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Ordering Anything and Everything at the Push of a Button

Last year (on April Fools' Day no less), Amazon (NASDAQ: AMZN) launched its Dash buttons, giving its Prime members the ability to order common household with the single press of a button. The public seemed incredulous at first, but is there more to this idea than at first glance?

On this special crossover episode of Industry Focus: Tech, Motley Fool analysts Dylan Lewis and Vincent Shen look at how leading names in the retail industry and budding start-ups are trying to make it as easy as possible for consumers to spend their money. Even companies like Domino's (NYSE: DPZ) have invested significantly in their digital strategy and now offer over a dozen different ways to order a simple pizza pie. 

Tune in to learn about the benefits this technology offers to both companies and their customers.

A full transcript follows the video.

This video was recorded on Nov. 18, 2016.

Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Friday, November 18th, and we're wrapping up crossover week with a chat about some of the more advanced ways people are placing orders. I'm your host, Dylan Lewis, and I'm joined in studio by the host of the Consumer Goods show, Vincent Shen. Vince, how's it going?

Vincent Shen: I'm doing well, Dylan. How are you?

Lewis: It's pretty fun to have you next to me in the studio. This goes back to ... maybe eight months ago was the last time we did a show together, back in the Tech days when you would sub in for Sean?

Shen: Yeah, I think back to the days of doing the Consumer Goods show with Sean. This is my third show now -- I mentioned this on the previous episode -- of having someone in studio to actually talk to you in person while shooting the podcast. That makes such a huge difference compared to when you have someone calling in on Skype or something. I generally find it to be much easier to take a conversational tone, and the discussion is much more additive that way.

Lewis: Yeah, I'm always worried that I'm going to cut off Evan or Daniel Sparks on the Tech show, because they're calling in on Skype. Today, we're going to be talking about the intersection between tech and CG -- namely, picking up on a conversation that you and Asit Sharma had on the Consumer Goods show about a month ago, talking about loyalty programs and the more integrated tech solutions that some of the big consumer players are adopting. I think the one that spawned the show and the idea is the Amazon Dash buttons. Do you want to get some background for listeners who haven't encountered them?

Shen: Absolutely. These buttons, if you've never heard of them, picture something the size of USB thumb drive. It has some major brand of consumer household items. Think, Tide detergent, Clorox, and it branches out into things like Coca-Cola, Gatorade, a lot of products. These have been available since April Fool's Day in 2015 --

Lewis: Interesting date to launch something like this.

Shen: Yeah, a lot of people did think it was a joke at the beginning. This little button, you can press it, and it's connected to your Wi-Fi, and it will automatically place an order for whatever that brand item is. These buttons cost $4.99 each, but once you place that first order, Amazon will credit you $4.99, so in the end, it's essentially a free button or device.

Lewis: As long as you use it.

Shen: Exactly. I think the hook here is convenience. On the consumer side, you have something that's right there. If you're doing your laundry and you're out of detergent, it does seem very appealing to have this button that you can just press, and from that point on, maybe in a day -- if you're in the right market and the distribution centers are really close -- or, within 48 hours. The thing is, the Dash buttons are only available to Prime members. So, you can have something restocked very quickly. In terms of the Dash program and how much it has grown, when it started it only had a couple dozen options, in terms of different products. I went through and counted -- there's over 150 buttons now, available across six different product categories.

Lewis: That's incredible.

Shen: That includes household supplies, like Tide, Clorox, Hefty bags. Then, there's groceries, so you might get Red Bull or Folgers coffee, health and personal care, beauty, pet supplies, and kids and baby.

Lewis: I think what you see with a lot of these is, they're all non-perishable, for the most part, or they're products that have a shelf life of a month-and-a-half, so it's nothing that's going to spoil. A lot of them tend to be in house cleaning or personal maintenance, or something along those lines, one of those product categories. I know it always seems like I'm never fully stocked with paper towels, and I envision this being their dream scenario, where you go to grab another roll of paper towels from the pantry, you see you only have one or two left, so you hit the button and order more so they're there before you don't have any.

