Amazon, Whole Foods and the 'New World of Supermarketing'

Press enter to search
Close search
Open Menu

Amazon, Whole Foods and the 'New World of Supermarketing'

By Randy Hofbauer, EnsembleIQ - 06/16/2017

In the wake of Whole Foods' announcement that it's being scooped up by ecommerce giant Amazon.com, industry observers have been pondering how the acquisition will change the grocery game – from how the deal will affect companies ranging from grocers to CPGs and service providers, to what brick-and-mortar and ecommerce will look like in a future where Whole Foods operates as an Amazon subsidiary. Even Supermarket Guru Phil Lempert said that “June 16, 2017, will go down in history as the beginning of the new world of supermarketing.”

For years, many pundits believed Amazon's sole purpose was to make online king while laying waste to brick-and-mortar retailers. But this move, arguably more than anything else, is the “bold statement” that shows how serious Amazon is about getting into brick-and-mortar retail, says Dan Wilkinson, chief commercial officer of 1WorldSync, a Chicago-based provider of product content solutions.

Gary Hawkins, CEO of the Los Angeles-based Center for Advancing Retail & Technology, sees two significant threats that the acquisition poses for the grocery industry. First, Amazon can bring to brick-and-mortar its expertise in marketing relevancy and personalization integrated with sophisticated pricing algorithms.

“Amazon’s acquisition of Whole Foods changes the game in how retail now must go to market, and since Whole Foods' business is not dependent on the large CPG brands and their marketing funds, Amazon has no constraint in applying their personalization and pricing skills to how Whole Foods goes to market,” Hawkins explains. “This is the most pervasive and significant threat and disruption coming fast to brick-and-mortar retail. And the vast majority of traditional retailers don’t have a clue.”

Second, with online shopping quickly transforming – moving from typing on a keyboard to conversational commerce – Amazon has a significant advantage over traditional grocers.

“Think about how Alexa can be used even more extensively to shop at Whole Foods and inquire about what’s fresh that day, where products are sourced from, etc.,” he says. “Amazon will leverage voice to expand the Whole Foods shopping experience. I can start my shopping list as I have coffee at home in the morning, add some things to it I think of while I’m driving to work, and then ask Alexa to have my order ready to pick up at the Whole Foods I drive by on my way home later that day. What traditional retailer is even close to this capability?”

In general, Hawkins observes four dimensions to how the move will affect the grocery landscape:

  • Amazon will be able to leverage Whole Foods' stores to quickly grow the grocer's sales by building both the brick-and-mortar business and the online business, using Whole Foods stores for fulfillment.
  • Amazon has the unique ability to leverage its online expertise, delivery capabilities and fast-growing Alexa platform and Dash buttons to fuse the online and brick-and-mortar worlds to drive unified retailing at scale. This goes beyond omnichannel – Amazon will be able to synthesize the shopping experience across the physical and virtual worlds to create something new. It also will allow Amazon to bring the technologies it's been testing at its Amazon Go and other operations to Whole Foods stores, possibly bringing self-shopping to the operation, thus lowering costs and helping Whole Foods become more competitive.
  • Amazon will be able to leverage Whole Foods' locations to enhance its click-and-collect and delivery operations, making them pickup points for online orders and/or delivering products ordered online to customers surrounding the locations.
  • Amazon will be able to expand into the payments business, as doing so enables Whole Foods shoppers to pay via their Prime accounts – something already employed at the Amazon Go test location.

“If the threat posed by Amazon was raising the blood pressure of traditional supermarket operators, this move should send them into coronary arrest,” Hawkins stressed. “While Amazon will surely make some mistakes as it enters the brick-and-mortar world of grocery shopping, traditional operators need to understand that Amazon quickly learns from its mistakes and corrects course.”

Concurs Wilkinson: “The biggest impact to the industry will be a heightened sense of competition: Amazon has made a name for itself in every industry it’s moved into through aggressive moves, and this should be a sign that everyone involved in the grocery industry will really have to step up their game.”

The growing success of Whole Foods stores will put pressure on traditional operators, creating an impetus for changes to be made industry-wide that will push grocers to lower store operation costs, improve buying power and efficiency, accelerate digital marketing, and optimize the online shopping experience.

Deal's Blow Goes Beyond Grocers

But it's not just grocers who should be worried: Big CPG brands stand to lose power as Amazon unlocks the capability to bring thousands of regional and local vendors into the fold, providing them with an online presence and the ability to deliver their products to consumers nationwide, according to Hawkins. Additionally, Amazon's private label aspirations show that it likely will open up Whole Foods' private brands to a broader online audience – Amazon may even eventually repackage Whole Foods' own-brand products to make them easier to ship, further growing online sales.

Even third-party services are threatened. For example, Instacart, the San Francisco-based delivery service partly owned by Whole Foods, could be “cast aside” as Amazon takes control of Whole Foods' online shopping experience.

“Amazon has overlap in delivery capabilities across some number of Whole Foods' markets and locations,” Hawkins stated. “I don't see Amazon acquiring Instacart – doesn't need them. And if it did, other Instacart retailers would abandon ship, seeing Amazon as a key competitor.”

The future is uncertain, and this deal hits that message home hard. But if it's one thing that's certain, it's that in the end, the winner will be the consumer.

“At the end of the day, this move is going to make every player in the industry better,” Wilkinson asserts. “It raises the bar for cross-channel capabilities and will push grocery retailers to provide a higher level of customer service. To remain competitive moving forward, retailers will be to be able to entice and sell online and create convenience around location. … Competitive pricing, upgraded digital experiences and more innovation will directly benefit customers.”