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.