Shen: Yeah. That's what I think the company hopes that consumers see as the value-add, the idea that you run out of something, the button is right there and you can place that order, and you can really take the entire process of shopping out of the picture. I think it's a huge benefit for Amazon, having that convenience. But also, they can track your usage, and at the same time, you don't see what the price is. So, you can get a notification in terms of practical usage, you can get a notification after you place an order and see how much it was and adjust accordingly. For some of the items, there might be different package sizes. If you're ordering razors, for example, you might be able to order a three-pack or a six-pack. And you can change that in your settings. But ultimately, when it comes down to it, the idea is you are not making that trip to the grocery store, you're not walking down the aisle, you don't see what's on sale, you don't see any new products in the area, you're very tied to these big-name brands from large consumer goods companies like Procter & Gamble, Clorox, Unilever. They are the ones that make this relationship with Amazon work. And they're very happy about that, because when you put this button up, you basically have a mini billboard for that brand in each person's home.

Lewis: It's kind of a big brand's dream. You're eliminating the possibility of any store brand or generic or something like that catching a customer's eye because they're $0.20 cheaper. And you're making what would be, maybe, a purchase that involved some thought, something that's automatic and a little bit more programmed. So, to give an idea of what the breakdown is here in terms of brands, I'm guessing that most of the big consumer goods conglomerates are involved in this?

Shen: Yes. 

Lewis: It seems like they break down the share of buttons by sales, and P&G is up top there with 31%.

Shen: I have to note, this data is from the early launch period of May 2015 to January 2016. This was before they rolled out a lot of new brands. But just to give people an idea, like you mentioned, you have Procter & Gamble, their share of just the buttons sold --

Lewis: So that's not product sales using buttons.

Shen: No, it's the actual buttons sold. That was 31%. The next biggest was Kimberly-Clark -- I misspoke earlier when I said and Unilever. Kimberly-Clark is second with 14%. You have Clorox at 11.7%. Then, once you get into food and beverage, Pepsi is there with 7.5%, Coca-Cola almost 4%. This was before a lot of products rolled out, but in the end, it does give you an idea that, these are some of the biggest household names out there, in terms of branding for products. That's who Amazon is trying to partner with. Initially, actually, there was a $200,000 sign up fee if you wanted to get in on this. 

Lewis: As a brand.

Shen: Yeah. And the way that Amazon makes money, is that these companies will pay Amazon $15 for every button sold. Then, Amazon will also take 15% of each sale. That's in addition to the normal commission that Amazon collects for things that you sell through their Marketplace. So, potentially, if the volume reaches that point, it could be quite lucrative. The thing is, for these consumer products companies, that seems like a lot of money to have to pay to get in on this, but at the same time you maintain that top-of-mind awareness with consumers, the button is right there, and Amazon has obviously proven itself very capable of upending a lot of industries, a lot of ways that people shop. In some cases, they just want to maintain this partnership with Amazon, and get in on the ground floor if something like this eventually takes off.

Lewis: See, I was surprised by that because I had naturally assumed that this was something Amazon was doing as a loss leader, and they were saying, "We're going to give out these devices," it probably takes $0.50 or something to manufacture them at scale, $0.25 maybe, "We will effectively make them free for Prime members, and we'll make it up on volume." I didn't realize that the brands were giving them that 15% per --

Shen: There's a pretty significant payout.

Lewis: Yeah. They're collecting from the brands, and if people don't use them, they're also collecting the $5 there.

Shen: Yes. I also wanted to touch on some initial feedback. I went online trying to find a response. I never used Dash personally. I was trying to find some reception, or feedback, reviews, about how this works, if it's really that satisfying, feels that convenient. It seems like there's some mixed results. Beyond a single person's experience, the Wall Street Journal had a really interesting report. There's some market research from a place called Slice Intelligence. They said, on the one hand, for Dash adopters that are using their buttons, results might not actually be as encouraging as Amazon wants them to be. They say that less than half of people who purchase Dash buttons have actually placed an order using the device.

Lewis: That's surprising, because you're paying the $5.

Shen: Exactly. For the people who do make a purchase, they've only make one maybe once every two months. That doesn't really seem that indicative of the volume that you mentioned, that could really make this something that would drive bottom line earnings for Amazon. But on the flip side, I think TechCrunch reported that Amazon -- always very murky with their numbers, they always hold things very close to their chest --

Lewis: Yeah, it wasn't until about a year ago that they broke out AWS, which was this ridiculously profitable segment.

Shen: Exactly. The thing for them, they've said Dash orders are coming in more than one per minute. Then, 1010data, which is where we got some of that market share data for the buttons, they also mentioned, based on these millions of consumers they have in their panel, it's where they get this data, they can track their online and e-commerce behavior, they said Dash button sales were actually up triple digits from early 2016 over when it first launched. So, obviously small base. But you would think that over 200% growth, for example, would be encouraging. Overall, conflicting reports. And we won't know, because I doubt this is something that Amazon will ever get that granular with, in terms of their reporting. But overall, I think it's a very interesting idea, where companies like Amazon or trying to take the shopping experience, making it that streamlined.

