The grocery world was rocked recently by Amazon’s stunning $13.7 billion acquisition of Whole Foods. And it’s not just grocery stores keeping a watchful eye on this development. Shockwaves are being sent into every corner of retail where Amazon does business – which is to say, pretty much everywhere.
Over the past decade, Amazon has turned the retail industry on its head with its brand of “everything in one place” online shopping. Many retailers have been forced to invest heavily in digital marketplaces just to stay competitive (and to keep their brick-and-mortar stores relevant).
So what does this latest development mean?
It means that digital and physical shopping are about to merge in ways they never have before. It means that omnichannel sales and distribution methods are about to explode. And it means that every retailer in the world has just been served notice… their industries could be next, and their business models and strategies need to start changing now.
Omnichannel and the Last Mile of Food Delivery
What makes Amazon’s foray into grocery so interesting is that it’s an industry with relatively little online shopping. Amazon itself was one of the first retailers to experience some success in online groceries with its Amazon Fresh initiative. But due to the highly perishable nature of many foods, and perhaps because of the way most people conduct their grocery shopping, they’ve had little impact on the industry overall. Until now.
With Whole Foods under its wing, Amazon suddenly has a pipeline stocked with fresh, premium quality food products. They don’t even need to adapt their existing warehouses and distribution networks to accommodate all that new inventory – like a true omnichannel solution, each Whole Foods location could become its own distribution center.
Can Amazon solve the “Last Mile” problem and provide same day delivery of groceries? By investing in additional trucking capacity at each Whole Foods location, they could theoretically do just that. At least in those markets served by a local Whole Foods store.
But what’s their endgame look like? Will they expand the Whole Foods brand to offer the same footprint of services nationwide? Or will they use Whole Foods to empower the Amazon brand, worrying less about same day deliveries and more about the volume and efficiencies that made them one of the most recognized brands in the world?
Taking the omnichannel setup a step further, there’s nothing preventing Amazon from storing and delivering high velocity non-food items from Whole Foods locations, either. Or any other grocery brands they subsequently acquire. These would serve until they acquired brick-and-mortar footholds in other, more traditional retail industries, at least. Local footholds such as these could bring them one step closer to their ultimate objective of providing same day deliveries.
How Amazon implements its omnichannel sales and marketing will also be most telling in regard to their future plans. In the digital space, Whole Foods could become little more than a “brand within a brand” on Amazon’s website. Or it could remain a wholly separate website of its own, incorporating Amazon technologies, but with no obvious connections.
Digital and Physical: the Best of Both Worlds?
It’s clear what Whole Foods provides for Amazon’s ambitions in the food industry. But what about the other way around? How Amazon’s merchandising and technology capabilities affect the Whole Foods brick-and-mortar stores could be a far more interesting transformation.
Just consider some of the innovations Amazon has been testing in its retail pilot stores.
In an interview with NPR, Bob Hetu of Gartner Group discussed the potential for more tech at the shelf level, including awareness of when a product’s left the shelf and sensing the contents of a customer’s basket.
On the other hand, what happens when your Whole Foods purchase history gets uploaded to Amazon’s already sophisticated recommendation engine?
The synergies between physical and digital grocery shopping are intriguing. As Brendan Witcher of Forrester imagines in that same interview, “The ultimate way of grocery shopping would be saying – Alexa, send me my grocery list, add garlic, remove tomatoes. And that's your entire weekly shopping right there – done.”
Serving Notice to the Retail World
In the grocery industry, Forrester sees the Whole Foods acquisition as a foreshadowing of things to come. “We expect Amazon to make more acquisitions that have deeper reach into middle America and extend its attractiveness to new demographics,” they write in their report.