June 29, 2018

Amazon the Terminator

I’m pretty sure I’m an introvert, but after a glass of wine or two I can play a convincing extrovert. I’m generally referred to as being left handed since that’s the hand I write with, but nearly every other active effort I engage in is decidedly right handed. So which is it, right brain, left brain, does it matter? What matters to me is it has invited into my thinking a distinct skepticism of self-generated ideas, extending beyond what a financial model does and exploring why it does it. Simply put if the media suggests a financial crisis is on the way, who am I to doubt their belief in what they’re saying. The what, is they sell a narrative to consumers, but the why tells the other story that marries the event with the narrative, and in my opinion, a better snapshot to analyze. Amazon is a good example.

Hasta La Vista, Baby

There are undeniable challenges in the world when it comes to finance and the markets, most of which are poorly understood by many who too easily agree or disagree. With regard to economics there are any number of metrics that can put an idea into perspective. But sometimes that which is unexpected, such as yesterday’s announcement that Amazon (AMZN), through the purchase of an online pharmaceutical distributor has begun the deconstruction of the industry as we know it.  Is the news true? That it’s happened in many industries AMZN has entered is true. And street pharmacy stocks are precipitously declining, with the help of the pundits using the story as click bait? So that’s the what, but where’s the why.

Look at Amazons recent purchase of Wholefoods. Prior to that acquisition the company using its hold on the trucking industry was competing with Fresh Direct and Instacart, under the name Amazon Fresh. Beginning with prepared food delivery, the demand for groceries over the past few years has been no less than overwhelming*. But the structure of these perceived game changing companies is firmly anchored in the 20th century. Trucks (gasoline), Warehouses (utilities) and lots of Workers. Over time one could easily argue that Drones and Robots could replace the former and the latter, but central to the delivery of food, is the food.

So when Amazon entered the fresh delivery business it was, of course, wildly assumed the destruction of the industry was eminent. Asking why, made for an interesting perspective  given the few, including myself,  knowing that Amazon was more familiar with warehousing in general and therefore when they bought Wholefoods, it wasn’t a supermarket they bought, it was a national grocery warehouse chain that fit both the narrative and the event, namely most existing warehouses do business with everyone.

Regarding yesterday’s announcement, the pharmacy industry is in a different space than AMZN. That space, in partnership with the insurance industry, is about health services. That’s the what. The why, has lead me to analyze the recent attention on consumers seeking common heath issuers and showing preference for the cost of Urgent Care centers to the general cost of a visit to a doctor’s office. So in my opinion the impending destruction of any competitor in its way could very well lead Amazon entering the fray, if for no other reason since all the companies currently involved are after the same end. And as that group is currently active in mergers and acquisitions, the current why, could include the potential of one or more events and a reason to look beyond the what.

When you look at your cell phone don’t just concentrate on what it does, maybe not even how does it, but why it does it is a questions one needn’t possess artificial intelligence to answer, but it may require questioning the most rational answer that comes to us first.

I’ll Be Back