually their consumer is owned by drizly and then the actual ending of the alcohol and in-store housing and ultimately shipping of y'all called.
That answer your question.

Scot:
[16:24] It does so imagine you've got in a great to the point of sale system is that is that so you can pull inventory and then.
Is this point of sale systems as instacart is kind of painfully found out grocery stores they are pretty archaic and they don't even have like graphics and army images.
Consumer-friendly descriptions how heavy of a lift is it for a seller to implement drizly.

Taylor:
[16:48] It's not happy with that used to be for the actual Stellar I'm wearing a gray didn't know what you wanted different POS system anything from an analog all the way up to your yard when its tail system,
I'm to the roadmap there and we can onboard a new retail partner and that's 24 hours a day system,
you should be a big challenge but yeah we done the groundwork again over the last six years to make that process as painless as possible for our partners,
but the reason why we do not really require that integration is because when a customer shopping in the product and cart that product and then go to the.
Not a great weekend breaks chains to get to the end of the journey and say hey you know what bye sorry there's no Captain Morgan available for you because your story doesn't currently have,
I'm having that really clean crisp integration on the POS side absolutely Akita.

Scot:
[17:42] Cool and then so give us some characteristics of these sellers are they restaurants their convenience stores there
here in North Carolina become ABC Stores so there's like this legal I have retail for certain Spirits what's the profile of the stores on the.

Taylor:
[18:00] I'm putting a lot of local retailers great so that the poster typically competing with with the larger chain with that said we do have quite a few men size regionals on the platform,
I'm in a strictly scaled over the last two years especially we start to see larger partners jump on the platform,
I'm primarily because of the amount of volume that you're through the platform is driven and really that we kind of angered ourselves as if we go to Spotify and Shop alcohol online.
Can we start the profile to ship a little bit as we continue to grow and scale,
and that's really what keeps our Marketplace model moving right the more,
the more selection we can offer our consumers the wife's grave price and ultimately delivery method is going to make that shopping experience just that much better for an end consumer.
And at the end of the day that the best shopping experience typically will win and that's what I think would be great if you're at replay.

Scot:
[19:03] What are the things that I'm a big instacart user one of things they've kind of had a nursing challenge with his price shopping so let's say I'm looking for the cheapest Coke Zero and I
make it very hard kind of like switch between stores to do that because they don't.
I'll have you know if you have any stores with the same SKU how do you handle that that experience.

Taylor:
[19:27] We're going to show them all right you want to leave that choice ultimately Yang consumer but it's not just price that we found our consumers or shopping they stop.
What type of rating does the retail store that's providing that price provide.
They have a higher score a lower score I'm in that also other factors like store hours Etc are going to fix a plan for that ultimate collection.
And we've also found a lot of our you know local consumers will you know how to store that they like to shop to maybe they go there in person,
they want to continue doing business with that's or whether that's in person or online the number of factors
you're the point that you're heading on the difference between the way instacart running their modeling and what we are doing dinner at Wrigley is really offering a wide array of choices selection and I'm really not trying to funnel use.

Scot:
[20:19] One thing I've noticed on the platform is most of sellers advertise 1 hour delivery which is which is pretty impressive is that is that the market at work or set a guideline you guys to give them that kind of the standard in infant.

Taylor:
[20:31] I think it's a great question you said really shy away from saying when I was delivering we didn't want to be bumped into this just yearly on demand.
It's something that you come in Table Steaks right product is for media consumption and we understood that that we actually took,
yeah I really data analytics approach to understanding what's causing our consumers to hit check out,
I'm a huge factor in that was the immediacy write the how fast can I get that when you look in the market like New York know what would you guys guess the average delivery time here is.
Stop the top of your head.

Scot:
[21:06] York this fast so I'm going to go 30 minutes.

Taylor:
[21:10] Yes it's 30 minutes or less right you know I don't know what the exact exact but it's probably closer to 20 minutes.
But it it's super fast almost right,
but that posted something with the New York Market is very used to write deliveries always been a thing here put laundry or Chinese food on that consumer expects that quick and then meet you
if you're in New York is your delivery fees don't lie there just like Amazon's going to great job of training computer the new Prime delivery should be free,
I knew your contemporary it seems it's free delivery to me actually don't even talk on a delivery fee here in New York like we wouldn't them other states so you'll have to understand what is that local market condition and how can you make sure you're checking all the boxes in decision tree,
a person might think through as their healing check out.

Jason:
[21:58] Interesting a lot of my agency colleagues are based in New York and I can't speak for everyone in New York but for them I can say not only the delivery fast but the consumption is probably really fast.

Taylor:
[22:08] Absolutely let me know when you're looking at,
you know you're really seeing people put time and effort and energy into sending just the folks I think that's something you know that we really brings to the table is Bilal
I'm trying to offer unique experiences not some of the stuff that we don't know,
you know companies like Diageo on the building how to get the experience in trying to offer something special.

Jason:
[22:38] Awesome and that that's a great point.
Can a throwback to Wayne Wayne mother thinks it's interesting to me is again going back to kind of General e-commerce you have this tension between like traditional cpgs that you know where houses are brands
and these new did we need a vertical brands
that sort of reinvented the product and the customer experience for this newer digital enabled consumer and is week we talked about in the top of the show it seems because of the regulatory climate is probably unlikely Diageo is going to launch a bunch of new,
direct-to-consumer spirits but I am curious if
these digital enable consumers in the fact that people are you no more likely to place an order from drizly than they they were six years ago and that is changing how you think about.
Product Innovation and building Brands like you know are there brands that are more digitally friendly in the Diageo portfolio than others or could we expect to see,
more in the future like had you guys think about that.

Wayne:
[23:41] No yes I mean you are 100% correct about that so so it's true we will never have what sort of digitally native heritage.
Foreign brands that have a direct-to-consumer proposition but we absolutely do have is a category that I like to say consumerist.
Find Conquest,
it's not it's not like we're going to create a breast and that I'll put in the warehouse and ship it out and say this is a direct consumer brand but we arguing,
is understanding like what is most culturally culturally relevant and then using front of the reaching power digital to to get that message out for consumers,
and I won't be seeing in on the back of that if people trying to Conquest the stuff online to find it so,
what are the best examples I could come up with was Diageo released a limited edition,
Game of Thrones 8 houses to align 3 8 houses in the show set of single-malt scotches so you got you know it Oban Night's Watch it.
What we realized by looking at things like Google search.
It was that this is this is where people go first and foremost to find something that they want to understand where it's at and how much it's going to cost when you don't have you know what station.

