Amazon.com’s recent acquisition of Whole foods has set off a round of chatter about what they are really trying to accomplish with this move. Following are my thoughts:
- Nail Groceries: Amazon.com has been struggling with groceries for while. The reason – groceries have short shelf life, and so distributing groceries require a different kind of logistics that Amazon has not been able to figure out. One of the key element of the grocery logistics is having local distribution and storage. Whole foods gives Amazon.com a great distribution network for delivering groceries and a shot at finally nailing this critical segment down. (The grocery business in the U.S. is about $675 billion. Virtually every household shops for groceries and over 90% of households shop for groceries once a week or more. Many products are now regularly bought online that were thought to be impossible to be converted to online shopping. Yet online grocery sales continue to be a small fraction of the industry. Depending on who you ask, online grocery sales this year will be 1-3% of industry sales – this makes groceries the last bastion for existing brick and mortar retailers and why the Whole Foods deal such a threat for existing players).
- Revive Whole foods: Amazon.com wants to revive Whole foods by bringing “Organic food” to everybody. “Everybody should be able to eat Whole Foods Market quality,” Jeff Wilke, chief executive of Amazon Worldwide Consumer, said last week after regulators approved the $13.7 billion takeover. “We will lower prices without compromising Whole Foods Market’s long-held commitment to the highest standards.” The price cuts at the launch are targeted to bring back users who had given up on Whole foods because of their “whole paycheck” reputation.
- Cross-promote and engage: Amazon.com is looking at leveraging its “prime” program to drive loyalty and engagement at Whole foods. This means prime members get discounts, special offers and Amazon gets to understand brick and mortar behavior of consumers. Already you can see Amazon selling other products in the stores and trying to integrate consumer experiences based on prime membership. In a few quarters, after Amazon has had the chance to integrate point of sales and distribution logistics – they will have the perfect laboratory to test out campaigns, offers and pricing strategies. In addition, this deal allows Amazon to become a life bundle for its harried and busy users. They already do TV, streaming, shopping, tech and now groceries. Word on the street is that Amazon.com is looking to launch a mobile wallet soon as well. Having a place that enables single-tap loyalty and payments and a lab to run experiments in order to drive engagement is a going to be important.
I am really curious to see how it plays out but I would not bet against Amazon. Executives at Walmart, Kroger’s, Target etc. are right to be losing their sleep over this – they should be looking at ways to partner or invest in tech to compete with Alexa, Prime, supply chain technologies and other Amazon.com assets for engaging customers/delivering great value to customers.