Amazon’s move to acquire Whole Foods Market will go down in history as the start of a new era of grocery retailing. As the second-largest U.S. grocery deal on record after Cerberus Capital Management, CVS Health Corp. and Supervalu acquired Albertsons in 2006 for $17.4 billion, the pending deal is nothing short of a tsunami for the grocery industry, which is poised for further drastic transformation with both the in-store and online experience.
Beyond taking Amazon out of the cloud and into local neighborhoods, the acquisition will play a critical role in the continued evolution of Whole Foods’ store base, which has been in dire need of a lightning rod to help put its supernatural genie back in the bottle in an increasingly cutthroat climate. After arriving more than a tad late to the party with a lower price campaign, digital coupons, a loyalty rewards program and a small-format footprint, Amazon’s powerful logistics, technology and data engine will be integral in helping the Austin, Texas-based retailer transform into a whole new entity.
To that end, we can expect Amazon to use its formidable data locomotive to improve Whole Foods’ customer experience through in-store technology with more transparent product information, streamlined payment processes and greater access to products—all of which promise to go a long way in helping it broaden its appeal with price-sensitive shoppers.
While I see no downside for Whole Foods, the deal presents several questions, foremost of which is whether Whole Foods was the best acquisition target for Amazon, which is taking on a major executional risk by acquiring the toughest part of retail, including labor, operations and a fleet of 460 stores. With Amazon’s core strengths in distribution and logistics, its transition from asset-light to asset-heavy with labor-intense physical retail stores might well prove to be far more challenging than anticipated.
Further, with 90% of all retail sales still occurring offline, it also remains to be seen how far—and fast—Amazon will be able to convert and sustain a new base of digital grocery shoppers, the majority of which presently visit supermarkets for far more than food and household necessities alone. As modern-day community hubs, grocery stores play an integral role in consumers’ lives with offerings spanning the gamut from coffee shops, meeting rooms, pharmacies and restaurants to floral shops, bakeries, banks, dry cleaners and much more.
But let there be no doubt: The Amazon-Whole Foods deal marks the beginning of a new era in the grocery business, which will be forced to adapt to a formidable new-age rival, whose biggest play will reside in grocery delivery and click-and-collect.
—Meg Major, Director of Content, Grocery Group, Winsight