ROCKVILLE, Md. — It’s hard to recall a strategic move more unexpected yet savvy than Amazon’s $13.7 billion acquisition of Whole Foods. Leaping to mind are “Walmart’s worst nightmare” followed by “this changes everything,” the latter effective immediately in natural and organic foods retailing and, longer-term, potentially with regard to all grocery, not just in the U.S. but worldwide, notes David Lummis, market research analyst with Packaged Facts.
Even before the acquisition, it was hard to escape the sense that time was on Amazon’s side (Internet/mobile/younger/urban) rather than Walmart’s (brick-and-mortar/older/rural), especially in terms of growth. To date, of course, this has applied mainly to etailing, although Amazon recently surpassed Walmart in market cap if not sales (Amazon’s are about a quarter of Walmart’s). But with Amazon suddenly in possession of the foremost natural and organic foods retailer in the nation, Walmart suddenly is also playing catch-up in the most promising area of grocery retailing.
As always, vis-à-vis the bold and unexpected, there are naysayers, including from risk-averse investment firms wary that Amazon has yet to decipher brick-and-mortar, and that no one has fully mastered online ordering and home delivery of fresh, perishable groceries. But this didn’t stop Whole Foods’ shares from soaring 30% or Amazon’s shares from rising 2%. Nor did it prevent the shares of rival grocers from plummeting. For Amazon, it looks like a win-win. And almost incontrovertibly, coming as it does on the heels of Walmart’s $3.3 billion purchase of Jet.com, it marks the point at which online and brick-and-mortar must be concurrent.
Like Walmart, Kroger has been competing aggressively in natural and organic foods, having recently made a giant leap with its phenomenally successful Simple Truth store brand. Along with a number of other national supermarket chains, Walmart and Kroger have also been trying to puzzle out how to compete online. Thus far for pure-play supermarket retailers, the only viable option appears to be “click-and collect”—online ordering coupled with in-store pick up. Mass players such as Walmart/Sam’s, Target, and Costco are more entrenched online, though less so in grocery (especially perishables) than non-foods. Walmart, of course, has ramped up with its acquisitions of Jet.com and other etailers, most recently apparel seller Bonobos.com. But internet-wise, no one expects even Walmart to catch up with Amazon anytime soon, or for that virtual road to be smooth.
True, compared with Walmart, Amazon’s grocery penetration is minuscule. Even with the addition of Whole Foods, Amazon accounts for just 4% of U.S. grocery/consumables sales ($45 billion) compared with Walmart/Sam’s 18% share ($228 billion), with Kroger at 7%, and Costco and Albertson’s/Safeway each at 4%. But overnight, Amazon is the number one brick-and-mortar seller of natural and organic foods in the U.S., and if Amazon can parlay that out to grocery overall the rewards are potentially vast.
Speculation has it Amazon will use its new fleet of Whole Foods stores as distribution centers to supplement its Amazon Prime and Amazon Fresh delivery services, dramatically scale back on workers in favor of automation, and use Whole Foods as a testing ground for “the store of the future.” And to some degree, all of those predictions may be on point.
But the most important result of the Whole Foods merger may be to “humanize” Amazon at the flesh-and-blood level, not overnight but over the long term, creating a customer-centric (especially among urban Millennials and Gen Zers) in-store experience that’s less about automation and more about transitioning Amazon from foremost online retailer to foremost retailer, groceries and all.
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Source: Packaged Facts