As you may have already realized, Amazon’s recent $13 billion acquisition of Whole Foods is more than about groceries. By adding an enormous offline groceries chain and its customers attention to its repertoire, the retail beast moves closer to becoming a real one-stop destination for all consumer needs.
Slate puts it best, “Scale, meet scale. Logistics, meet logistics. Loyal customer base, meet loyal customer base.”
Before this, Amazon was already banking on America’s $800 billion grocery business via Amazon Fresh; it’s key competitors being Instacart, FreshDirect, Google Express and Blue Apron.
An Amazon Prime member can now receive everything he or she needs within two hours or shorter depending on their location; a feat these other grocery delivery services will find it tough to beat.
Why else would Facebook partner with Dunnhumby, a grocery data firm in 2016 to learn more about how Facebook advertising incentivizes purchases?
The grocer, most importantly, also has veteran experience and knowledge on sourcing and storing fresh food that can help Amazon’s “wasteful” Amazon Fresh operations and improve the entire customer experience, a staple to Bezos’ business philosophy.
Bloomberg reported that workers at Amazon Fresh threw away about a third of the bananas it purchased because the service only sold the fruit in bunches of five. Employees trimmed each bunch down to size and chucked the excess.
“There’s just not a lot of demand there. The whole premise is that you’re saving people a trip to the store, but people actually like going to the store to buy groceries,” said Kurt Jetta, chief executive officer of TABS Analytics, a consumer products research firm.
The grocery game can’t be won by trucks and websites alone. Whole Foods gets two-thirds of its sales from fresh fruits, vegetables and meats, whilst other supermarkets gets only 25% of sales from those fresh categories.
“Whole Foods as a kind of guinea pig for Amazon — a pricey, organically sourced one, perhaps, but a guinea pig all the same.” – NY Times
Whole Foods’ grocery-distribution infrastructure is already expected to act as Amazon’s grocery-distribution infrastructure and will incorporate the e-tailers technological capabilities to streamline the checkout process at Whole Foods to possibly push the long-awaited “cashier-less” Amazon Go concept.
What does this mean for everyone?
Following the announcement of Amazon’s acquisition, grocery chains’ stock took a tumble on Friday. Walmart stores Inc. fell 4.7%, while US retailer Kroger Co. dropped 9.2%.
Payment companies such as Square.Inc also fell over the concern that the acquisition will lessen the importance of traditional payment methods.
The value of the industry should reflect grocery players across the globe, also counting those investing in countries such as Singapore and Thailand. The acquisition may not have a direct impact on Southeast Asian grocery players yet, but it represents how change could come in the future as Amazon is rumored to launch in Singapore and Lazada’s acquisition of RedMart.
If grocery players remain purely within their vertical, it could make them vulnerable to an acquisition or worse, once an all encompassing, data hungry giant makes it way into the market.
Amazon’s acquisition of Whole Foods can serve as validation to how important consumer data, logistics, payments and an integrated value chain is, for small players that do not have this, it will be difficult for them to exist in the future.
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