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Convenience Commerce

Amazon acquisition of Whole Foods: The world’s boldest, most innovative, best-funded retailer will re-imagine the grocery store

by Ken Cassar - April 25, 2018

Image credit: Jakub Kapusnak (via Unsplash)

Just last week I was presenting to a group of CPG brands and retailers where I urgently advised they had ‘a year or two long window’ before Amazon was going to fundamentally disrupt the U.S. grocery industry as its brick-and-mortar strategy moved from a ‘test and learn’ mode to full rollout.

Ken Cassar, principal analyst

With the news that Amazon has agreed to purchase Whole Foods, it seems that that window has snapped shut.  Amazon has, with its $14 billion acquisition, acquired 400 plus stores and a brand better aligned with Amazon’s than any other brick-and-mortar grocer (with the possible exception of Trader Joe’s).  This is a disruptive event for three key constituencies:  Grocery retailers, CPG brands, and Amazon.

Online grocery is small, but growing and innovating quickly

The online grocery space is relatively modestly sized in the US, accounting for only seven percent of total online sales.  However, the combination of investments in click-and-carry, innovations in meal kit solutions, and growing availability of same-day delivery have combined to make grocery grow more quickly than any other category online.  Grocery sales are up 47 percent in 2016, compared with overall online growth of 24 percent.  It seems that the U.S., before Amazon’s acquisition of Whole Foods, was on a track to finally catch up with the rest of the world in digital grocery penetration.

Embattled grocery retailers have a new fight on their hands

Today’s Wall Street Journal included an article titled ‘Kroger Shares Slide, as Grocer is Battered by Price Fight’.  Even before Amazon dropped its Whole Foods bomb, the shares of the biggest U.S. grocery chain were down 19 percent after a second straight quarter of poor earnings driven by tougher competition and declining food prices.

Board directors of grocery chains across America are undoubtedly on planes to corporate HQ to assess the impact of the Whole Foods acquisition and what they ought to do about it.  The implication for grocers is quite clear:  The world’s boldest, most innovative, best-funded retailer now has a platform to re-imagine the grocery store.

Based upon experiments that we’ve seen in Amazon Go, Amazon Fresh Pick-up, and Amazon Books we can be fairly confident of key elements of Amazon’s playbook:

- Whole Foods stores will be refitted to allow shoppers to buy online and pickup at their local store.

- Amazon will seek opportunities to automate the checkout.

- Data collected online will be used to enhance the brick and mortar shopping experience, and vice versa.

- Whole Foods shoppers will be offered servicing options that will make the allure of Prime irresistible. We should not expect Whole Foods’ prices to drop precipitously – Amazon long ago shifted its focus from price to convenience.

Brick-and-mortar grocers must reinvent or die

From this day forward, brick-and-mortar grocers can no longer think about themselves as brick-and-mortar grocers.  They must look at their stores as an asset, but their stores can no longer define them.  They need to rethink their businesses from the consumer outward, but they need to begin to lead the consumer, rather than react to her.  Most Americans do not buy groceries online – it is incumbent upon grocers to take consumer on a path toward doing so before Amazon does.

- Every store must have a drive-through pick-up staffed with knowledgeable employees.

- Grocers need to quickly develop the ability to precisely know what is in stock in every store in real-time.

- Grocers have to become experts in all forms of digital user interface, from Web sites to mobile apps to voice ordering to IoT commerce.

- The grocery CTO just became the most important employee at every grocery chain in America. Retailers that laugh off the impact of Amazon’s acquisition of Whole Foods will simply not exist 5-10 years from now.

This seismic shift puts brands in the driver’s seat

For brands, this acquisition needs to be viewed as an opportunity they have no choice but to seize.  Every grocery chain in America is going to need to begin a process of deep collaboration with their brand partners to reinvent grocery shopping.

The opportunities vary by category and by retailer.  Brands need to help retailers redefine themselves in a way that is in tune with their markets and customers rather than collaborating to clone Amazon.

Amazon’s biggest weakness is its own self-confidence.  It has historically been uninterested in insights and ideas from its brand partners.  Traditional grocers, though, have historically been highly dependent upon insights and ideas from brands.  It is imperative that brands up their digital IQ in order to be the partners that grocers need right now.

Amazon has brilliant foresight, but still has much to learn

The biggest piece of advice for Amazon is that running a scaled grocery operation is very different than running a scaled online operation.  While Whole Foods has struggled of late, it is still a great retailer and has an awful lot to teach Amazon’s executives.  Amazon also ought to become more open to collaboration with its brand partners, which are armed with a wealth of data, insight, and creativity in the brick-and-mortar environment.

Maybe it’s the coffee talking, but it does seem that June 16, 2017 may be looked upon as a seminal day in the history of retail.

About this data

With a panel of over 4 million online shoppers, Slice Intelligence gives the most detailed, and accurate digital commerce data available, and is reported daily.

Slice Intelligence is the only service to measure digital commerce directly from the consumer, across all retailers, at the item level, and over time. Our retailer-independent methodology precisely measures commerce as it happens. By extracting detailed information from hundreds of millions of aggregated and anonymized e-receipts, Slice can map the entire Purchase Graph, connecting each and every consumer to all their purchases.

Slice gets its data from e-receipts – not a browser, app or software installed by the end-user – so its measurement reflects comprehensive shopping behavior across multiple devices, over time which are key in an increasingly omnichannel retail world.