Who Might Amazon Buy In the B2B Space?

Who Might Amazon Buy In the B2B Space?

Gary Slack | June 29, 2017

It seems logical Amazon could pull a “Whole Foods” move one day soon in the business-to-business world.

After Amazon announced its deal to buy Whole Foods, I began to wonder: Might Amazon have an early equivalent B2B acquisition target in mind?

Think about it. If, as retail experts say, Amazon has brought the mall to consumers—shopping, same-day delivery, entertainment and now food—why wouldn’t they be thinking of doing the same for consumers when they are at work or working?

So, as the thinking goes, in addition to bringing the mall to consumers in the comfort of their hones, they could bring things like trade shows and entire OEMs, industries and supply chains to businesspeople in the comfort of their offices.

Of course, for some time Amazon Business already has been doing this—in a burgeoning array of B2B product categories.

The question is, can Amazon make this happen on its own and at the speed they want it to happen, or are there Whole Foods-like B2B firms—probably gigantic distributors—who have the product lines, customer relationships and service capabilities that would save Amazon years?

A client of ours with considerable experience using Amazon as a sales channel for her OEM employer, told me: “Unless they decide they can’t get there fast enough on their own, I’m not sure they will need to buy anyone in the B2B distributor space.”

Some analysts are saying the Whole Foods purchase was done because Amazon couldn’t make food happen fast enough on its own. They needed a well-established food retailer in their fold.

So, if Amazon is thinking the same way about certain B2B categories, who might be on their shopping list?

A pure-play online distributor? Possibly, but none I can think of are yet at the scale Amazon probably would want.

A combination offline and online distributor? I think we're getting warmer. But who?

Well, my bet would be someone like IT equipment seller CDW, medical products distributor Medline, office products distributor Staples, construction products supplier HD Supply or MRO distributor Grainger.

My biggest bet would be on Grainger, a $10.1 billion behemoth that sells gazillions of basic, largely undifferentiated industrial equipment, products and supplies made for the B2B masses by a multitude of OEMs.

For many, Grainger conjures up images of foot-thick catalogs, hundreds of CSRs dialing for dollars and hundreds of stores. In reality, Grainger has morphed over the past decade to become the poster child for B2B distributor e-commerce. It has invested hundreds of millions of dollars to make searching for and buying products online as easy as it is on Amazon—no small feat.

At an Executives Club breakfast in Chicago a few months ago, I asked Grainger CEO Jim Ryan what percentage of sales was consummated via e-commerce. He said upwards of 60%, which puts them way ahead of other major industrial distributors. Further, he said it could get to 90% in a few more years. Much is sales-assisted, but not all.

That’s pretty amazing when you consider that Grainger sells principally to maintenance people in factories and industrial facilities while CDW, which reportedly does 35% of its sales via e-commerce, sells to much more tech-savvy IT people. CDW’s figure is not shabby by any means, just not in Grainger’s ballpark.

What would Amazon do with Grainger? Well, the world is still wondering what they’re going to do with Whole Foods. But here’s one man’s guess.

First, Amazon could leverage Grainger’s buyer credibility and strong service reputation to immediately put Amazon atop the MRO map. Yes, they’re already doing MRO, but not as much and not as well as they would with Grainger.

Second, if over time Amazon and Grainger could evolve to same-day or even drone delivery of mission-critical MRO items, that adjustment would leave little reason for MRO buyers to buy anywhere else.

Third, there’s the data. It’s always about the data.

My guess is that over time the Grainger name would disappear, and what was Grainger would become the MRO category under Amazon Business or Amazon alone.

Demographics are on the side of such a combination of forces. While B2C and B2B marketing are not converging (as some espouse), one thing is for sure: B2B buyers are expecting B2B buying of fairly basic business equipment and supplies to be as easy as buying on Amazon.

That's a lot of B2B buyers, given Google's and Millard Brown's announcement two years ago that millennials were then 46% of all B2B buyers. Google's Jim Lecinski, who shared this figure at my BMA15 conference, told me on stage he thought the number might grow to two-thirds within a year. Here we are in mid-2017.

Amazon-style buying—quick, easy, intuitive but mainly quick—has caused untold Sturm and Drang among myriad B2B OEMs and, especially, B2B distributors across all of global industry. Many distributors have good reason to be deathly afraid of Amazon. But the better ones—those up in thinner air with Grainger—might just hold their own against Amazon—or, if not, have an M&A future with Amazon.

OEMs, who once scoffed at the idea of Amazon ever becoming a key sales channel, are taking it much more seriously, especially since the morphing of Amazon Supply into Amazon Business, complete with live chat. Amazon is now a top 5 sales channel for many OEMs. And some may well face a future where Amazon will be their primary or even sole sales channel.

Yet, for OEMs it’s not all wines and roses doing business with Amazon.

As our OEM marketer client told me, while Amazon will work with you to get your products up on their site and provide tools to get search, reviews and recommendations going, eventually they’ll learn enough about your products to introduce their own private label knock-offs. And before you know it, they’ll be an arch competitor, too.

And that’s why many OEMs are responding to Amazon by trying to do more direct online selling, something just a few years ago many said would never happen due to fears of “channel conflict” and irate distributors and dealers cutting them off.

So, if there is to be a big first buy by Amazon in the B2B world, my money is on a mammoth distributor like Grainger. Time will tell. If I’m right, you’ll hopefully remember I predicted it here!

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