Amazon Buys Whole Foods

Posted on Fri, June 16, 2017 in Digital Marketing, eCommerce, by Paul Weinert

First off, full disclosure: I basically only shop at two retailers – Amazon and Whole Foods. This may be oversharing, but I've been to the Whole Foods by my house FIVE times this week (two breakfasts, one lunch, two pick-up-ingredients-for-dinner runs). I love it. It's a fantastic store. As for Amazon, I had 92 orders last year — for my personal life — even more for GRAYBOX.

So, when the news dropped this morning that Amazon was buying Whole Foods for 13.7 billion dollars (that's 14x what YouTube or Instagram sold for), I was pretty excited – both as a fan of both companies but also as a technologist. (More on the acqisition here.) So I have some thoughts I wanted to share.

1) Whole Foods has been taking a beating lately, so it's well timed. Amazon is getting a deal, as the stock is trading at about half of it's market cap from each three years ago. (Sidenote — The stock is up 30% today already). Also, Whole Foods is already well placed in urban markets everywhere — a big problem for Amazon's online + massive suburban distribution presence. This is a fast way in for Amazon into cities.

2) The biggest hit the Whole Foods brand is going to suffer will be on pricing, and I fully expect to see prices come down significantly at their retail stores. Remember, Amazon aims to run a super tight margin, and they will run this tight too – not like Whole Foods's existing industry-leading 2-4% net profit. [Reference] For comparison, Kroger runs at .7-1%. Lowering prices is great for everyone.

3) I used to live in Seattle, and a decade ago Amazon was killing it with this fantastic delivery service called Amazon Fresh. Basically it was a subscription-based grocery service that delivered fresh, local, organic produce and pantry goods on a regular schedule. It was awesome. It was never majorly expanded because they found it challenging to achieve freshness and distribution at scale around other urban centers — but I think that's now just changed with this acquisition. Basically, expect to see a LOT of these trucks in the future. 

Amazon Fresh. Between this, Instacart, and Amazon Prime, we may never leave the warehome again.

4) Amazon has this fancy new technology that tags ALL products with an identifying mechanism so that in order to purchase a product from a retail store, you don't need to check out at a register – you merely pick it up and walk out. They call it Amazon Go. Passive scanners positioned at the door read ALL the RFID's of anything you might be carrying and bill your card on file. They have a pilot store in Seattle and I haven't been, but I've heard it's magical, especially for fresh and prepared foods....conveniently this is what I consider Whole Foods' biggest strength. Their fresh and prepared food is amazing and highly profitable. Amazon is going to leverage the hell out of it and make grocery shopping super easy. Expect this to roll out ASAP. [ More on Amazon Go.] 

Finally, I just love that yet again, Amazon proves it's playing chess while other merchants are playing checkers (at best!). Regardless of your business, if you don't have an  Amazon strategy, you need to get on top of that ASAP and we'd love to help.

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