“While there have been some rumors, this is still a huge surprise and a major leap into brick-and-mortar for Amazon,” said Neil Stern, senior partner, McMillanDoolittle LLP, Chicago.
Aside from the broad details laid out in Seattle-based Amazon’s announcement of the $13.7 billion deal, there are few facts available. John Mackey will remain as Whole Foods CEO and the chain's headquarters will remain in Austin, Texas. The deal still has to be approved by Whole Foods shareholders and regulatory approvals.
Amazon did not respond to inquiries from CSP Daily News by posting time. Whole Foods Market declined to comment.
CSP Daily News spoke with experts in the food and retail industries to get their take, and they agree that while the future is uncertain, the merger of these retail behemoths could have drastic, lasting effects on the future of brick-and-mortar retail.
Click through for insights on how this merger might change Amazon and Whole Foods, and what it could mean for c-stores and the very idea of retail …
What does this mean for Amazon?
Gerald Lewis, a New York City-based retail consultant who specializes in convenience stores, believes the acquisition highlights Amazon’s view of itself not just as an online retailer, but also as a service for getting products to customers by whatever means necessary. “Unlike railroad operators who saw themselves in the business of running trains instead of providing transportation, and therefore didn’t get into the airline business, Amazon doesn’t see themselves just as online suppliers,” he said.
Danny Silverman, CMO of e-commerce consulting firm Clavis Insight, Boston, pointed to the kind of customer Amazon is targeting with the acquisition. “Whole Foods is a niche player, focused on organic and fresh produce, which means this isn't, for now, a mass grocery strategy, but it does bring more high-income, high-end shoppers to the Amazon brand, which fits well with its Amazon Prime strategy,” he said.
Silverman also pointed to the leverage the deal gives Amazon over potential grocery delivery competitors. “The acquisition offers the additional bonus for Amazon management of pulling the rug out from under Instacart, which, up to now, had competed directly with Amazon as the de facto delivery arm of Whole Foods,” he said.
What does this mean for Whole Foods Market?
The merger could help bolster Whole Foods Market amid reports of tension between its CEO and shareholders. Another potential plus is that Amazon’s technical and logistical power could help lower Whole Foods prices.
“The consumer perception of Whole Foods is that it is overpriced. But given its massive buying power, Amazon could actually leverage its economies of scale to bring down prices in the aggregate and change this perception in ways that would make Whole Foods a lot more competitive,” said Todd Maute, partner at retail marketing and design firm CBX, New York.
The implications of combining Amazon’s logistic capabilities and Whole Foods' footprint and fresh-food offerings could be immense. It’s possible that Amazon’s technology piloted in its Amazon Go and AmazonFresh Pickup locations in Seattle could make their way into Whole Foods Market stores. “This might include such things as elimination of checkouts, click and pick up capabilities and personalized messaging to individual customers,” said Lewis. “This could turn out to be a pivot in food retailing.”
“The Amazon Go test store uses sensors, cameras and machine intelligence to eliminate cashiers and checkout lines. Now Amazon has a national brick-and-mortar footprint with which to roll out this game-changing technology. It’s still speculation, of course, but this acquisition could be a big first step toward the automation of U.S. retailing,” said Maute.
What does it mean for brick-and-mortar retailers?
Whatever the implication may be for Wal-Mart, the Bentonville, Ark.-based company answered the news by touting its strengths. “Our customers are looking for shopping experiences that provide everyday low pricing and a mix of physical and digital channels that work best for their needs. We feel great about our position, with more than 4,500 stores around the country and fast-growing e-commerce and online grocery businesses,” Wal-Mart spokesperson Randy Hargoves told CSP Daily News.
But retail analyst Charlie O’Shea of Moody’s investor services, New York, believes the acquisition could prove dangerous for big-box retailers. “Implications ripple far beyond the food segment, where dominant players like Wal-Mart, Kroger, Costco and Target now have to look over their shoulders at the Amazon train coming down the tracks, but also the potential for multichannel, which Amazon, up until now, has largely eschewed,” he said.
"Today's news is a call to action to the brick-and-mortar industry to evolve quickly, and it's a reinforcement of the work we are doing to facilitate consumer-facing and e-commerce solutions," said Tony Olson, CEO of Chicago-based SPINS, a consulting firm serving the natural, organic and specialty products industry.
Some, like Erik Thoresen, principal of food-industry information and advisory service Technomic, Chicago, believe that Amazon’s next steps in brick-and-mortar could be a positive catalyst of change in the industry, at least in the long term. “Amazon will infuse new thinking into what it means to be a brick-and-mortar retailer, which means that there’s new opportunities for other retailers to follow the same path Amazon’s taking and integrate more omnichannel options into their businesses, which will then potentially fuel growth,” he said. “The long-term impacts could be more positive for brick-and-mortar than we might suspect initially.”
What about convenience stores?
The deal likely poses a more significant and direct threat to grocery stores and other large retailers than it does to convenience-store operators, at least for the time being. But the convenience industry will inevitably feel the ripples of any surge of innovation that comes from the merger, and c-stores need to be at the top of their game to meet consumer expectations as they change.
“I’d be more worried if I were a supermarket. ... C-stores, however, can’t remain on the sidelines—their offers, environments and general convenience aspects of their stores must continue to be elevated in terms of quality, experience and ease of use,” said Joe Bona, president of retail design firm Bona Design Lab, New York.