[25:01] Commerce Ave Warehouse stop in the mix right now that can say OK Google you don't want to buy Google Search terms.
Guys that have the product understand out of Market at online in essentially starts a go to match up with those consumers.
To essentially find what they're looking for a joke telling that brand story digitally the comes the opportunity and then.

[25:30] Retailers partnering with companies like.
Drizly to help bring that stuff to life on life online and it's actually close the loop on placing that final order.
Becomes what I would say the closest thing we have to digitally native Brad and.
Because because the category is just so engaging for consumers and somebody where is it so much for thought-out purchase,
they want to understand how to use it where they want understand the story behind the brand,
I definitely think building brands in digital is is a great strategy to think about or this guy too gory and then starting to get creative and how we essentially
close the loop on the purchase side becomes the next step in that cuss words.

Taylor:
[26:17] One of the things that I think that's a good point there when you get in the Game of Thrones example that was a new product release.
When that product is released it's important that you know when they're on the Fireside they're launching these products are making sure that drizly in the other.
Have the correct.
Collateral right do we have the right product images do we have the right bottle facts you all these things in an e-commerce consumer expects to see before or right at watch let's that's another thing to think about as you're going down that brand building.

Jason:
[26:52] Yeah I know that makes total sense when I would imagine a new skills for a company with this been around as long as Diageo I have to have,
read digital merchandising the support drizzly & Company but I'm even assuming your traditional wholesale Partners you know there's a there's a lot more buy online pickup in-store than they used to be so I think,
the Total Wines in bed most of the world are probably doing more of that and then you have all this grocery pickup in Walmart and Kroger like you know I'll bet you.
Digital marketing and digital Shopper marketing shops are becoming a much higher priority across the board at the auto show.

Wayne:
[27:29] Yeah and I think that's that's part of the Mandate of our team so when we where we are.
I'm just over a year ago a lot of it was just going after some of the low-hanging fruit stuff so.
Do we have an internal audit the images we have if we don't have 400 and some odd you know brand of Fruit Products job descriptions ready to go,
do we use an in-house supplier or do we Outsource the production work to get that stuff set up,
you know who is R&R syndicating partner can we try and build something internally you two weeks ago.

[28:02] The likes of us ossify which ultimately we end up doing to distribute the content.
We were elastic just showing up in the most fundamental ways was incredibly important for us in the in the sort of phase 1 of this journey.
Once we got that in place then you're absolutely right and starts to become the,
more ideated space of how do we think about marketing on the back of this content now that we know we can trust,
not the content is of a certain caliber and quality to Syndicate to the retailer.
You know it's not an easy conversation to have with with any national retailer any Regional guy if you will if if they come back into you and say something like we don't even have product images and descriptions for your brand so I don't really,
really know what we can start to do for e-commerce year and,
you know that that's been the journey for rusted Dave and that's you know and I think that's a similar journey to most of what she could she'd companies in Centreville.

[29:06] You want it you want to do something aspirational and you want to go big but there's just a ton of work to do when it comes to establishing the brand presents online
correctly effectively and then a scale so you know you look as good with the walmart.com or an Amazon as you do with you Noah Kroger a liar and Albertsons and anywhere else your products are available.
In some type of online chatting format.

Scot:
[29:33] Taylor on the drizly side I saw you guys recently raised around of 35 million that was good hopefully you got up your fair share of that and then that's according to crunchbase that that says you guys are up to 79 total,
clearly must be grown very quickly to to get that much venture capital and there's demand for your service we had to wait on the show several times talking about what they called the bifurcation wear,
u.s. split into Canada.
Surprised by some of the things we've seen there I'm sure it would have you guys seen you think about your I guess it's your sellers customer but I'm sure you guys see you.
Updated.

Taylor:
[30:20] Identity of the consumer is a drizly consumer to be clear the war doing all the work on addition excetera to drive the volumes for a local Retail Partners that value layers be provided outside of the software,
I think what we're seeing is a more receptive consumer to buying alcohol online if he did that was one of the big hurdle that we really overcome in the last year and a half or so is.
The majority of the folks that were shopping kind of more by accident but still felt like they were doing something that might be considered illegal or On The Fringe but we've done a really good job and making sure that are messaging we are in,
they were putting the retailer out front.
When you shop with the New Jersey experience you're seeing which local retailer you're actually shopping from and that's crystal clear to Consumer on our platform I think that's been a big piece of it.
Bill you lagging the general you don't match grocery e-commerce percentage still we're still looking at below 2%.
I told you nobody by building groups and Biagio like Wayne and his team is done
I think of that kind of shows the importance from a category perspective of where alcohol e-commerce is headed
that makes sense when I start to look across the ecosystem of know who's going to be a quarters the consumer consumer probably go shopping or do most of their shopping online,
that's really who's coming to the shop you're just like.

Scot:
[31:50] And then any resting time Trends is this kind of is there a peak time from liking it.

Taylor:
[31:59] Yeah and it's exactly what you think you're seeing a lot of stock application,
no happening later in the week you know Monday Tuesday Wednesday that's more for searching and sorting and complaining if you will
and then as you start to Rolling the Wednesday night Thursday night Friday night that's Morgan start the peak gallop and then obviously just Saturdays
Dagon in anytime if there's a holiday that has any celebratory finish to it you're going to see an uptick in orders,
we have to think New Year's Eve Super Bowl Saint Patrick's Day.

Scot:
[32:34] What was interesting and often struggled with this is a lot of the on-demand guys they go app only because it.
It's easy to measure the metrics but I know what you guys also have web you have a great out but you also have kind of a web transaction model.

Taylor:
[32:55] The majority of our orders do you happen within the app experience and then iOS specifically but with that said it's important to shop and then that experiences,
you know a good experience right we don't want to create an MVP if you will we want to create an MLP if we want to meet him all lovable product,
and I think that's something that we take him very seriously beginning. I personally shop on the website when I'm shopping around Ridley,
typically playing together a little bit larger basket sizes in order,
no. My favorites into the favorite thing,
you know across the app and she just looks like a full bottle of wine she's looking for for for bachelor night with with the girls and she's off on her way so I'm really trying to meet all of our consumers where they are.
I'll take about you that our corporate anybody got a couple.

