It seems that a day does not go by without the eCommerce behemoth Amazon disrupting the world of retailing. In a deal worth almost USD14 billion (GBP10.7bn, EUR12.5bn) the Internet giant has acquired premium supermarket Whole Foods. The ramifications in the U.S. are significant, while closer to home, the deal is sure to create a few waves in what is a mature and fiercely competitive grocery eCommerce market. Given that cracking grocery is a core pillar of Amazon’s growth ambitions, and shopper demand for channel-less experiences is rising, obtaining a physical presence and solid credential in this space is a prudent move.
Disruption Will Be Small, for Now
With nine stores in the U.K., Whole Foods is somewhat of a minnow. However, when you consider that these stores are in affluent areas of London — where you’re likely to find Amazon Prime, and importantly, AmazonFresh shoppers — the implications intensify. In London, Whole Foods is already a featured store on Amazon Prime Now, and AmazonFresh, catering to the growing demand for organic and artisan produce. Whole Foods carries a premium price, which is slightly at odds with what Amazon is all about. However, for the U.K. at least, Amazon’s partnership with Morrisons, the country’s fourth-largest supermarket known for quality, affordable produce, and a strong presence of household brands, will help create a good, better, best pricing model.
Cementing Amazon’s Credentials in Food Retail
The acquisition will go a long way towards cementing Amazon’s credentials not just as a food retailer, but as a viable place to do all your grocery shopping. Indeed, it is here where the synergies can be exploited, with Amazon embedding Whole Foods’ supply-chain capabilities within its existing, formidable fulfilment ecosystem. This will certainly bring operational efficiencies and grant greater scalability to AmazonFresh, while reducing the cost of using the service, which is a current barrier to use.
While Whole Foods’ footprint is small, its ability to provide pickup points for AmazonFresh enhances flexibility and choice, boosting the service’s appeal and making it more viable. One loser here will be Shutl, the current provider of Whole Foods’ one-hour delivery service. Shutl will likely be replaced with Prime Now, adding to the wealth of benefits and boosting membership. It is also likely that Amazon will leverage Whole Foods’ capabilities in food-to-go and meal solutions to strengthen the Amazon Restaurants offering, as it looks to conquer the on-demand food service market. Other potential losers are upmarket grocer Waitrose and the artisan delis that compete with Whole Foods.
Springboard for AmazonFresh Expansion
This latest move is sure to broaden the reach of AmazonFresh, not just in the U.K., but in other significant European markets, most notably Germany, where the service launched in Berlin in May. To make inroads in Germany, where grocery eCommerce is relatively small, leveraging synergies with Whole Foods, with potential to open a store in Berlin, will provide a fillip to growth. Longer term, the acquisition could potentially pave the way for rolling out Amazon’s grocery offering in markets such as Japan and China.
Adapting to the ‘New Retail’ World
Pursuing such as strategy is akin to rival Alibaba’s “New Retail” initiative, which is seeking to provide the best of digital and physical by investing in physical retailers.
As retail rapidly moves towards channel-less, friction-less experiences, the acquisition of Whole Foods makes a great deal of sense as Amazon looks to win not only a greater share of grocery spend, but to continue satisfying modern shopping behaviour.
Here’s more about the ramifications for the U.S. grocery market:
Follow all of Kantar Retail’s coverage of the acquisition here.
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Malcolm Pinkerton, Vice President