Could This Marriage Wreak Havoc on the Status Quo?
If you happen to be digitally savvy, reside in the upper quadrant of earners in the United States or Canada and love organic foods, you might be thinking this is a match made in heaven. And on the surface the Amazon buyout of Whole Foods for the paltry sum of $13.7 billion could simply look like one ‘new economy’ company buying out another. Really, just a merger of two companies appealing to a cappuccino drinking, Audi driving, corporate executive.
However, if you peel back the layers of this onion, some other possibilities start to emerge. One might question why Amazon, the world’s largest online retailer would target a company that is not so affectionately nicknamed “Whole Paycheck”. After all, Amazon appeals to a modern, middle-class clientele. Their customers are constantly looking for the best deal and are often finding it at Amazon. Contrast that with the Whole Foods customer who could arguably search the entire store without finding a single example of “the best deal”. Plus, they hardly have any e-commerce strategy at all. Not exactly a marriage of complimentary styles.
It is no secret that a decade ago Amazon realized that to dominate the retail landscape, they needed a serious grocery play. For the last ten years, Amazon has launched several products designed to capture the grocery customer, each was met with unremarkable results. Their trusted blueprint of enter a product category, lower the price and deliver it to the customer was not working in food. Amazon, the world’s largest online retailer and third largest retailer of any kind just could not figure out food. So, for a decade the grocery industry let out several large collective sighs of relief. Eventually, Amazon realized that online was not only NOT the only way to buy groceries, it wasn’t even the preferred way to buy groceries. In fact, online may never be the preferred way to buy groceries. Being the world’s largest online retailer, the fact that online groceries was not a big hit with customers presented a problem for Amazon. Another collective sigh of relief from the grocery industry.
So where does a company that for years has satisfied online customers by delivering products to their homes for great prices turn when their grocery dreams are dashed by a fickle customer that rarely turns to the delivery method perfected by said company? Well, if you are Amazon, you buy Whole Foods. And if grocery customers refuse to buy online (in large enough numbers), then you execute your strategy in the location those customers want to buy at. If you recall, Amazon has become successful by entering product categories, lowering the prices and delivering to the customer. Really, the hardest element of this strategy to execute is the delivery piece. In Amazon’s new Whole Foods adventure, the customer comes to them. So, Amazon is about to enter the category by buying out Whole Foods and the customer comes to them for delivery of the product, all they have to do is lower the prices. The collective sighs, just turned to collective gasps!
The looming question being asked at boardrooms across North America is “Do incumbent leaders in the grocery industry need to worry?” If we break down this deal we might just find the answers to this question. For one, this is a marriage of the world’s undisputed most technologically advanced retailer and arguably the trendiest bricks and mortar retailer. If we do the math, we can see that both technology and Whole Foods are trendy. If Amazon’s trendy customers make the small step to the Whole Foods mentality, this deal has the potential to make the niche retailer much more mainstream. Taking Whole Foods mainstream though will take a lot more than just a trendy, technologically advanced retailer. Remember the “Whole Paycheck” moniker? Luckily for Amazon though they just happen to be experts at entering a category, lowering the price and delivering it to their customers. Did that just send a shiver up your spine? If not, let’s recap. Whole Foods is a trendy retailer that specializes in niche categories like organics, fresh prepared and meal kits. They have not gone mainstream because of the “Whole Paycheck” problem. Enter Amazon who are experts at entering a category, lowering the price and delivering it to their customers. Plus, they are the third largest retailer in the world with the most technologically advanced distribution and customer analytics systems. Their combined strength can bring these niche categories to the masses for prices they can afford. And who are these masses? They are called the millennial generation and by 2020 they will bring their $1.5 trillion into North American economies.
The last unanswered question is: are incumbent leaders in the grocery industry strong enough in organics, fresh prepared and meal kits in order to stave off this Amazon/Whole Foods assault? A stroll through your favourite grocery store will provide an answer to that question. I will answer this question with a question: “Will one Small Step for Amazon Customers be one Giant Leap for Whole Foods?”
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