Amazon buys Whole Foods – What does it mean for ecommerce?

Amazon buys Whole Foods – What does it mean for ecommerce?

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Amazon bought Whole Foods Market for $13.6 and it has been widely reported. I am not going to rehash what has been put by many publishers. Recode and TechCrunch wrote about the purchase on a Friday that will haunt retail in the US for the next 15-20 years.

Jeff Bezos famously said in 2011, “We are willing to think long-term. We start with the customer and work backwards. And, very importantly, we are willing to be misunderstood for long periods of time.”  This is the reason why Amazon can innovate unlike any other company in history.

Denial of the deal

Amazon initially told the media that they were not interested in buying Whole Foods Markets. This is a classic Amazon tactic, they deny almost anything that the media develops regarding potential acquisitions and then pick their time and day for the news to be told to the market. (On a sidenote did anyone remember that on the same day of the Whole Foods deal, Wal-Mart bought Bonobos for $300?)

Amazon uses its own narrative and negotiation tactics to ensure that they get the best deal for their shareholders when buying a new or existing business. They have provided Whole Foods shareholders a significant increase in share price at which they are buying their public asset.

 

 So what now?

Amazon will now wait for the deal to close and then start incrementally making changes to their new asset. As I wrote regarding Alibaba and the battle of New Retail vs Old Retail – this deal is to ensure that Amazon can access retail shoppers at a brand they love.

Amazon’s value proposition is to ensure that they provide customers with the lowest prices and the best interoperability between their brands. Whole Foods is known to be a premium retailer with pricing that is above the normal for products. I suspect that Amazon will in the next 18 months work hard at driving down pricing by looking at Whole Foods financials. By changing the perception that Whole Foods is Whole PayCheck Amazon will assist Whole Foods Market in acquiring new customers.

Amazon I suspect will provide their newest subsidiary with all their various technical development which includes moving them over to Amazon Web Services and getting Whole Foods to use Amazon Robotics in their warehouses. Amazon Robotics is the old Kiva Robots that were acquired and widely adopted in Amazon’s fulfillment ecosystem and warehouses.

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Groceries is the big deal for Amazon

Amazon has invested in groceries for the last ten years and as usual started the business in Seattle. They then gradually moved it to other parts of the US. The point is that this acquisition is also an admission by Amazon that they have not been able to understand online grocery retail and thus decided that purchasing Whole Foods would provide them with the necessary skills and experience to ensure that grocery shopping becomes a part of the Amazon touch points for customer.

 

 Whole Foods is a US play only

Amazon has for the first time in their existence a competitor that can negatively  affect their business. Walmart has finally been able to acquire talent that provided them with the assets to take on Amazon online. Ultimately Amazon wants to become Walmart quicker than what Walmart can become Amazon. Walmart US under the leadership of Marc Lore is providing Amazon with a challenge that will ensure Amazon needs to continue delivering their normal levels of service.

Whole Foods adds 463 new physical retail properties in the US that customers walk in daily to Amazon’s giant footprint. Whole Foods also provides Amazon with expertise on private label items that Amazon has increased in the last 12 months.

Amazon will ensure that they retain as much of the human capital of Whole Foods for as long as they can because cashiers and other workers will be concerned about Amazon’s reputation as an employer. That is why them becoming a subsidiary with access to Amazon is the right move for everyone involved. If I look at Zappos and Shopbop who are also Amazon subsidiaries I think Whole Foods will grow at a rate not seen before.

How does this affect non-US customers

I believe Amazon will for the next 18 months gather as much intelligence on how Whole Foods operates and how their logistics work. Cold storage logistics is something that Amazon has used but for them to scale groceries globally it is critical that Amazon fully digest Whole Foods intellectual property on logistics and private label products.

Amazon currently owns about 0.9% of the total grocery market. Whole Foods currently owns 1.7% of the total grocery market. While this is a significant increase in market share for Amazon, it still pales in comparison to the top two. Walmart has 17.3% and Kroger has 8.9%.

When the transaction closes Amazon will own 2.6% of US groceries which will ensure that Amazon and Whole Foods have lots of room to innovate and grow their ownership. Once Amazon has completed this process I suspect that learnings from their US business will be passed on into other markets. I believe Amazon will acquire grocery businesses in other markets to scale their operation quickly. Whilst there are a lot of “ifs and buts” anyone in ecommerce should follow this developing story line.

Hendrik Laubscher has a decade’s worth experience in ecommerce. He contributes to a variety of publications and is fascinated by all things ecommerce (marketplaces, emerging markets and cross border global ecommerce). He lives in South Africa but travels globally to experience ecommerce in locations worldwide.

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