The whole story behind Amazon’s Whole Foods buyout
Loop North News

Howard Tullman

This isn’t about an online behemoth acquiring a struggling high-end grocery store. It’s about altering our relationship with shopping in an entirely new way.

5-Jul-17 – I’m not sure that in the last year or, honestly, in the last decade or two, there has been a single deal that will be regarded as a more impactful transaction across multiple industries and the entire omni-channel economy than Amazon’s recently announced acquisition of Whole Foods.

Apart from one of the Detroit Three auto guys or Daimler buying Tesla, it’s unlikely there will be another deal of this game-changing magnitude. So many of the other deals being discussed are so-what stories at best and, as I always say, two warm cups of coffee don’t make a hot drink.

So, I wouldn’t waste a lot of time or breath on what’s next. The question today for grocery chains and independent markets across the country and, frankly, for all retailers is, what do we do now?

Believe me when I tell you this isn’t just a concern for the guys who sell cantaloupes and kumquats. In case it escaped anyone’s attention, Amazon is well on its way to becoming the nation’s largest apparel merchant as well – and that’s even before the rollout of its just-announced Prime Wardrobe business, which provides an at-home, try-it-before-you-buy-it, clothing service. And because it’s Amazon, the new offering comes with a special and very appealing little twist – the more of the ordered and inspected items you decide to buy, the cheaper the whole order will be for you.

Photo by Kate Medley I like how this bundle-before-you-buy incentive approach has you mentally accumulating and acquiring more and more things in your head before they even arrive on your doorstop.

(Left) Butchers at Whole Foods Market in Plymouth Meeting, Pennsylvania. Photo by Kate Medley.

I don’t have any special sauce or secret solutions for the nation’s merchants, but if I were going to start trying to plan my increasingly bleak future, I’d want to be sure that I at least understood all the dimensions of the deal and all the different levers this acquisition affords Amazon. My sense of the general media coverage has been that it’s a little long on hype and hysteria and light on helpful information and analysis.

So, I thought it would be useful to try to briefly outline the three very distinct legs of the strategic stool and how each element enhances and extends Amazon’s position in the marketplace...

Distribution/Access

Yes, the Whole Foods deal is an aggressive bump. More than 425 stores will remain, at least for a while, and these stores can serve as delivery depots and mini-warehouses in Amazon’s distribution channels as well. (Granted, Whole Foods’ systems are almost certainly not up to Amazon’s performance levels or expectations.)

And not merely for groceries. The much more salient point is that Whole Foods gives Amazon ready access to affluent parts of the population. Whole Foods stores aren’t uniformly spread across the country.

(Right) Whole Foods Market in Rockville, Maryland.

Whole Foods Market

They are highly concentrated in upscale areas and, as a result, provide access to an enormous number of exactly the kind of customers Amazon loves right along with their disposable income. Almost half the United States population that matters – probably not a politically correct thing to say – is within a hop, skip, and a jump of a Whole Foods Market.

Replenishment/Cross-Selling

Shopping for our groceries, especially staples and commodity products, is basically a chore, and the less of it we must do, the happier we’ll all be. There’s a reason that we now spend more on food outside of the home than inside. No one needs to go anywhere anymore to replenish the basics that they buy repeatedly.

Whole Foods Market We estimate that 70 percent of what you purchase each week at the grocery store is the same old stuff. So why wouldn’t you have it automatically shipped, for free of course, by Amazon to your door? They spoiled us with a single click solution a long time ago and now we’re moving toward no clicks at all.

As their systems get smarter and smarter, we won’t even have to press the Dash buttons any longer. They will know when we’re about to run out and we won’t have to run out any longer.

Engagement/Trial

Even more compelling from a “getting to know us” standpoint is the fact that about 60 percent of current Whole Foods customers are already Amazon Prime members. The cross-selling opportunities and the data-driven incentive plays are off the charts. Prime members are already princes and princesses online and in the Amazon stores – which is to say they pay less for just about everything – and it’s only going to accelerate as they are increasingly identified and linked while they’re in the Whole Foods markets. Special pricing, coupons and rebates on your phone, deliveries that beat you back to your burrow, etc. It’s going to be a whole new level of omni-channel communication and it’s going to make shopping elsewhere a complete time-wasting drag.

And it’s not simply the productivity and efficiency savings that will make the new shopping experiences so special. Remember that it was the guys from Whole Foods who changed the entire supermarket experience for the better in the first place. Amazon.com

They turned the mundane into the magnificent and made it fun once more to go to the store. Costco may have figured out how to get dads back into the stores – tech, tools, and TVs – but Whole Foods made it fun for the whole family.

Hopefully, this is an area where the general Bezos bloodletting ethos won’t overdo it. Save me money for sure, but don’t turn the place into an Aldi, where you feel like you’ve gone colorblind because every generic package looks like the joy and the excitement were drained before the products ever hit the shelves.

The good news is that the opportunities in the stores are so additive and important – from an experience, repeated trial and data standpoint – to Amazon’s ever-increasing accumulation of behavioral information and ultimate objective of knowing everything about us that I think they’ll leave things alone for a while.

Having 425+ living labs to try a little bit of everything must bring the purest joy to Jeff’s little beating heart. And, if he drives the crazy “Whole Paycheck” prices down to some realistic level over time, I’m sure none of us is going to be unhappy either.

Images obtained from Whole Foods Market and Amazon.com.

By Howard Tullman | Loop North News | news@loopnorth.com

Published 5-Jul-17 2:32 AM

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