Continuing from my previous post regarding Amazon’s purchase of Whole Foods, let’s examine several more key outcomes of this historic acquisition:
This means change for the whole grocery industry
The grocery industry is notorious for it’s poor margins (1-2%), and self-checkout kiosks have done little to alleviate the many pain-points that physical grocery stores still have. This doesn’t mean that it’s a poor market to enter; it means that it’s a market ripe for disruption. If Amazon does to the physical grocery network what it did to online retail, the rest of the traditional grocery companies will have to adapt. Traditional grocers were already down 10% in pre-opening trading after the announcement, a foreshadowing of potential change. While companies like Walmart may have already mastered distribution, they have nowhere near the level of technical prowess necessary to compete with Amazon. Even though Whole Foods doesn’t give Amazon as extensive a level of distribution as the larger grocery chains have, this won’t matter if grocery delivery becomes the new norm. Many in the e-commerce industry have already adapted to Amazon’s distribution network, and they will be poised to take advantage of this entirely new market.
Amazon’s Ambitions aren’t to be an online retailer; they are to be wherever the customer is
Before the launch of Apple’s original iPhone, Palm CEO Ed Colligan famously said,”We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.” Similarly, it was only two years ago that Whole Foods CEO John Mackey made the statement that groceries would be Amazon’s Waterloo. The issue with both of these statements is that they misunderstood Apple and Amazon’s goals. Apple, a computer company, didn’t want to build a phone, they wanted to build the most personal computer ever. Similarly, Amazon doesn’t just want to sell products (and groceries) online, it wants to own the market wherever the customer is.
This aligns perfectly, with Amazon’s Mission Statement:
“Our vision is to be earth’s most customer centric company”
Ultimately, it is a customer-focused services company, not a retail company. Having Whole Foods under its umbrella will allow Amazon to have a guaranteed customer for building out its distribution network to optimize for perishable goods, something that was lacking with Amazon Fresh. This won’t only bring nifty new technology to Whole Foods, but will incentivize the network Amazon can use for Amazon Go, Amazon Fresh delivery, and eventually drone delivery. This goes doubly for the company selling through Amazon, as it only provides more distribution channels and product opportunities for you to consider.
Even given these facts, you may still be unsure about the acquisition. Regardless, it is undeniable that Amazon’s culture and identity are perfect for entrance into this market. The value of physical grocery stores isn’t in the quick accessibility of picking up the 2-3 things you need for dinner, but in the experience of walking into the store and stumbling upon dozens of other purchases that you didn’t even realize you needed. If there was one website in the world that gave you the same experience, what would it be? That’s what I thought you’d say.
Heavily consider what it means to prepare for this change and go into a new market hand-in-hand with Amazon, as it could mean the future for many Ecommerce businesses.
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