Is Whole Foods a healthy option for Amazon?
If you’ve been under a rock or staring at a fidget spinner over the past few days, you may have missed the news that Amazon is working to purchase Whole Foods for nearly $14 billion dollars. The markets favored the new partnership as they pummeled their competitors.
Both companies have unlocked several short and long-term opportunities with this purchase.
Hundreds of New Fulfillment Locations<
As the business idiom goes — location, location, location. With hundreds of stores, fastidiously, placed in affluent locations, Whole Foods could be viewed as an incredible real-estate acquisition for Amazon.
The distance from the warehouse to the home determines how quickly we can get those batteries that we need, right now.
Amazon, currently, offers same day deliver in nine markets. In 2015, Piper Jeffray analysts predicted that households with an annual income greater than $50,000 are the core market for same day delivery. They also estimated that Amazon fulfillment locations were within approximately 20 miles of 50-65% of their target market. This acquisition moves Amazon from the outskirts into the neighborhood.
Every Whole Foods doubles as a return location, micro-warehouse, pick-up location, and, as we’ll discuss later, landing pad.
High-Price Meets Hyper-Efficient
Amazon and Whole Foods have projected very different images of themselves. We don’t think low-price products when we think Whole Foods. Whole Foods, which some of my friends call “whole wallet,” focuses on their high-quality, high-price, heavily curated selection. On the other hand, Amazon is known for their hyper-efficiency, value and choice.
For Amazon, the ability to distribute products they already sourced at a higher-margin is a boon for their business. In other words, the Whole Foods markup builds Amazon a highly profitable channel for their goods.
Whole Foods realized that they need to provide a lower price-point option to reach a larger market. Therefore they launched Whole Foods 365 “Where Quality Meets Savings” to address more prices sensitive consumers. With Amazon’s lower cost supply chain, Whole Foods 365 may have found what it needs to get prices down to a point where they can, not only, undercut Walmart and Costco but provide a more convenient experience to their button-loving consumers.
Enabling the Last Mile
Amazon has focused on getting their products to their customers efficiently since they were founded. Amazon Prime, Amazon Fresh, Amazon Flex (delivery), Amazon Fresh Pickup, andAmazon Go are all relatively recent forays the company has made to disrupt retail with faster delivery.
Taking a step back, let’s recall what each company has to offer. Amazon has a more sophisticated tech infrastructure, innovative online consumer experience, better fulfillment processes and inventory management. What Amazon lacks is the human face and the connection to our communities. The only smile many know of Amazon is their branding on the corrugated boxes.
Whole Foods has property in incredible locations, a strong brand, and tens of thousands of employees that serve their communities in their locations. These are the missing pieces that Amazon has needed to scale their “last mile” delivery. It’s not easy to build a culture of service-drive people, and Whole Foods has an incredible staff that could support their new machine-driven parent.
Whole Foods currently has distribution partners like Instacart and Postmates who will likely lose a lot of business. They are just two services that could be cut-off in the future as Amazon has a new fulfillment location in our neighborhoods.
In NovemberAmazon announced that it was testing a new AI-powered store that didn’t require checkout. More recently, it was reported that their system was having a difficult time tracking when there were over twenty people in the store at any given time. Although this concept will come to market some time in the not-so-distant future, Whole Foods will provide an incredible testing ground once Amazon is ready to deploy their solution at-scale. This would allow us to treat Whole Foods like an extension of our refrigerators.
It’s still too early to know but we may look back and say that Amazon just acquired an entire fleet of drivers that could, if they wish, accomplish several activities for their new parent company.
The Machines are Coming
Lurking in the background of every future of technology discussion are two topics: drones and autonomous vehicles. Amazon has been quiet on the latter but it’s obvious that they could be a huge winner if they could deliver their own goods. However, there’s still was a major logistical issue for both of these endeavors — where do we take our vehicles and drones to re-charge and re-stock.
With this massive real-estate acquisiton, Amazon has inherited hundreds of local roofs and parking lots that could now re-charge and re-supply their fleets. As less and less of the population drives, these parking lots will allow expansion of the store and more room for other activities.
Cheers to a Convenient Future
The future of retail going to be interesting for all of us. It’s hard to deny that the market continues to create a world where we’re all going to have more time to watch Designated Survivor and The Housemaiden and less of a need to ever take time out to run errands.
We will choose the most convenient options that align with their pocket-book and values, in that order.
Over the past few years we’ve seen Amazon testing new ways of getting groceries in consumers fridges, with Amazon Fresh, Amazon Fresh Pickup, drone delivery, and Amazon Go. As I look back with this acquisition, I can’t help to think, “Were they just preparing for this the whole time or did they realize they couldn’t do it alone?”