Scot:
[34:00] Speaking of corporate consumers as cooking around your site and saw some pretty nursing seems like you guys have done some interesting things there are audience maybe how that came to be in some of the programs you have for corporate.

Taylor:
[34:12] Yeah yeah if we we've got a green head of corporate over at drizly
Amazon a phenomenal job of building that practice out for us it's an area that it actually took a little bit longer to really take a deep dive and we've always had corporate customers
yo
would show that we really cared and corporate until released on this latest round of funding so I think it will be tried to do today that's really white blood that service for a corporate customer.
You're a larger order on there's more Logistics involved whether it's coming through a Docking Bay or whatever it might be in typically when you're also ordering for that or you're not,
scheduling it for an hour later you find a little bit of it and you want to make sure that you really get that delivery window because when I,
my happy hour and office is taking place at 6:30 they mean 6:30 they don't mean 7:30,
those are all important factors I think they mentioned that you're chatting
fire but no we also have taken the opportunity to make some Partnerships with some other folks out there yet mentioned the Buddy fridge power that on the back end,
you know what you did great Bay for offices that have the cooler unit within their office to automatically reorder their favorite beers online.
Doing a lot more in that space and I think that for me and Gracie perspective you can expect to see more and more of that stuff happen as Jersey becomes against Anonymous and alcoholics.

Scot:
[35:35] I think it's obvious but anyone that had the title Chief strategy digital marketing Revenue officer would definitely have to have a smart alcohol fridge.
A b a b shot if Jason doesn't.

Taylor:
[35:49] No greater no greater.

Jason:
[35:52] You think you're mocking me but I feel like we have a full-time team at boob assistants dedicated to our in office alcohol consumption technology.
So there I literally think we have tags in our office that are on Twitter and tell you when there's a when they've been tapped and and all that sort of stuff.

Wayne:
[36:13] The route to the reorder part of that cycle in and drizly can deliver.

Taylor:
[36:20] She's she's phenomenal.

Jason:
[36:24] I do want to go back to tell your little bit about some of the differences between how you and your wife shop the leveraging of the using of list and and that's one of the mixed blessings with
digital shopping for a lot of these categories I can in grocery
on the one hand it it makes reorder and it is much easier in an improved convenience and and all these things that consumers are demanding more than ever.
The flip side is there's less opportunities for serendipitous discovery of new brands and things like that and so I've noticed like in the grocery space,
you're saying some new interesting Partnerships and opportunities that the marketplaces are inventing so you know interesting promotional units from instacart or interesting data partnership with Marketplace
shares data back with the flowers that they can use to create new experiences like are you guys.
Seeing that in the alcohol space as well and is there are there any interesting Serta brand Marketplace Partnerships that.

Taylor:
[37:23] Yeah yeah we're doing a lot up there and we talked with a lot of what we consider not endemic partner so you know a recent one Netflix just wants to show called Final Table partnership with them where you know it is essentially,
yeah they're answer to a food show type contest,
where we basically paired wines that correspond with each of the different episode when we actually went through some of our Retail Partners and created in Thor display so taking online and offline,
a creating a little bit of Piper on the show and then about some of the wines that are brought up in,
it really looks at all aspects of the ordering process but also like what people are ordering at a local level write a report with Neil Finn in the past I think the biggest.
Unlearning to be at our people really care about what's being made at a local level on a product.
And we write a logo on it to 10% increase of sales for that product,
English forget that the various craft breweries I'm really like to highlight that fact that he's around the corner from you.

Jason:
[38:48] And I feel like a glove just came off now.

Wayne:
[38:52] Well I mean we don't have as many local badges because I think some of our best stuff happens to be made in Scotland but I would argue that we also have some awesome brands that are local to the US.
I wish you'd have local badges on them too and I know we actually do tell her.

Taylor:
[39:12] Yeah Ugg you got the badges think about you,
you know when you're serving up something a consumer you mentioned earlier,
I think that's an area where you going to see drizly and backed up in the next 6 to 12 months have only in and making sure they were putting right in front of the right consumer at the right time specially given you the the way it is
you know that e-commerce World works today you're very limited Chopper and
right thing in their basket you're so does the better we can do it helping push products at the browse grid.
Are consumers to purchase the more likely they are to check out and continue in the shop with our platform.

Jason:
[39:56] Wayne not necessary enticing you to throw me under the bus unless you want to but in general
like you guys feel like you're you have access to enough data and enough promotional opportunities via all these new touch points to do the kind of marketing,
that you like to do or is there an opportunity for your partner's to do more.

Wayne:
[40:18] I would say we're getting there there's always room for more but but we've realized through some of these what I'm.
Call Canada for spear of of the category the drizly.
Instacart the Postmates you don't whole or the license are really always managed to put some of the product is that.
They do tend to know more about the consumers they serve than some of the traditional retailers and so the data we can get from them is is really interesting for us we get to understand
the notion of usage occasions but now we get to get into purchase occasion so,
you know we spent a lot of time for additionally learning about when people consumer Brands but,
knowing about when they buy them is also super interesting knowing about where they buy them is really interesting knowing about,
in a high price point low price point all the different stuff that you can see comments release these particular channel to partnership.
It's all new data for for the category but it certainly data that I think in the form of our strategy in a whole new way going for it.

Scot:
[41:26] Well it wouldn't be a Jason Scott show if we didn't talk about Amazon so.
Can you sense Wayne with last do you know every startups worst nightmare has to go to build all this out and then Amazon says oh that's an interesting space let's go replicate what how do you guys answer.

Taylor:
[41:45] Yeah the Amazon car says everyone favorite.