Lewis: Yeah, you're shifting decision-making, that's really the idea here. Is Amazon kind of the only game in town for big brands that are looking to do this? Or are there other options?

Shen: Honestly, even with an Amazon's own ecosystem, they're starting to compete with itself, in a sense. Amazon Echo, you can place orders through it. So, this could "cannibalize" from their own Dash platform. 

Lewis: But they're just looking to get in your home, no matter how they do it.

Shen: Exactly. Beyond that one company, there are a few competitors, and they're taking a few different approaches. One is currently in-market, the Hiku. It sells for $49. You can get it on Amazon.

Lewis: (laughs) Of course.

Shen: You can get it from Wal-Mart. This is a handheld device. You connect it to your Wi-Fi, and you're pretty much ready to go from that point. You can basically either scan the barcode on your carton of milk, on your Oreo cookies, whatever it is --

Lewis: Like you would at the supermarket?

Shen: Exactly. And that will sync with an app on your phone and create a list. You can also dictate into the device, and say, "bananas", for example, and it will recognize that and add it to your list. The idea is, you have this one-stop shopping list, so everyone in your house can use this whenever they need something. Then, when that one person goes on Saturday or Sunday, or whatever, to the grocery store, they have everything and it's updated through the app, through Wi-Fi, so it's up to date.

On the other hand, what is more similar in terms of the Dash program is, they've partnered with Wal-Mart Grocery and Peapod, the delivery service for groceries. So, you can scan those items and potentially order them directly from the app through Peapod.

Lewis: So, similar in that you're taking what would be a routine purchase and making it effortless.

Shen: Yeah. It's almost like you're taking that cash register aisle experience at the grocery store and you're moving it to your kitchen. You have this device, you scan things, and then you can just go on your phone and hit that order button, and have it be on your doorstep the next day or whenever. The issues there, I think, is that that all works in theory, but this is a smaller player.

Lewis: And they're private, right?

Shen: Yes. And they're still trying to develop some of the infrastructure they need. I saw some feedback, for example, on Amazon. They mentioned the Wal-Mart Grocery, with the site update, everything that works with this Hiku device broke. Then, with the Peapod delivery service, that's limited to certain markets. I checked the site, it's available around places like Chicago, major markets like New York, around Washington D.C. and basically around the Northeast.

Lewis: When you're banking on other people for fulfillment, whether it would be Walmart or Peapod in this situation, you're limited to their physical presence, or any technical difficulties they might incur.

Shen: Exactly. On that note, though, I will say, there is some promise to this in that, even with Wal-Mart Grocery, delivery has always been a challenge. Even Amazon, which launched its Fresh program in 2007, look how slow and conservative they have been relative to their usual M.O., that they've rolled that out. But, if you look at Wal-Mart Grocery, and you look at the curbside pickup service, which has really taken off in the past year, that could be something where a device like this is -- you do the scanning, you get that order in, and you drive to pick it up. I think that kind of convenience, even if you have to drive to the store and pick it up, since it has such a ubiquitous presence -- there's so many Wal-Marts in this country. 

It also works a little bit for Amazon. Last episode, I was speaking with Dan Kline about how they want to open this huge network of convenience stores or supermarkets, and drive-through is a huge part of that, because they're hoping it's something where it's like, "Oh, I'm on my way home from work, I'll stop at the store and my order will be ready," you drive through and pick it up. Again, it's part of their effort to hook you. Not like a loyalty program, but this convenience aspect.

Lewis: Yeah, once you kill brick-and-mortar, you can iterate on brick-and-mortar. Anybody else in this space that should be watching for, to see maybe some of the cues that Amazon will pick up from them?

Shen: Absolutely. This second one is called Kwik. I really like the approach they're taking. I think it's much more sustainable. Basically, the way they describe themselves is "an open end-to-end IoT platform," IoT is Internet of Things, "connecting retailers, brands, and delivery providers. We enable brands to develop direct relationships with the consumers in their homes." This is a start-up based in Israel. They have a pilot program right now, and they've partnered with some pretty big brands like Huggies, Domino's, and even Anheuser-Busch for a beer button.

