What will Amazon do with Whole Foods’ more than 400 local retail grocery stores?
Among the many scenarios, the Seattle-based company could increase same-day delivery, vastly expand AmazonFresh or create “Amazon Stores” within larger markets. These are among a number of intriguing options to contemplate.
Earlier this morning, the e-commerce giant announced it was buying Austin, Texas-based Whole Foods for roughly $13.7 billion in cash. It’s Amazon’s largest acquisition to date by far. The deal will be completed later this year.
The Whole Foods brand will remain, and its headquarters will stay in Austin. Whole Foods was founded in 1980 and has become a leader in the premium grocery segment, although the company has recently struggled to grow.
Amazon had reportedly contemplated making a run for Whole Foods last year but did not. In the face of stagnant growth, institutional investors had pushed the grocery chain to sell itself. However, this Amazon-Whole Foods combination, while logical, is still somewhat unexpected.
Clearly, Amazon has been pushing into the grocery business, but now it owns a lot of real estate and head count, which many analysts would not have expected. Instacart and Google Express both deliver from Whole Foods, which could end as a result of the transaction.
Whole Foods revenue was roughly $15.7 billion in 2016; however, the company saw only 2 percent revenue growth. Amazon will want to improve that latter figure. But beyond that there are two interesting questions:
What tools/technologies will make their way into the Whole Foods broader customer experience (e.g., Dash Wand, Alexa)?
What will Amazon use the retail locations for beyond groceries?
Given that Amazon has been trying to develop real-world stores (books, Go) it seems likely that the company will utilize at least some of the Whole Foods locations for Amazon-related services. Whole Foods was preparing to close a selected number of its 440 stores. Perhaps Amazon will now experiment with those locations for Amazon Go or some hybrid retail concept that showcases Amazon products. Amazon could also develop an entirely new warehouse store concept.
It’s also possible that at flagship Whole Foods locations Amazon would create a store-within-a-store for its own products (Echo, Fire, books). Then there’s the distribution of Amazon products and services: Prime Pantry, AmazonFresh, Amazon Lockers and so on.
Under Jeff Bezos’ leadership, The Washington Post has successfully reinvented itself. That could also happen to Whole Foods. Regardless, the move is likely to send shockwaves through the grocery industry. Amazon will now have a dominant online and offline grocery presence.
Despite conventional financial analyst thinking, as well as predictions of the “retail apocalypse,” becoming established in both the physical and digital worlds is the key to long-term survival for online brands. Those that do not have a real-world dimension will likely not survive over time.
Postscript: Since the deal was announced this morning, there has been a great deal of discussion about how this acquisition sets up Amazon to more directly compete with Walmart. That’s another interesting angle that I didn’t explore above. I think the analysis is accurate though Amazon and Walmart currently appeal to different demographic and market segments.
It’s possible for both to co-exist; it’s not a zero-sum game. But if you want to frame it that way, Amazon’s brand is more “elastic” than Walmart’s and Amazon is the more nimble of the two companies.
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