[41:51] We be crazy not to think about Amazon right they only had faith in every e-commerce or Marketplace or otherwise I'm just because of how successful they've been,
I think it it honestly is it helpful to have them in the face and I don't use the word oil but I will
because it helps build consumer confidence that your back to my earlier pointed you know you buying online went down the right way and with the right partner is a very legal transaction is something that you know makes the shopping.
I think they were we've got an advantage is really in our Marketplace rights or our ability to show.
And to your point of the 8 to 15 different retailers in a single location with that same commodity product,
and then allowing the consumer to shop based off of what characteristics of that retailer are the most important to them whether it's Private Selection excetra
Jana and I think it will be both are really proven and it's been one of our biggest most to is this is a highly regulated good
right and drizly was built in its core,
the handle does the supporting sale right from the software perspective other regulated
so I think that you're just slapping on and alcohol category that's why we haven't
not the number. Of instacart and Postmates some of the other companies out there because it's not just that right the very different shopping experience.

[43:17] I'm not talking about the bottle of wine they can run into a shopping cart that you know,
yeah I might drink half of and cook with half I'm talking about the alcohol specifically sale,
and I think that's going to be our advantage now and in the dead moving or specially if you start to grow it our national retail.

Wayne:
[43:35] I mean Amazon is is testing this category and we we talked to them and then
you know they do have availability through Prime now in Seattle through fresh in Illinois through Prime now I believe in in Sacramento and Southern child coming from what we understand
we're Amazon has an opportunity to get better to tellers point on this you can't just add one more category and expect you to be successful,
the proposition that consumers looking for when they go to a liquor store in it's obviously price is important but really selection and so.

[44:13] You're the prime now facility were there for filling out of doesn't always have all the space that I think they would need to represent a wide enough assortment,
including various sizes right some people want 175 some people want 375.
You know big bottle small bottle for Matt about to challenge logistically that that I think anyone needs to overcome including Amazon to really build out an interesting proposition for,
are spirits online particular at the marketplace model essentially lets me is the end user on the app.
Columbus ZIP code say I'm interested in Bourbon and essentially yet.
You know almost any bourbon you could think of from from the lowest price point all the way up to you know bottles that are approaching thousand $2,000 for.
You know brand like maybe a copy that anyone should be looking for when you have that proposition and you have it almost.

[45:15] Spell nationally this point it's how you start to see a lot of opportunity for e-commerce to,
firstly when you're operating a very local level like Amazon or most of the retailers all right now you've got to you've got to think through that how do you how do you essentially provide.
. assortment that people are looking for but also you know let people come into the top of the funnel at any sort of scale and sufficiency to to make this thing work like you could do or say or diapers or.
You know any of them more traditional Goods that are available ubiquitously everywhere.

Scot:
[45:53] Yen into the drizly point.
Example Amazon's done like you have 200 friendly Integrations with point-of-sale systems and then like Amazon pay hasn't had a lot of adoption with with retailers because it's kind of like you know.
Hey at this feels really weird having Amazon kind some ways their scale.
I think you heard them because they're not going to be very hard for me to build a network.

Wayne:
[46:21] Yeah I think I know you look on Prime now I think the experience for some of these third-party seller.
Optimize the way presented and then you know I know car category either there's a lot of price for the disparity so I think consumers would expect someone to to see the price options but then also understand why,
you know there are these different prices presented to them so early a challenge that at Amazon,
I think we need to address her or think for a little bit more closely was they knows they look to scale and something like at 3 p.m. I'll only agree with you.

Scot:
[47:05] The big thing this happened in were,
more mature meaning higher adoption categories is now Amazon competing themselves with private label right and you guys worry over at the au jus about amazonbasics beer or an Amazon basic vodka.

Wayne:
[47:23] I don't and I and the reason that I think we are we are not so concerned with something like that I digitally first private label brand with with someone like Amazon is that
one is technically speaking there is this this rest of Market wall with that off so you can't necessarily create a,
Brandon not make it available now Costco does have some really good trip propositions with Kirkland brand of backyard Kirkland brand tequila but
you know I think when consumers are looking for Spirits in particular and beer,
I think I'm looking for that brand story they looking for that experience you know this is.
This is generally a more thought through purchasing you know that the price point is not that of your standard consumer guide and so.

[48:14] You know we we have trust in Our Brands and we we really see the strength of our friends has.
No fighting throw this in a potential disruption from private labeling and one in which I saw very very closely it play out where I was at.
It's just it's just not as easy to enter to win in a private label proposition.
Categories within the other category where you could directly Source manufacturer.
Any other thing with private labeling is essentially you do have to buy it back from the distributor you can.
Direct store so the various tax reform.

Taylor:
[48:54] Yeah and it's a double down on Wayne's plane really strongly believe the brand should one timeline you know they've done the brand building with the consumer
they brought him down the car I think that's the kind of one big point to sit who is an e-commerce world as they need to continue to prove that value prop and buy that brand and that should be shot War.
Ecommerce consumer as well go get some of the traditional channels that have always work,
should be also augmented with coming to think that Wayne and his team are doing to really go about that Chopper and make sure that they end up being.

Jason:
[49:29] That's going to be interesting to see how it plays out you know one of the things that's always interesting to me in in
the market is still really early and it's did you adoption curve like alcohol and Spirits is right now is that you can have a pretty fragmented market right so.
Obviously been a bunch of time talking about drizly here is one of my readers that there's there's a ton of players trying to,
when I a piece of the spacing and you know each with a slightly different go-to-market approach from your standpoint Lane do you have to,
participate with all of them do you make some big bets on the ones you think are going to win like you know what is your strategy like early on when there isn't necessarily A.

Wayne:
[50:12] Yeah I mean we're still in that building phase of e-commerce for sure and in a lot of our time or the last year is just understanding.
What's happening across the market alcohol is in a lot of ways of Barry it's early fragments as you said but it's also.
Locally Tribbett so,
you know we we understand who is going to be the best strategic group to align with the New York but that might not also be this the best guys to figure out who the partner when is Texas in the West Coast,
the the play right now is continue to test and learn and I think that's,
that's really consistent with anything you here in anybody need Commerce is constantly test. Billy learning and you get ready to Pivot really quickly as things change.
But because there's no sort of clear National front-runner right now in in the space we need to figure out how to win it at every light at every level a lot of those levels are are hyperlocal.

Taylor:
[51:18] Come on Rainbow National front runner.

Wayne:
[51:22] The closest thing to a national franchise and about right now is is Total Wine.
But even they don't truly you know have a presence in all 50 states 00.
Yeah so we are we are definitely navigating the the ultra complex for sure.