Lewis: That sounds dangerous, a beer button. (laughs) 

Shen: Yeah, that is. But, the idea is, they give companies an existing system or infrastructure to integrate into their own operations. The business model, the buttons would be free to consumers, Kwik would take a cut of each transaction and then provide their service to accompany like Procter & Gamble. The idea is, this allows the companies that are making the goods to maintain their own fulfillment, delivery, and payment partners, and Kwik is just that middle man that will connect everything and give you the infrastructure to get everything into place.

Lewis: So it's more of a platform.

Shen: Exactly. They even mention in their marketing on their site, they're still kind of a start-up, and they're only sending out demos right now in the United States. But they view the U.S. as their big market opportunity. The thing is, they mentioned specifically that it's not just potentially buttons, but also potentially an app or button on your phone. The idea is, as convenient as it might be having the button on your dishwasher for more detergent and dish washer soap, whatever it might be, having everything consolidated in one place on your phone in a folder -- and as we'll see with the next topic we'll discuss -- could take that to a whole other level, essentially.

Lewis: So, working on the physical side and the digital side, making sure they have both their bases covered. You mentioned Domino's as someone that was working with Kwik. To switch gears a little bit, they're one of the companies you watch and you're like, I can't believe the pivot they've made to digital. In a lot of ways, they've become the gold standard for the older -- whether it's quick-serve or delivery-oriented businesses -- pivoting and entering the digital app age. They've done an incredible job.

Shen: Yeah. We've talked about these other platforms where they will partner with a ton of different companies. But now you have a single company that offers -- I know they're just Domino's now, because they're trying to market the fact that they don't just have pizza -- but in the end, this is a much more specific offering.

Lewis: They sell salads now. (laughs) They've made that very clear in their advertisements.

Shen: The thing is, pizza is their core product, but even then they're trying to get into the space in terms of adopting a lot of technology to make it as convenient as possible for people to order. Management recently mentioned that they have 16 or 17 different consumer access points, which is essentially different ways people can place an order with a company, which is kind of absurd.

Lewis: That's incredible.

Shen: This is a worldwide huge presence. They have 12,500 locations, in over 80 markets all over the world. The thing is, a company this size, they have $4.7 billion in annual digital sales. So, this isn't just a small part of the operation. They mentioned that, in the United States market specifically, digital orders makeup over half of total sales in 2015. Some of their international partners, their franchises, are well ahead of that. So, the penetration level of their digital efforts is really impressive.

Lewis: And you look at the different options, they refer to it as Domino's AnyWare, it's almost comical the number of different ways you can order a Domino's pizza. You can use Facebook Messenger, you can use Amazon Echo, you can text, you can tweet -- which is something we might talk about in a little bit. I think the one that is most surprising is this Zero Click app. Similar to where it sounds like Kwik might be pushing people down the road, there's a Domino's app that exists on your phone, it's basically a tile, you click it, and as soon as you enter the app, an egg timer starts counting down from 10 seconds. If you don't stop it in 10 seconds, it will place your saved order to the nearest Domino's location and will pay for it, and it's ready to go. That's insane! And all they're doing is looking to remove friction at any point they can.

Shen: Yeah. We should caveat that, actually, because you went through the process of creating a profile. In order to have this level of convenience, there is a little bit of a disclaimer in that you need to go into your profile, set one up from the get-go, and then put in what your preferred pizza order is, in order for something like that, a zero-click option to work.

Lewis: Right. When I saw this, I was like, "This is so stupid." But, the idea that you can just tweet at Domino's with the pizza emoji and you're good to go, and you order a pizza. I went through their online profile building to see what that looks like. That takes a couple minutes. You look at the information they collect, there's your general info, your payment info, your location, and your easy-order pie, or your easy-order with more built out stuff -- say you want pizza, wings, dessert and soda, that's your go-to order. So any time you enter that key -- the pizza emoji, in this case -- that's what you're asking for. Once you do that, they're banking on you being able to just fall back on that, and have it -- kind of similar to the Dash button -- just become part of your everyday routine. It's looking to take things that might sometimes be a consideration into, "Oh, it's Thursday night, why don't we just order the standard order that we always get from Domino's?"

Shen: And not only that, but it only requires me to flick my thumb one time, if you have that setup to place that order. Even more than the Dash button, in my opinion, that really takes it to the point where it's truly removing all of that thought process out of a purchase. That can be pretty powerful for any of these companies.

Lewis: Yeah. These companies want to become part of your routine. They want to be part of what you do from week to week, day to day. I get that. One of the things that's interesting, we have no idea, really, what these different channels do for Domino's. I'm hoping, in time, we'll get a little commentary on what's more on the gimmick side --

Shen: Of these different access points, which ones are actually driving sales?

