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Amazon-Whole Foods: Changing The Grocery Retail Game?

10 July 2017 | Ian Farrugia | About a 4 minute read
Tags: amazon, Digital, experience, grocery, mission, prices, pricing, process, retail, tech, whole foods


Amazon’s mission statement reads:

Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”

In June, Amazon made another bold move towards fulfilling this vision, announcing they will acquire high-end groceries retailer Whole Foods Market for a cool $13.7bn (£10.7bn).

Amazon is no stranger to groceries. It kick-started its efforts in this space a decade ago with the launch of AmazonFresh in the US (launching in London in June 2016), and have continuously expanded their offerings since. However, whilst the uptake of new services has been modest, the Whole Foods acquisition signals Amazon’s appetite to be crowned groceries king.

 

Disrupting the in-store experience?

Whole Foods has traditionally focused its efforts on providing customers with a superior in-store shopping experience, through navigable store layouts, fresh produce placement and complementary, friendly staff. Amazon, albeit a digitally native company, has also ventured into brick-and-mortar stores, opening a series of bookshops across the US and a cashier-less concept store in Seattle. In the latter, you walk in, grab whatever you need and simply walk out. Amazon does the rest.

What are Amazon’s plans for digitising the Whole Foods experience? Whilst presumably keen to leverage their digital clout and explore innovative ways of optimising the grocery retail experience, I wouldn’t expect this to be at the expense of Whole Food employees. Don’t expect a mass exodus of in-store staff and an army of AI robots to come marching in just yet.

Beyond the in-store experience, another goldmine which both companies will be itching to tap into is Alexa. How likely are people to forfeit seeing and choosing their fresh produce in favour of a casual conversation with Alexa? I would argue that when interfacing with two reputable brands, customers would trust Alexa to match and potentially exceed the level of quality they would otherwise achieve in person. This could prove a smart way to engage with hyper-connected digital millennials not typically associated with the Whole Foods brand. This would also feed Amazon vast amounts of new data to enhance their insight and understanding of consumer behaviour patterns.

 

Price war?

Whilst Amazon is traditionally known for its aggressive approach in driving down prices, if you’ve shopped at Whole Foods you’ll know that £10 doesn’t get you very far. So would we expect to see a price tug-of-war? Slashing prices in an attempt to draw in a wider audience could prove counterproductive, as it risks alienating their existing customer base and diluting the prestige associated with the brand. However, both brands will certainly be keen to explore opportunities at extending and growing their reach, and I suspect they will focus on harnessing their individual strengths to do so.

Talking about strengths, logistics and distribution is another aspect that both companies will be keen to align on. Whole Foods have established strong long-standing partnerships with many of its suppliers. Logistics is something that Amazon knows and does well. So far this has been with items that don’t have a sell by date. Transporting perishable goods in own-vans is likely something that Amazon would want to own and manage, a departure from their current model outsourcing to third-party couriers. Amazon might also opt to utilise some of the Whole Food real estate as smaller satellite distribution hubs, fuelling shorter delivery lead times, much to the delight of customers.

 

Turning up the heat?

While major UK grocery retailers have already seen market share eaten by newcomers such as Aldi and Lidl, Amazon’s entry has undoubtedly turned the heat up a notch. The likes of Tesco and Sainsbury’s must revisit their existing strategies, embrace the reality of a digital-physical fusion model and channel their efforts into identifying new opportunities to innovate.

Might other big kids on the block also be planning similar forays into groceries? It doesn’t appear to be the case just yet but the Amazonification of grocery shopping is officially underway. Aligning the companies isn’t going to happen overnight, but with Whole Foods’ founder and CEO John Mackey’s flair and Jeff Bezos’ rigour, when this does happen, grocery shopping in future could be a very different game.

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