Scot:
[51:44] Taylor have a start-up question for you if you guys have the school red bear as your logo I'm guessing why that's there but I don't want to make assumptions founding story about the drizly bear.

Taylor:
[51:55] I was why I was wondering when that question would come up you know that.
I can tell you the name drizly actually came from.
That is an option off the board as far as name goes and then very early on in life.
Get a branding agent has become in and give us some marketing tips and tricks and feedback excetera and one of the things that they came up with
shooting currently with this Presley
not a lot of thought went into it after the first logo iteration with the Jersey Devil is done and I think it's something that deep down no one's ever fully understood but at this point in our life is what were known for,
we've all become pretty pretty affectionate to the bear so the bear the bear will live on.

Jason:
[52:49] That that is awesome and is it works at that's going to be a great place to end it because it's happening again we've blown through all our allotted time but if folks have burning questions about the category let's keep the conversation going on Facebook and Twitter
as always if you really enjoyed this episode we sure appreciate that that five star review on iTunes and as a reminder of you want me Jason and Scott in person in Palm Springs next week you can do it at you tell West and then it'll be a promo code,
in the show notes for you but Wayne Taylor a real pleasure chatting with you and really grateful for your time today.

Wayne:
[53:27] Thank you guys just a lot of fun.

Scot:
[53:31] The end up before before we let you go if folks want to find you online are you guys realistic tweeters or snapchatters or instagrammers in any any business writing there that where people can find you.

Wayne:
[53:44] Can you find me an admin people on Twitter although I mostly just tweet about sports and things like that but what happened.

Taylor:
[53:54] When the big wings and I find him on LinkedIn meet me the same people in 86 on Twitter but we're we're LinkedIn.

Scot:
[54:02] Awesome we really appreciate guys taking time out of your busy day so join us on the show and.

Jason:
[54:07] Until next time happy conversing.

Feb 1, 2019

EP162 - Amazon Q4 2018 Earnings Hot Take 

Jason & Scot will be podcasting live from the eTail West which is held Feb 19-22 in sunny Palm Springs, CA. As a special gift to listeners, you can use the code JASONSCOT for 20% off.

This episode is a hot take on Amazon Q4 2018 earnings

  • Amazon Q4 Earnings Highlights
    • $72.4BB, which is a 20% y/y increase
    • $19.4B in Free cash flow
    • Amazon grew North America 18% y/y and International 15% y/y, for a blended growth rate of 17%
    • Unit growth decelerated to 14% from 15% in Q3
    • Revenue from brick and mortar down 3%
  • Amazon Web Services - Grew 45% to $7.4B for the quarter and generated $2.2b in operating income which was up 61% y/y
  • Marketplace
    • 52% of units, down from 53% levels in Q2 and Q3
    • Wingo GMV estimate -> 150B GMV for the quarter.  $450B GMV for the year ($300B GMV in North America).
  • Amazon Ad Business - grew 95% y/y  to $3.49B (Estimated $10B for the year)
    • Pivotal estimates $38B by 2023

Jason & Scot will be podcasting live from the eTail West which is held Feb 19-22 in sunny Palm Springs, CA. As a special gift to listeners, you can use the code JASONSCOT for 20% off.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 162 of the Jason & Scot show was recorded on Thursday, January 31st, 2019.

Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer and Scot Wingo, CEO of GetSpiffy and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:

Transcript

Jason:
[0:24] Welcome to the Jason and Scott show this episode is being recorded on Thursday January 31st 2019 I'm your host Jason retailgeek Goldberg and as usual I'm here with Scot Wingo.

Scot:
[0:37] Hey Jason welcome back Jason Scott show listeners Jason big question it's -50 there in Chicago how are you hanging.

Jason:
[0:46] I am enjoying the modern technology of central heating so I'm doing I'm doing terrific my dog who hasn't had a walk outside in like 3 days is doing less well for MacGyver.

Scot:
[0:59] Your dog doesn't have four dogs can't take minus 50.

Jason:
[1:03] I really like this is a rescue dog from Detroit that thinks he's like a Southern California dog like he goes on strike below about 40 degrees.

Scot:
[1:13] Got it Caldwell.
Earlier this evening Amazon announced their 4th quarter results that we've been on pins and needles waiting to see how they did so this episode is going to be exclusively Amazon news and we're going to give you a hot take on the result.
But first Jason are going to be live podcasting from etail West which is held February 19th to 22nd at Palm Springs California
and it's a special guest gift exclusive gift to our listeners you can use the code Jason Scott there's no and in there so j a s o n s c o t Scott with one t
looks like Jason Scott is another way to think about it,
for 20% off and we are going to put a link quick Link in the show notes for you to be able to apply for that and come to the show and see Jason I'd life podcasting would love to chat with you if you're going to be there.

[2:11] So with that housekeeping all the way let's jump into Amazon results first I kind of wanted to frame the discussion so the companies have already announced we had Facebook and eBay come out and,
Facebook really kind of exceeded expectations because they've been in this kind of
poop storm of negativity and controversy that was interested or expecting it to be bad because advertisers was bailed on them.

[2:39] Turns out if you have a way to get in front of customers people want then they don't really care about the controversy I guess,
eBay's results were below expectations so so kind of another e-commerce company there and was eBay's results or a lot of talk about this kind of.
End of 4th quarter slowed down
so if you recall we had camera from Adobe on the show and Adobe has come out and said look it really kind of fell off a cliff kind of December 15th
through to Christmas I needed to the back of the year they talked a lot about that where the holiday was semen along and then kind of died there towards the end which was interesting
so the net net of that for them is there Marketplace crew 1% if you exclude the impact of foreign exchanges so
a heading in and outs two days ago I believe I'm so heading into Amazon there's Otay people are a little kind of wobbly can I see some mixed results coming in to Amazon and where were they
so that set up Jason wants you walk us through the high-level pieces.

Jason:
[3:42] Yeah well spoiler alert they landed very solidly like they basically had a complete beat they beat all the the
analyst expectations so top line revenue came in at 72.4 billion,
that was against a expectation of 71.9 billion and was a growth rate of 20% year-over-year,
earnings per share came in at.
A little over six bucks and the expectations were like 5:55 so that was a solid beat.