Lewis: My hunch is, of the 16 or 17, four of them probably contribute 80% to 90% --

Shen: Or more, frankly.

Lewis: But, something that management keeps in mind quite a bit is the different elements that play into the ticket -- the ticket being a standard order. They see, digital ordering generally tends to be higher. If you're ordering online, your tickets tend to be larger. I think part of that is that you have the whole menu in front of you, rather than when you're ordering over the phone saying, "I want this pizza and this soda and I'm good to go." I think the options for add-ons are just better, because you have that full sweep right in front of you. As you get people into more programmed typed decisions, and you're continuing to add new products, so, in the example of them decided to roll out salads, you need to build in nudges to get people to revisit those saved preferences so they can build on those. Otherwise, you're keeping people at a set price point with their ticket. The counter is, maybe they make that up on volume, and maybe that's how they justify that. But I do think that's something that's interesting to keep in mind.

Shen: Yeah. Domino's recently rolled out a more traditional loyalty program -- something we discussed on the Consumer Goods show multiple times now. It's pretty attractive, in my opinion. Any order over $10 gives you 10 points. Once you've gained over 60 points, you get a free medium two topping pizza. That's really not bad.

Lewis: It's pretty solid.

Shen: Again, that might be the kind of thing where the frequency of your orders gets you into the loyalty program because you see how quickly you're building up points, and it just becomes this additive cycle and can make people very regular customers.

Lewis: And you start doing the math, and it's like, "I only need to order four times, then I have my free one coming," and you start getting that gamified version of habits, and it can totally transform how consumers behave.

Shen: Yeah. One more point I wanted to make before we wrap up, in terms of Domino's and how they've been so effective in rolling out these different consumer access points, and how they've really grown revenue quite well over the past few years -- the stock has done quite well, it's traded up and made some really nice gains -- is the fact that this technology focus really permeates the entire company. The way they describe it is, they basically instituted this proprietary point of sale system. If you think about it, this is a franchise model. They have almost 5,000 locations in the United States. They only operate 400 of them.

Lewis: Really! That's tiny.

Shen: So, you look at that, and you think, "What about all these franchisees, they have to deal with all these new technological roll outs." We've heard of things like McDonald's, all these different things they try, franchisees get pissed. But in this case, having that technology developed in-house, like this point of sale system, allows them to integrate Zero Click or Facebook Messenger orders into that system much more easily, because they basically control all the gears and the levers there.

Lewis: Yeah, so all of that is centralized, and it can trickle down to the local branches.

Shen: Exactly, and I think that has been a really important part of how they've been able to test and experiment with some of these crazy ideas, without really messing up the core operation, day to day operations, for a lot of their franchises.

Lewis: And, we don't know what the contribution is, whether we're looking at the Dash buttons for Amazon, or some of these seemingly more gimmicky type things Domino's does, one, it gets us talking about these brands. It gets these brands in the news. I can't even count the number of first-person articles I've read of people talking about, "I tried the Amazon Dash button," or "I tried the Domino's tweet to order a pizza experience, and this is how it went." It's buzz-building for the brands, and ultimately, probably not that expensive to roll out. So, even if it's not something that meaningfully contributes to the top or bottom line, it certainly gets people talking.

Anything else before I let you go, Vince?

Shen: No. If you're interested in anything that we talked about, especially with Dash -- it can be free for you, right? If you're ordering some household good anyways, and you're curious, I'd say try it out, and we'd love to hear from you.

Lewis: Yeah, if any listeners do have these products, or have ordered through any of these means, let us know. You can shoot us an email at industryfocus@fool.com. You can always tweet us @MFIndustryFocus. If you're looking for more of our stuff, you can subscribe on iTunes, or check out The Fool's family of shows at podcasts.fool.com. While you're there, check out our flagship service, Motley Fool Stock Advisor. Today, the new issue of Stock Advisor comes out with two new stock recommendations from David and Tom Gardner. You can check it out by going to the Podcast Center and scrolling to the bottom of the page. That's podcasts.fool.com. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. For Vincent Shen, I'm Dylan Lewis, thanks for listening and Fool on!

Dylan Lewis has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Anheuser-Busch InBev NV, Facebook, and PepsiCo. The Motley Fool is short Domino's Pizza. The Motley Fool recommends Coca-Cola, Kimberly-Clark, and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.