What Does Amazon’s Purchase of Whole Foods Actually Mean?

What Does Amazon’s Purchase of Whole Foods Actually Mean?

Photo Courtesy: Flickr – Masahiro Ihara

For those of you who might have missed it Amazon purchased Whole Foods for $13.7 billion last month.

According to the LA Times:

“This adds 440 refrigerated warehouses within 10 miles of probably 80% of the population,” said Michael Pachter, an analyst for Wedbush Securities. “More importantly, it puts refrigerated distribution within 10 miles of probably 95% of Prime members. That means we can rely upon Whole Foods’ consistently high quality meat and produce, and can rely upon prompt delivery from the store as a distribution point.”

But is this whole story? I’m not so sure – Jeff Bezos is renowned for playing the long game.

Online Grocery Shopping Predicted to Grow 500%

The Food Marketing Institute (FMI) and Nielsen recently released the “The Digitally Engaged Shopper” report. In it they predict that online grocery shopping could grow fivefold over the next decade, with American consumers spending nearly $100 billion by 2025. This represents an increase of 4.3% of total US food and beverage sales to nearly 20%. Last year online grocery sales were about $20.5 billion.

The report indicates that all grocery purchases are not going magically to go online at some point in the future. It’s going to require a hybrid approach. Specifically the report envisions grocery stores expanding service delis, bakery and meat departments as well as adding trendy cuisine sections such as sushi bars and food courts. This will go hand-in-hand with a digital strategy.

Beating Walmart At Their Own Game

This is the piece of the puzzle that Amazon is missing and which Walmart, their biggest grocery competitor, owns. Amazon are being very smart about it too. They are starting to specifically target the Walmart customer demographic with the launch of Amazon Cash. According to an FDIC report around 27% of consumers don’t have a bank account, debit card or credit card and get paid in cash most times. These consumers are typical Walmart shoppers.

Amazon can also finally scale their perishable food pickup and delivery service, an area where Walmart had significant competitive advantage. AmazonFresh has had limited success so far and can significantly benefit from the institutional knowledge that the purchase of Whole Foods brings.

A Longer Term Strategy Is At Play

So does this Whole Foods purchase mean that Jeff Bezos is buying himself a piece of an $800 billion industry? An industry where a combined brick-and-mortar and digital strategy could secure Amazon an industry leadership role? The answer is a resounding yes, but in my view there is a bigger long-term strategy at play here.

In much the same way that Amazon are currently disrupting the e-commerce global transportation/logistics/freight forwarding/supply chain industry so it will for the global food supply chain. Wherever Amazon have a fulfillment center it can deliver groceries.

In an interview with Fast Company “Why Amazon Is The World’s Most Innovative Company Of 2017” Jeff Bezos stated:

“You can’t invent if you aren’t willing to think long term”

“Trial and error, and finally you find a success,” he added. “And that takes long-term thinking.”

Supply Chain Transparency is a New Competitive Advantage

Interestingly he also commented:

“There’s a subset of customers—I think it’s a pretty big subset—that when you’re talking about things that go in or on your body, or in or on your children’s bodies, they really care about that supply chain.” 

Which in my view strikes at the heart of Amazon’s philosophy and intersects quite neatly with the Whole Foods philosophy. Jeff Bezos is planning on making the supply chain for each individual product fully transparent, empowering customers to fully understand the source and supply chain journey from origin to customer receipt. The Amazon Elements product line is a striking example of this.

There is growing consumer demand for supply chain transparency and Jeff Bezos knows that. If he can succeed in providing that transparency for every food item he delivers Amazon will be in a position to offer the highest quality, safest, freshest, and cheapest groceries anywhere on the planet. I have absolutely no doubt that day will come and sooner than you think.

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