Marker 02

[4:17] Last year they had a quarterly Revenue this quarter of like 60 billion so that means this year they added about 12 billion dollars in sales just in this one quarter so they continue to be clicking along.
So if you look at an annualized basis for 2018 total revenue from Amazon comes in at 233 billion.
Corso remind listeners.
Ecommerce the revenue isn't really the most important number we like to talk about their gross merchandise value which I'm going to let Scott break down and in just a bit.
But if you listen to Jeff talk.
She's not as big a fan of the sort of Revenue and earnings metrics is he is that free cash flow metric so.

[5:10] Yeah that's really the the metric the Amazon Rise Against is that hundred percent free cash flow and you know once again this was a good quarter for that,
free cash flow more than doubled from 8.3 billion last year to 19.4 billion this year.
So that's a first world problem you got to find a lot of place to spend all that loot.

Scot:
[5:30] Yeah but how's that possible Jason I thought Amazon wasn't problem.

Jason:
[5:34] Yeah it's almost like that some some misnomer from 10 years ago or something.

Scot:
[5:43] Fun fact I would call 19 billion dollars of free cash flow pretty not too shabby.

Jason:
[5:53] Yeah and the one I get now though to be honest I guess you're like a Amazon is not profitable what it What I Hear now which is also a misnomer is 100% of their profits from AWS.

Scot:
[6:04] Yeah yeah let's talk about that so is repealed the onion on on the
the 800-pound gorilla that is Amazon overall North America grew 18% year-over-year and as a reminder to listeners we talked a lot about the e-commerce Baseline of 15%
retail Baseline is 3 to 4%
Amazon has historically clocked around kind of 20 to 30% so this is where the first quarter is when they've actually slowed a little bit and part of it is the concert is getting monstrous in the fourth quarter you mentioned a $12 increase your rear which is you know.

[6:38] Adding a chunk of any other,
retailer but they are specifically in Q4 starting to see things slow down because they've created these massive comps your ear and things like
launch an echo now can create headwinds on that and then you also have to hide window when products move from one p to 3 p.
Prepuce growing faster than one PS4 creates a headwind on Revenue growth cuz they collect a lot less from from third-party
set also a like item going from 1 Peter 3 p as brands do things like hybrid that creates a little bit of slow down and rub you also.

[7:13] So that being said North America grew 18% year-over-year International grew 15% year-over-year for Blended rate of about 17% on the retail side
taking out a WIC etcetera overall they grew 20% but the retail pieces group of three bases 3% slower,
that international number was a little bit of an acceleration which was good to see that they've been kind of facing some headwinds there on the international side so it's good to see that and then profit-wise in North America that took
the 2.3 billion so the North America business inside of Amazon is profitable even so it is not true that that if you
all the profits come from a Tab S but certainly the Lion's Share do and then International is still losing business money
but it it kind of shrink the Lost 30% to 642 million so
even an aggregate if you add up the North America and international the retail part of Amazon is still profitable
including the marketplace so and that International Peace is on its path probability it's just so honking big is going to take a little while to get.

[8:23] North American margins ticked up 60 basis points and that was attributed on the call to getting some really good leverage out of fulfillment center expenses so Amazon 2018 was a. Of time where Amazon
you know they only Built a 15 to 20 centers
I'm a percentage standpoint that was a pretty low capital expenditure year for them so instead of adding all the capacity they needed to
to ship all the packages they utilize more of the film Center squeeze more out of them,
so that being said another thing that I always watch is 2% of units that come from third parties this is the
the the metric.
Give around third-party versus turtle useful that was 52% which is a tick down slightly from 53%
I wear it wasn't Q2 and Q3
reading the tea leaves that was probably driven by as a swing in the fourth quarter you know the the 1p kind of bumped up a little bit I believe because of all the private label that we
Racine going on I think there's over a hundred fifty private label Brands and then what you call owned Brands so things like echoes in the whole X family,
I think that pushes up that first party unit side during the holiday. I'm talking about 1% you're so not a lateral move.

[9:51] One area of a little bit of concerned that for Wall Street is they look at this total unit gross and that decelerate a tad
even at 14% that's down from last quarters 15% so
yo a lot people asking how can unit growth be 14% but then they totally grew 17% so what you have is unit growth in ASP mix coming out a little bit higher to multiply together to give you like the total,
so when Amazon on a quarterly basis doesn't give you the pieces you need to unpack the DMV
astrix and I'll come back to that so what they do is in their annual report which will come out and I think they have another 30 to 45 days to put in your Port out then they will provide the
mechanism for 410A backing into the DMV so.
But astrix is I go to a model I've used over the years that that is relatively close so so what that model tells me is now.
I'll say this is not an official number this is just kind of Scott napkin calculation to,
I just give you an idea of the scale but we don't have to wait for the annual report and if you take Amazon's overall Revenue this quarter of 72 billion.
AWS with 7.4 and you take that out and then if you also take out the other AD business you're left with 61 billion dollars of kind of retail Revenue.

[11:18] So I use that to back into a 1 p.m. to 3 p mix and what I get is 52 billion and 1 p
and then you're left with eight or nine billion dollars in revenue from creepy Amazon's take rate is about 10% so you have to multiply that by 10
so you end up with first party DMV of 52 billion third party DMV of 95 billion for a total of about 150 billion in the fourth quarter, global stamp
again this is an approximation and we'll have a lot more clarity when they're in the report comes out more working into one of our new shows
6 interesting is if you take sat and soaked it with those of you that have her to say this before you know Amazon's easily
twice as large as you think it is to take my calculations from q1 to Q4
I get an annual number of Total Gym v-force partying third-party F450 Glen Jason is you know Walmart is kind of it a 500 billion
your Revenue rates
we we talk a lot about how I think you agree with me but that's that's the better comp is Amazon's total gmbh versus Walmart sales and
so so Walmart is still bigger than Amazon but I do think the lines are going to cross in 2019
I'm so that's going to be the first time somewhere in 2019 probably you wanted you to.

[12:44] Yeah we'll be able to say that GMB to GMB Apples to Apples Amazon is bigger than Walmart that's going to be interesting to keep an eye on.

