The Implications Amazon's Acquisition of Whole Foods

I dissect multiple angles of Amazon’s acquisition of Whole Foods.

Amazon is now an offline grocer

Grocery is the largest consumer category in the US and it enjoys a high purchase frequency. Amazon has always had an eye on grocery for these reasons. It can’t be the “Everything Store” without being dominant here.

It started its foray in grocery by launching its home delivery service, AmazonFresh, in 2007. Over the years, it’s expanded its grocery programs to include Subscribe & Save, Pantry and Prime Now for grocery delivery. In 2017, it started experimenting with physical grocery retail with its Amazon Go and AmazonFresh Pick Up stores.

This acquisition means that Amazon now owns roughly 460 stores to accelerate its growth in the grocery category.

What does this mean for delivery at Whole Foods?

New delivery models could be coming to Whole Foods. Instacart is the white label delivery partner for Whole Foods and Whole Foods is an investor in Instacart. In today’s announcement of the acquisition, there was no mention of what would happen to the Whole Foods and Instacart relationship. Whole Foods also has small click and collect and direct ship programs.

It is likely that Amazon will replace Instacart with one of its own programs. While Prime Now replicates the Instacart experience with one to two hour delivery with products picked from grocery stores, I think that AmazonFresh will simply add a hyperlocal delivery element to remain as Amazon’s main grocery brand.

I also speculate that Amazon could put AmazonFresh Pick Up Stores in the parking lots of Whole Foods where possible or locate them as standalone options near the stores, so the stores can serve as fulfillment centers for the Pick-Up stores. The other option is to expand Whole Foods’ existing click and collect program.

The grocery price war is going to heat up.

Whole Foods has been struggling for years to be price competitive as grocery stores embraced its product assortment and shoppers responded by shifting to its competitors. While it’s made significant investments in lowering prices and building out its private label brand, the company still remains under pressure. It also launched a less expensive version of the Whole Foods Market banner, called 365 by Whole Foods.

Amazon will help with this. It is notorious for using its scale and efficiencies to pass its cost savings onto consumers. Being part of Amazon gives Whole Foods breathing room to look long term when it comes to pricing.

Possible synergies in assortment

In early 2017, Jet.com launched Walmart private label brands on its website. Will Amazon follow suit? Food private label has been a weakness for Amazon, but Whole Foods has a strong private label in foods with 365.

It’s also possible that Amazon will use Whole Food’s partnerships with suppliers to get more of them on the Amazon platform. Amazon and Whole Foods will be tough negotiators, but the lure of the 300 million customer accounts on Amazon, in addition to all of its other CPG-related programs, will be tough to turn down.

Will Amazon use its relationships with suppliers and it's marketplace sellers to bring its own suppliers to Whole Foods’ shelves? Another intriguing proposition for suppliers.


What happens to loyalty?

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Whole Foods has been trialing a loyalty program in conjunction with dunhumbly. The objective of the program is to use personalized marketing and promotions to drive additional store visits by its core customers and encourage them to add new products to their baskets. Whole Foods plans to use the data from the loyalty program to improve its category management as well. The goal was to have this program rolled out to all stores by the end of 2017.

Amazon arguably has the best loyalty program in the world, with Amazon Prime. Jeff Bezos has said that it wants Prime to be such a good value that you would be irresponsible not to be a member.

I predict that Prime members will receive benefits at Whole Foods. The first benefit would likely revolve around free or discounted delivery—the heart of the Prime program. I think Whole Foods will retain its loyalty program to achieve its original goals. The Prime program isn’t set up to drive shoppers to stores or encourage additional purchases through discounts and marketing. It will be interesting to see if Prime adds some additional incentives as well.

I’m not sure the dunhumby partnership will survive. Amazon has been analyzing customer data from day one for merchandising, pricing, assortment, etc. Amazon will likely bring data analytics in-house.

What is the impact on the grocery industry?

It’s regional or mid-market retailers that are likely to suffer the most, but this is not a new trend. The bifurcation of the grocery market has been a long trend with Whole Foods and Sprouts capturing the high end and middle-class shoppers moving to discounters and Walmart. Market exits and consolidation have been happening and this is likely to speed up with Amazon’s aggressive entry into grocery.

While many worry about Walmart, the company stepped up to the threat of Amazon and eCommerce in general while at the same time defending its massive store business in the past two years. It’s invested heavily in improving its stores and paying its staff more. It has been aggressive on price, mostly to defend against discounters, like Aldi and Lidl.

It brought on Marc Lore, an eCommerce visionary, to run Walmart and Jet. He’s instituted free two-day shipping for orders of US$35 or more and offered discounts on products bought online but picked up in store. Walmart is rolling out click and collect throughout its stores for fast, convenient and free delivery for all of its products. This is business as usual for Walmart.

Author

Nwafor Paschal CEO and founder of TGMs and HDs, the social media education company. Paschal Teaches, Preaches, Instructs, a Polymer Engineer, Entrepreneur,  social media consultant, SEO, website, developing a social media speaker and Auto Reviewer. He consults with corporations and agencies on social media strategy, building community, and influencer... View Full Profile →