CHICAGO -- Amazon’s pending acquisition of Whole Foods is arguably the biggest news in retail in a generation, or since digital retail became a serious threat to the brick-and-mortar sale of goods and services. And a lot of questions are outstanding, likely to be answered only over time. How will Whole Foods weigh into Amazon’s efforts to deliver the “last mile”? How will union contracts translate across platforms? What are the implications for other channels?
The editors and analysts at Winsight Media—including experts at CSP, Convenience Store Products, Grocery Headquarters, Restaurant Business and Technomic—have braved the uncertainty of this new retail reality to examine how the Amazon-Whole Foods deal could affect grocery, convenience, foodservice and more.
Here are their insights …
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
Amazon’s acquisition of Whole Foods is both exciting and scary for anyone playing in the on-the-go consumer market. Amazon has mastered the art of digital convenience and generating a tenacious “everyday low price” (EDLP) strategy. What Amazon has yet to figure out is how to stretch those same fundamentals and philosophy to brick-and-mortar.
Don’t be surprised to see the Whole Foods model tweaked. It will remain a prime destination for the more affluent class, but I do expect Amazon to explore ways to steal some of the Wal-Mart customer base.
The biggest loser in all of this? The turn-and-churn supermarket. Boring doesn’t win in the 21st century. And milquetoast models are certain to fade over the next decade. As for convenience stores, I’ll be interested to see if Amazon deep-sixes its cashless c-store pilot and instead shifts its brick-and-mortar focus exclusively on Whole Foods.
What we do know is that Jeff Bezos is the human earthquake machine, and countless retail executives are now quaking on what may come next.
—Mitch Morrison, Vice President and Retail Executive Platform Director, Winsight
Since the election, I’ve been obsessed (haunted?) by the socioeconomic divide in this country, and it’s easy to apply that trend to our own retail industry. Recent conversations within the editorial team have swirled around today’s expectations of the shopping experience—and how even that plays into the great divide.
On one hand, you have retail leaders talking about creating a meaningful, hospitality-driven in-store experience that will drive loyalty. On the other, you have Amazon, Wal-Mart, Lidl, Aldi—retail brands devoid of warm-and-fuzzies but big on low prices—flourishing.
Then, suddenly, you have Amazon buying the mainstream retail brand that most signifies social exclusivity. What message is Jeff Bezos trying to send to the masses?
Probably nothing. For the tech-savvy consumer group already spending money on grocery delivery, Whole Foods’ halo should help them overcome the squeamishness of buying a head of lettuce from Amazon. For everyone else, it’ll all come down to the price on the “buy” button.
—Abbie Westra, Editor-in-Chief, CSP
The acquisition of Whole Foods is a way for Amazon to accelerate its until-now tentative brick-and-mortar grocery play in one giant, fell swoop, especially to say, “In your face, Wal-Mart!” Expect to see some larger-scale experimentation with technology, like Amazon Go, and pickup, like AmazonFresh, in the stores. And prices, the Achilles' heel of Whole Foods, could come down as a result of this deal.
Wal-Mart’s reaction was essentially, “We’re not afraid of you, Amazon!” (It even acquired e-commerce-based apparel site Bonobos on the same day.)
We have yet to determine the direct threat level, if any, to the convenience-store channel. Obviously, Amazon’s and Whole Foods’ success can cut into c-stores’ business and affect sales and traffic, part of the cultural shift in how consumers shop. It will be interesting to see how c-store chains deal with that shift, especially in the face of an Amazonian Whole Foods.
It will also be interesting, in light of this deal, to see how small-format, discount grocers like Aldi and Lidl decide to play in the current grocery and retail sandbox, as well as how Kroger will react. I have long speculated that it will eventually sell its c-stores, and one analyst is now predicting that Kroger could be a takeover target, pegging Ahold Delhaize as a likely acquirer.
Combined with the already volatile c-store M&A environment, the seismic shifts in grocery make retail disruption the new normal.
—Greg Lindenberg, Editor, CSP
Amazon’s technology, including the no-checkout tech being tested at its Amazon Go smart convenience store, could revolutionize brick-and-mortar retail shopping forever if it were spread across the country.
If Amazon’s tech starts appearing in Whole Foods Markets, it will likely be some time before its effects are felt in the convenience industry, since people visit c-stores and grocery stores for different reasons. But if Amazon tech in Whole Foods units proves successful, consumer expectations will change, and the c-stores of today will have to find ways to stay relevant in the high-tech retail world of tomorrow.
—Jackson Lewis, Assistant Editor, CSP
One Sunday I answered the doorbell and saw an Amazon deliveryman wave to me as he walked away. A box was at my feet. In watching Amazon evolve, I came to realize that what most people thought of as a technology company was becoming a delivery service, the next FedEx or U.S. post office. It wasn’t about technology, or retailing for that matter. It wasn’t about flat-screen TVs, diapers or groceries either. It was logistics. And how was Amazon going to do that? Logistics is a b----. Supply chain is a difficult business to win at.
Was Amazon going to reinvent itself? Build a supply and delivery chain that others already built? Was the delivery service they started sustainable? Was their evolving model ultimately realistic?
As a c-store writer, I always believed that having retail stores on every corner was one of our channel’s strengths. We had a solid, proven delivery system set up for the goods we provided. And now, Amazon buys Whole Foods.