[12:54] Last little bit on the marketplace side is Amazon it's kind of funny that press releases now are like 16 Pages cuz they usually put like a little. Of some highlights through the year and they have so many highlights now it's like
12 pages of highlights are they really highlights.
I'm the only one that picked out of there that I hadn't seen release somewhere else I thought was hers would find interesting is the announced that 200,000 sellers on the third-party platform are now generating over $100,000 a year in GMT
so I pre nursing small business platform there where you know if that's an international number but I would imagine it's split price 60% us 40% International and then correlated with that I've been seeing a lot of.
Amazon's running a TV ad campaign and it shows a train out of an a bunch of Amazon Fulfillment boxes with third-party seller stuff on it so they're really kind of,
camping up the third party aspected left.

Jason:
[13:55] Yeah it's always chuckle to read those highlights because you'll get like one highlight will be like.
We added a PGA event to Amazon Prime video and then the next highlight will be and we sold a hundred million Alexa devices or so you don't seem seam
super ration.

Scot:
[14:17] Can we handle the trillion workloads on the AWS cloud.

Jason:
[14:21] Exactly.

[14:23] Yeah and the the Walmart Amazon is definitely becoming a horse race is pretty interesting and not just a reminder.
A ton of Walmart's revenue is grocery even with the Whole Foods acquisition very little of Amazon's revenue is grocery inside.
Amazon 30 crushing Walmart on General Merchandise Walmart's crushing Amazon grocery.
It certainly is the case that Amazon's probably growing grocery a lot faster than Walmart's growing general merchandise so if that doesn't doesn't bode well for for Walmart in the.
In the short term is those lines start to converge and then of course Amazon has all these other fabulous business so you know we mentioned,
the AWS gets a lot of the the buzz that's that's not entirely unfair cuz that you know that they continue to be going gangbusters that you're getting there the.
The clear market leader they have a huge weed over there their primary competitors Google and Microsoft.
Until you do when you're that big and have that much market share it's really hard to grow fast but AWS still grew 45% for the quarter so that was.
7.4 billion in revenue and you know much more profitable business so that that's been off 2.2 billion in operating income which is up 61% year-over-year so.
That is not a bad side hustle to have if your if your Amazon.

[15:52] And then of course they they have this other increasingly big category that they still call other the big chunk of other is this advertising Revenue.
Hopefully at some point in the not-too-distant future.
This gets spun out as a separate number but other came in at 3.4 billion which is up almost 100% 95% from last year and so you know.
If you think of that as.
The primarily that ad business is actually the growth rate is starting to decelerate so lightly as they do start to get a critical mass but it's still a huge.
Chunk of gross if you add up that the.
Portion of other for the last four quarters that are likely add sales it's it seems pretty clear that it's over 10 billion and add sales and.

[16:47] You know it is interesting it's like obviously becoming a much more important business for Amazon I think it was an analyst that counted how many times they mention the ad business on this call versus last year's call
and last year it was like 12 mentions this year was 25 mentioned so it's getting more mindshare.
And you know we're seeing all these wild projections of how fast I could grow so I think it was a new one out from pivotal research that said that by 2023.
Their ad business could be a 38 billion dollar business and even more so than eight of us.
Add business is hugely profitable and so you know if if they do grow that kind of trajectory is very likely that the ad business is is both bigger and more profitable than the AWS business in the next 5 years.

Scot:
[17:35] Yats commit arson to see if they can get it to be that size it at that pace it would be bigger than Facebook I believe without a SIM Facebook Stan.

Jason:
[17:44] Yeah it would be bigger than Facebook is now but yeah.

Scot:
[17:48] Episodes it's clear it's going to be a three-horse race so so it's going to be Google Facebook Amazon I think dirty bigger than Snapchat.

Jason:
[17:57] No I think they already are numbered if they hit 10 billion there they're probably number three.

Scot:
[18:01] Snapchat I think is a Twitter somewhere around there so hard like 6 or something.

[18:07] Another part that I we always look at kind of your lie is that was all the past and this is kinda looking forward so Amazon
you know the way they do things they don't give annual guidance so they do tell you how it's coming in the next quarter so their practices
so looking towards 2019s the first quarter so the first thing they did as they kind of gave an overall warning which said hey 2018 we didn't spend a lot on centers industry,
data centers and employees but we are going to ramp that up in 2019.

[18:48] Unemployed fact that hit 675,000 people so I think in,
the not-too-distant future in the next three or four years Out imagine to get to a million people unless they dramatically changed the the workforce switch to robots or something
zipper that perspective last year capex grew 12% iron grew 14% so kind of signaling reading the tea leaves are I kind of got the vibe that is going to be more towards the high teens on those numbers may be excited,
120 kind of get the feeling again this is just kind of reading the body language which is very hard with Amazon
to be totally wrong I get the feeling they almost felt constrained by fulfillment capability in the fourth quarter that the maybe maybe they left a little bit on the table cuz they
they just couldn't get as much product in and out or something let me just be me while I have to see if any of the Wall Street analyst pick up.

[19:42] So so that's kind of you know it'll be interesting I think the stock will be a little kind of muted because.
While she keeps it when he comes on goes into a spending days until the groceries up
so for fourth-quarter projections Amazon put out a range of 56 to 60 billion that was below the Wall Street consensus estimate of 61 billion that add.
I'm at the midpoint that's 13.6% year-over-year growth,
and the high point and gets up towards 15% then the guy did towards pretty much what Wall Street was expecting on.
And then there a couple other tidbits executed since I'm going to have a couple to you go first.

Jason:
[20:25] I did want to mention like one specific thing that came up a little bit in the
in the lower guidance was was what brought International is getting some traction there was recently a new e-commerce law that was passed in India that's going to be.
Potentially very challenging for Amazon and Walmart and so I and I think Amazon called out several times that there's some uncertainty about their their speed there.
Speed of growth in India as a result of this this new new regulation there.

Scot:
[21:03] It is such a size u.s. space companies can't do business in India if you've beautycounter read the headline.

