As news stories go, last Friday’s announcement that Amazon is to buy Whole Foods Market for a cool $13.7 billion was about as big as they get.
Instantly, the internet was alive with predictions of drone deliveries of kale chips and ‘Wholebots’ replacing Whole Foods checkout staff. There were jokes – had Amazon’s Jeff Bezos accidentally bought Whole Foods while ordering groceries via Alexa? – and metaphors (much talk of low hanging organic fruit) aplenty.
Meanwhile, financial commentators and retail analysts grappled with the implications of the deal for these two very different businesses – and for the future of the ‘traditional’ supermarket food retail model. What scale of disruption could America’s $800 billion grocery industry expect?
There is general agreement that Amazon’s acquisition of a major bricks and mortar retail player has been long on the cards. Owning a national grocery chain will create the volume sales and economies of scale that Amazon needs to make its food retail operation profitable (“online food retail doesn’t make money, even for Amazon … the only way they could do it was to buy someone,” Neil Saunders of GlobalData Retail told the Financial Times).
For Whole Foods, the Amazon deal is widely seen as a timely lifeline. The word’s biggest natural foods retailer by a mile has been left struggling in recent years as America’s supermarket chains have aggressively sought their share of the natural and organic cake.
Analysts are split on how they see the Amazon/Whole Foods deal panning out. Some believe the internet giant wants Whole Foods’ prime town centre retail spaces as glorified ‘click and collect’ venues. Others predict Amazon will use Whole Foods distribution network to power its AmazonFresh food retail subsidiary. There are suggestions too that Amazon will install store-within-store features in larger Whole Foods stores – Apple Store-style outlets for tech and electronics, say.
“The big worry for the natural and organic sector – suppliers and brands at least – is category dilution. Will significant natural and organic shelfspace in Whole Foods stores be lost to other goods?”
The big worry for the natural and organic sector – suppliers and brands at least – is category dilution. Will significant natural and organic shelfspace in Whole Foods stores be lost to other goods? More positively (significantly, Whole Foods Market ceo John Mackey will stay in post), Amazon’s renowned operational efficiency and technological edge could produce a resurgent Whole Foods, better equipped to thrive in America’s cutthroat grocery industry. The question then, is would Whole Foods’ customers stay loyal to the Whole Foods brand.
So, does the deal, as some pundits claim, signal the arrival of a whole new retail paradigm? Possibly not. The London-based Guardian newspaper suggests that the Amazon/Whole Foods deal – huge though it is – is a little less Brave New World than some would have us think: “Amazon, the online revolutionary, feels the need to own shops to be big in groceries. It is the reason why supermarkets should not conclude that their business models are broken. Amazon is proposing an approach that looks like their own: a mix of online and physical stores.”