Three Cheers for Amazon’s Purchase of Whole Foods

Walmart’s income statement for 2016 showed $486 billion in sales through its 11,695 stores, clubs and affiliates. Costco’s 2016 income statement showed $119 billion in sales through 715 warehouses. Kroger’s 2016 sales were $115 billion through almost 4,000 stores. The merged Amazon and Whole Foods grocery sales for 2017 are estimated at $151 billion through the 460 Whole Foods stores and sales volume through the Amazon Go and Amazon Fresh channels.

Mergers such as Kroger-Albertsons within the grocery business are enlarging the biggest players. Together the above four sold $971 billion in 2016.

For years, Amazon had been looking for more ways to gather information about how consumers shop. It gained some of that insight by setting up its own Amazon Go and Amazon Fresh online channels. Amazon’s devotion to consumer data was partly behind their investment in a fleet of trucks and cargo jets and its creation of Amazon Prime as a means to satisfy consumer preference for free, fast delivery.

Fast free delivery is a major justification for a consumer to pay the $99 Prime membership annual fee. Even before Amazon bought Whole Foods, half of Whole Foods customers were Prime members.

The big change from Amazon’s past strategy comes as community storefronts. While the 460 Whole Foods stores is a minor footprint in the grocery industry, it is a massive first step into community-located real estate for Amazon. Still, only 34% of households live within 5 miles of a Whole Foods location.

Amazon plans to equip those storefronts with Amazon Prime “lockers” which can hold Amazon online purchases until the Prime member comes to collect the items. For a customer base obsessed with fast delivery, the “locker” tactic seems at odds with consumers’ delivery preferences. Of course, bulky groceries may not qualify for free delivery in all areas, and a locker might be a useful convenience for an Uber or Lyft based delivery.

Walmart offers an online grocery selection that you can collect from the store and bring home in your own car. A Kroger personal shopper service was seen in one of the Kroger King Soopers locations. The shopper traversed each aisle in the store with a customized 6-bay shopping cart. Whole Foods had a personal shopper service which promised same-day delivery for a delivery fee.

Despite the mystery role of “lockers” in Amazon’s foray into groceries, we can count on some tried and true tactics from Amazon. Amazon has already started to reduce prices as a tactic to pull in a significant part of the groceries marketplace. Whole Foods had a reputation for good quality, but excessive prices.

A few days after Amazon bought Whole Foods, there were attractive prices on some special items – large peeled shrimp for $5 per pound and avocados for about $1. Those prices were not matched by Safeway nor by King Soopers, but each had a few specials and many regular priced items that reminded us of the bad old days when Whole Foods earned the reputation of Whole Paycheck. If anyone is not convinced, check out the Whole Foods deli area.

Amazon may address Whole Food’s high price reputation, but it should not dawdle, not rely on technology nor hope that a few specials here and there will distract consumers. Based on Amazon’s past behavior, we can expect consumers will benefit from its big investment and innovation in grocers.

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