Jason:
[21:08] Yeah if you like there's there's some ambiguity and how to get interpreted so people are hoping it's not that extreme but there's no version of it that's good news for for Amazon and Walmart who both invested a ton.
In that market and you know you know I'm not going to get that clearly has good access as they were hoping to that market so that's interesting but even with that that sort of.
You know what kind of muted level of enthusiasm that still puts Amazon's market cap white as of tonight at at like 840 billion and of course
you know they did briefly go over a trillion last year but to put things in perspective Walmart who you talked about.
Being larger than Amazon in terms of total revenue Walmart's market cap is like 278 billion tonight so so Amazon's market cap is the equivalent of the next seven largest retailers in the USA
they're the equivalent of Walmart + Home Depot + Costco Buffalo's plus Walgreens plus TJ Maxx and Target which is pretty mind-boggling of you
if you still think about it.

Scot:
[22:15] It's a girl thing so I Walmart overall I think Walmart's growing low-single digits is that right at all.

Jason:
[22:22] Yak like four.

Scot:
[22:23] So is that that's what it is it's you you look at one point time you know the order about the same size as best we can tell right now, Jambi perspective but you know what will she loves his growth and when you have a.
1 / 200 billion dollar business growing in the mid-teens there's not many.
Accept apple and an Amazon that if you know to do that.

Jason:
[22:46] Yeah dumb president is pretty awesome to be then.
So a couple other tidbits one thing that's getting a little bit of attention is you know they do not have a line item on the income statement for brick-and-mortar retail which is,
mostly Whole Foods and so this what is the first quarter when they now have a complete year of,
data from Whole Foods that is the first time that want the Amazon rather has his had sort of the true
look at same-store sales comps and the look isn't entirely favorable so it looks like they're brick-and-mortar sales are down 3% from last year.
And you know it it first you go huh does that mean Whole Foods is.

[23:35] Shrinking which Whole Foods West facing some some possible
but you know you also have to remember that that Amazon makes him aggressive price promotions in Whole Foods so the revenue from from some of those price promotions has some.
Some impact on sales but the the big item that that Amazon talked about was.
That when they do a by online curbside pickup from one of the the 60 Whole Food stores that supports that or they do delivery.
In one of the market that supports that that Revenue gets recognized as e-commerce Revenue rather than brick-and-mortar Revenue so for them brick-and-mortar means.
You you walk to the store and pick the fruit yourself instead of having a an Amazon pick our picket for you.

[24:32] And so they're they're alleging that that that contributed to the the lower sail brick-and-mortar sales some of that sales just shifted from.
From brick-and-mortar tab to digital in the in Amazon's version of the story but at the minimum it means.
Those stores aren't like wildly growing and it it also means that the fleet of other brick-and-mortar stores that Walmart has put out there the.
The increasing number of bookstores in nine go stores those still aren't having a material impact on revenue and.

[25:07] So that was interesting.
I did also you know it always comes up one of the big line items and cost in Amazon has every year and it always goes up by a big number is shipping so shipping cost went up 23% for the quarter.
I'm as you pointed out earlier they shipped 14% more units so.

[25:28] That accounts for you know a big chunk of that growth but also means their cost per unit had to creep up.
And it's it's always interesting to me a UPS had their earnings call today as well they actually had a good.
Good earnings call but but the.
The headline to me was that the CEO of ups for the first time and knowledge that yes Amazon's a big customer but they also are a competitor and we track them as such and that's a.
Basically a 180 from previous statements from UPS the day they really didn't think Amazon would be a competitor there's and that they purely saw them is.
A customer and I always like to talk about the fact that UPS isn't growing fast enough,
they're not growing a shipping capacity fast enough to accommodate all the
growth Amazon getting much worse want to get so it's almost imperative for Amazon to have some of their own shipping capacity and
really highlighting that I sort of backed into
do UPS as package number for 2018 and it looks like UPS shipped in in North America UPS shipped 1.5% less packages this year than they did last year so I wonder if UPS is ability to deliver,
some of their own packages which you know now they estimate that about 12% of their total volume if that's starting to have them internally impact on UPS.

Scot:
[26:53] When I drive to work I go through a couple interstates and on a daily basis I C 5 + Prime delivery Vans the stasis is crazy.

Jason:
[27:07] And I'm surprised like I mean aren't you in like autopilot and you're reading a book or something while you got so I'm surprised you can see them.

Scot:
[27:13] I'm counting I just kind of play Amazon smile bingo.

Jason:
[27:17] I like it.

Scot:
[27:22] Cook's one of the other tidbits to the more detailed Wall Street reports will come out in the morning I'll treat anything that's kind of interesting there
but the ones I saw they do hot take kind of thing as well I saw her folks kind of.
Reappearing in sang Hey we're in a we are really interesting are overweight or whatever they're the recommendation is so it looks like everyone's bumping up their price targets to kind of the $2,500 share range
which is it comes true over the next 12 months or so that'll put Amazon squarely back into that trillion-dollar club.

[27:58] Summarize I would say Amazon had a great quarter. It was a really nice worth quarter but it is interesting you know over the years having all this for a while Amazon's always been growing
accutest 3x clip of e-commerce and now at a 70 70 billion dollar quarter ton of a scale though the rule of large numbers is kind of catching up to them and they're starting to kind of
get closer into that mid-teens e-commerce procrit so you know it's munition to see,
what does Amazon do to accelerate that do they care a lot of noise around the healthcare business and some other things that the Amazon to get into you than just wrapped up that.
When you're when you're clocking along that at over 250 billion dollars,
you have to take big swings at at the plates are the kinds of things are going to go through and disrupt are going to be there got to be a hundred billion dollar kind of opportunities for them to really move the needle and get that growth going to be,
reversing the see what they do to recover.

Jason:
[29:03] Yeah I'm looking forward to watching it and podcasting about it and that's going to be a perfect place to leave it because it's happening again we've used up all our allotted time as always if you have any questions or comments about the show you can keep the dialogue going on our Facebook page or you can hit us I just got a ride up on
Twitter
of course we always appreciate those five star reviews on iTunes and is a reminder that there's a chance to meet us in person if you're interested in attending the etail West show
in Sunny Palm Desert this month so as a reminder for listeners we have that special promo code
Jason Scott Jason Scott and that'll get you 20% off on your mission it's shaping up to be a really good show and I will put a link for registration in the show notes.

Scot:
[29:53] Thanks for joining us everyone.

Jason:
[29:55] Until next time happy commercing.

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