How Amazon Buying Whole Foods Could Transform Grocery Shopping

Many business stories from the popular press appear to me as if they were written by someone without a basic understanding of business. 

Wired got it mostly right when describing the news that Amazon bought Whole Foods. The fact is, the merge happened, and people are speculating. 

I look at it a from the view of what shoppers want, and how to get it for them. 

We love getting everything delivered, not just books. (please. let's stop making that the lead on every Amazon story). 

Here I see how I want more than a bargain from Amazon. I want the highest quality, at my door, without the attitude I get from a big upscale chain. That's what I hope Amazon adds to Whole Foods. 

Though I could be wrong. Amazon leaves Zappos.com alone and learns from things they do best. :)



In its biggest acquisition ever, Amazon agreed to buy the Whole Foods supermarket chain for $13.7 billion. Given the Everything Store's adventures in groceries so far, this promises to redefine what a trip to the grocery store looks like.

While the Whole Foods deal initially came as a surprise, Amazon's general interest in groceries shouldn't. The e-commerce giant has tested grocery delivery concepts as far back as August 2007, when it first unveiled Amazon Fresh—delivering pantry staples and produce from its vast network of fulfillment centers. That means Amazon has been trying to crack the online grocery space for nearly a decade—practically eons in Silicon Valley time. And it still hasn't figured out the market. As Amazon quickly learned, the instant-gratification business doesn't square with fresh food, for good reasons.

Still, those early stumbles don't mean Amazon has given up, as its acquisition of Whole Foods makes clear. The market presents too lucrative an opportunity, with too much potential for improvement.

“Amazon buying Whole Foods is a good fit with the company's larger strategy for groceries,” says Jason Goldberg, vice president of commerce at the digital marketing company Razorfish. “Fresh groceries is the biggest category of consumer spending in retail that hasn’t been disrupted by online yet.”

Amazon has already upended electronics, books, and clothes. Now it's coming for groceries.

Which, from a business standpoint, it would be crazy not to. The online grocery market is huge. A recent report from Food Marketing Institute and Nielsen estimated that the sector could grow five-fold over the next decade, with American consumers spending upwards of $100 billion on grocery items by 2025. While around a quarter of US households currently shop online from groceries—up from a fifth of American households in 2014—more than 70 percent will be doing so within 10 years, according to the reportBut while Amazon recognized the potential in this space early on, Amazon Fresh still hasn't gained much traction a decade after launch. Selling fresh food online requires a more hands-on experience than the company's typical transactions. Groceries equals perishables, which means that consumers have to be there to receive them and put them in a refrigerator—eliminating a lot of the optimization around delivery routes and bundling items that benefited Amazon's deliveries of, say, toilet paper. “You can’t do that with milk,” says Goldberg.

That's why Amazon's more recent efforts have focused less on delivery than on changing the way the grocery store itself works.

Take AmazonFresh Pickup, which the company launched in March. Instead of figuring out the complex logistics of delivery, Amazon's model has customers order groceries online, then drive to an Amazon-run store, where a worker brings all the bags to their car. While Walmart and Kroger offer similar services, they have two- to four-hour prep times, versus Amazon's 15-minute window. It's the difference between truly being able to order your groceries on the fly and still planning your day around it.

By May, Amazon had opened two Seattle locations to the public. Now Amazon can conceivably expand that process to 431 pickup locations across the country, in the form of Whole Foods brick and mortar locations. Assuming the deal passes regulatory muster, the near future of Whole Foods shopping could well involve never walking down a single aisle.

"What’s emerged as the best digital solution for fresh groceries is: order ahead, pick up in store,” says Goldberg. “What we’re seeing today is the first step in Amazon’s strategy to acquire locations that get closer to the consumer.”

Another Amazon concept looks even further into the future. Last December, Amazon took the wraps off a beta of Amazon Go, a real-world grocery store with no cashiers. In Amazon's world, you just grab the items you want and walk out, while embedded sensors and tech inside the store keep track of the things you reached for.

So far, the only Amazon Go location resides at Amazon’s headquarters; the company delayed opening it up to the public, reportedly because of technical complications.

Both models share the same ambition: reducing as much friction in the shopping experience as possible while also, it should be said, eliminating as much of the payroll as possible. In Amazon's grocery world, you barely get out of your car. And if you do enter a physical store, you can leave without so much as reaching for your wallet or phone.

But acquiring Whole Foods can only push Amazon’s grocery ambitions so far. “Amazon is stronger in bigger cities, and the map of Whole Foods locations shows it is closer to these cities,” says Goldberg. It doesn’t help Amazon increase coverage in more rural, Walmart-centric areas.

Then again, Whole Foods could just mark the beginning of an even more ambitious strategy. “If this strategy proves out for Amazon, you could well imagine it could be opening a bunch more stores or doing more acquisitions just to cover the US," says Goldberg. "And you could imagine it might have similar plays that it’s evaluating in other markets.”

Amazon has already upended electronics, books, and clothes. Now it's coming for groceries.

Before Amazon can expand its grocery ambitions any further, though, it needs to make sure its wild ideas can scale. “The question is, how can they accelerate this?” says ChannelAdvisor executive chairman Scot Wingo, an analyst who tracks Amazon closely.

Even beyond the methods of delivery, Amazon could experiment with offerings. It could start by selling not just groceries in its Whole Foods locations but also using them to market its own electronics and products. Or it could even let you order your entire grocery list using its Amazon Echo speaker and its voice-activated assistant Alexa.

Considering the possibilities, Wingo says, the grocery delivery part may even be the easiest thing for Amazon to work out. “Yesterday, Amazon was probably in the top 50 grocery players, and now, by our estimates, it’s around number five,” he says. “If there’s anything I’ve learned in the last two decades, it’s not to say it’s impossible for Amazon to be a top player in any category of goods.”

It seems likely that it will get there in groceries the same way it has in its other consumer-facing products: Changing the way you shop.


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