Now Amazon has a network of brick-and-mortar stores with an established ecosystem involving manufacturers, trucks, warehouses and experienced professionals all down the line. Now, whatever logistics it developed on its own can build on what exists at Whole Foods.
The astounding move could have been part of an original, diabolical plan; however, my guess is that whatever Amazon found itself becoming, Whole Foods was already. Or Whole Foods fit a tangible, excruciatingly apparent need that Amazon realized they had. Either way, they’ve made their play. They’ve shown their hand. Today, Amazon is a quantum leap closer to what it was destined to be.
—Angel Abcede, Senior Editor, CSP
Imagine strolling the supermarket aisle for milk, bread or some other grocery staples, while at the same time, you’re using an Amazon-Whole Foods app to order dinner for the night and having that meal packaged and ready by the time you get to the register.
At Technomic, when we talk about what’s driving the retail foodservice customer, convenience always tops the list of attributes that pull prepared-foods consumers into the supermarket or c-store. Amazon’s acquisition of Whole Foods can potentially turn the idea of retail convenience on its head, because there’s sure to be a seamless, efficient technology component in place that’s going to make sourcing prepared foods easier and faster for the customer.
I think Amazon is going to make convenience a major part of the overall Whole Foods experience in a way that’s really compelling—and competitive.
—Aimee Harvey, Foodservice Editor, CSP
As reporters, we like to make bold predictions. We all have the propensity to suppose, to make an educated guess, to mull over the what ifs. We like it so much, the CSP editorial team recently spent an entire day talking about c-store disruption—what are the forces at work that could upend the industry as we know it?
As the snack and candy expert on staff, I was charged with identifying the disruptive forces facing the center store. My guess was naturally, well, natural. Better-for-you, natural and organic attributes in c-store products are still new and unexpected, but they will become mainstream.
And now I know I was right.
Proof came last Friday when Amazon bought Whole Foods, legitimizing the natural offer in retail across channels. With endless consumer data at its disposal, that Amazon made its first brick-and-mortar acquisition of a high-profile natural, better-for-you food purveyor is very important. The takeaway: that consumers want these attributes in the food they feed themselves and their families.
Whole Foods wasn’t previously a competitive threat to c-stores. But with Amazon’s moves into c-store-like spaces with Amazon Go, you can bet smaller Whole Foods outposts are coming. And Whole Foods’ product lineup, including the popular 365 private-label brand, could soon find its way to Amazon Pantry online or Amazon Go locations.
Tracking new natural and healthy products and strategies is my job. Finding what works in your stores is yours. Because if you don’t, it’s increasingly obvious that someone else could.
I should really go out and buy that lottery ticket.
—Abbey Lewis, Editor-in-Chief, Convenience Store Products
This last week in the food industry will be pointed to as one during which the business changed. Permanently.
It is rare that we can point to a certain happening and immediately (and accurately) call it a game-changer. But Amazon’s acquisition of Whole Foods is not a re-invention of the company. Be assured, Amazon leadership does not have its sights set on being the next Kroger or the next Sysco or the next major food supplier.
Amazon recognizes the size of the prize that exists in the food industry, no question. Management also sees endless possibilities in the overlap between Amazon Prime subscribers and Whole Foods shoppers. But, more importantly, the company is moving forward on an opportunity that addresses its core principles: customer delight, invention, operational excellence and long-term thinking.
This deal achieves all of those things for Amazon. Customers will be able to experience great foods and beverages at, potentially, lower price points. This will be achieved, in part, by leveraging the efficiencies that Amazon will bring to the table. And if a new value equation is ultimately realized, then the prospects of greater health and wellness become achievable for a far greater number of consumers.
In short, the food industry is the newest platform on which Amazon can continue to achieve its mission.
—Wade Hanson, Principal, Technomic
In the struggle to pinpoint why restaurant traffic is falling, some Yoda types have cited increased competition from a gray area between restaurants and supermarkets—the place where alternatives like meal kits and delivered supermarket meals have found a berth.
Yet their theory is undercut by that market’s still infinitesimal size.
Then came news that the leviathan of the consumer-direct market—Amazon—was connecting its highly efficient delivery pipeline into American homes with the nation’s dream refrigerator and kitchen pantry, the inventory of Whole Foods. Suddenly, ordering a delivered meal kit or a ready-to-eat supermarket meal could be as easy as telling your Amazon Alexa to do it.
Suddenly, the inconveniences of shopping for food, and much of the prepping, could be stripped out of deliberations over whether to cook or have someone at a restaurant put in the stove time. If the quality was equal and convenience was a nonissue, the scales could be tipped one way or another by price, and an Amazon-Whole Foods combination would likely have a significant advantage.
That delivery market will grow to $100 billion by 2025, according to the Food Marketing Institute and Nielsen Co. Right now, this very year, the restaurant business is generating sales at an annual run rate of about $736 billion.
Which would you go after if you'd just invested $13.7 billion?
—Peter Romeo, Director of Digital Content, Restaurant Business
Want to share your thoughts on whether or how the Amazon-Whole Foods marriage will affect the c-store channel? Email Greg Lindenberg at firstname.lastname@example.org.