How Amazon’s Whole Foods Buy Could Transform the Retail Ecosystem
Amazon’s recent $13.7 billion acquisition of Whole Foods Market could signal a new era of experimentation and pushing boundaries in retail as the company continues to redefine content and commerce in the grocery space and elsewhere, according to Gwen Morrison, co-CEO of The Store, WPP’s global retail practice.
“It’s a mistake to just look at the Whole Foods footprint by itself,” Morrison says. “It’s important to look at what this does for their larger ecosystem.”
Amazon’s technologies will optimize the grocery space environment beyond the 460-plus locations in the U.S., Canada and U.K. locations as it looks to leverage data based on mapping, contextually relevant content and location in the future, she told Street Fight in a recent interview.
Since Whole Foods markets are typically found in local shopping areas, the possibility exists for Amazon to scoop up space at malls, for instance, and potentially add a pickup location for Amazon Prime, Morrison says.
The purchase doubles-down on bricks and mortar for Amazon in a retail environment where some 8,600 stores are expected to close this year. This market is shifting and stores will not disappear altogether, but they may start to look a lot different with new innovations, enhanced customer experience and programs for loyal customers.
And Amazon Prime is a model premium loyalty program, Tom Caporaso, CEO of digital technology and marketing firm Clarus Commerce, recently told Street Fight.
He foreshadowed prominent takeaways for the future of commerce as Amazon and consumers embrace a whole new grocery shopping experience.
“If you think about the best premium loyalty out there, it’s probably Amazon Prime,” he said in his analysis.
“For a $100 fee, they’re an advanced product, and they have chock full of benefits and features,” Caporaso said.
Before the new deal, Caporaso alluded to Amazon’s push to build a brick-and-mortar physical locations. And with the Whole Foods buy, Amazon now can count 431 supermarkets and will “need to add a large network of specialized grocery distribution warehouses,” former AmazonFresh employees and logistics experts told Reuters.
This could mean significant additional investment, but keep in mind that Amazon looks at profitability through a different lens than that of Whole Foods shareholders.
“[Amazon is] probably not going to be looking at same-store sales,” says Morrison. “They have different ways of making money, so they can change the model just as they’ve changed shopping as a model for retail as a whole online.”
They can start to make those kinds of changes in a physical environment, too, Morrison says. “That’s going to be the challenge for brick-and-mortar retailers who haven’t been investing in the technology that Amazon has.”
Capturing the physical store market is not new to Amazon as it has opened stores to compete in the tight physical retail space. But it is how it will deal with customers who have not signed on to the popular Amazon Prime.
While Walmart is known to offer lower prices that appeal to middle America, Whole Foods’ reputation is grounded on the notion that customers will pay higher prices for organic produce and other products they consider to be of higher quality.
“Will Amazon and a Prime membership drill down to the low-income shopper or will they focus primarily on the middle class or upper-market shopper who historically has been attracted to Prime?” wondered Morrison.
The impact will be huge, when you consider the fast delivery options Amazon has created.
Whole Foods’ delivery options via Instacart will likely be curtailed as the third party vendor will now be pitted against the juggernaut of Amazon’s technologically advanced system, from AmazonFresh to Amazon Prime.
Many challenges await as the grocery space continues to see more consumers using digital technology to go shopping.
“That’s something that Amazon understands because they’re making that happen,” Morrison says. “They are creating these platforms that are changing how people shop, especially young people, and so they are not going to think twice about doing voice-activated shopping and having algorithms determine what’s going to come into their house, ultimately, and having appliances talking to each other.”
Nancy Ayala is a Street Fight contributor. Photo credit Herry Lawford, under Creative Commons license, via Flickr.