How Will Amazon’s Acquisition of Whole Foods Impact the Food Industry?

Amazon’s announcement of its intention to purchase Whole Foods for $13.7 billion has already begun to disrupt the $800 billion-dollar grocery industry. Target, Walmart, Costco and other grocery retailers’ stocks were down on the day of the announcement and remained in red territory as of late Monday morning, June 19. Chains and independent stores alike are having some serious conversations about their next moves. As they face a modern commerce giant on their own turf.

Amazon, Modern Commerce and the Food Industry

Amazon has changed how people shop for many categories of products, from books to movies to clothes. What they’ve done is to redefine the buying process, with personalized and frictionless experiences that make it really easy for people to shop on its site.

Now, food industry domination is next.

Before the Whole Foods announcement, Amazon had already begun to dabble in food with its AmazonFresh stores, Amazon Restaurants delivery service, and Prime Pantry services. With the purchase of Whole Foods, Amazon gains new distribution points across the country and additional inventory. It’s the foundation for an incredibly powerful hybrid offering to shoppers: online ordering and in-store pickup of fresh food. It’s a scenario that checks all the modern commerce requirements.

Imagine how the grocery shopping experience could change with this acquisition:

  • Personalized recommendations when making grocery lists or online grocery orders.
  • Transparency on the Amazon platform – you can already review cost per ounce, for example, on Perrier based on which Amazon seller you buy from.
  • Algorithm-driven segmenting and targeting that ensures relevant offers keep customers better engaged and coming back for more.
  • Frictionless buying experiences that allow people to shop from the comfort of their home and then either request delivery or drop by to pick up their purchases. And, there’s still the on-site experience for people who enjoy browsing.
  • Omnichannel touchpoints that let customers buy in the manner they prefer.
  • Mobile applications that let shoppers buy from anywhere.
  • Real-time buying opportunities on the computer, on mobile or in the store.
  • Dynamic search capabilities delivered through Amazon will ensure customers are able to discover new inventory and offers all the time.

Grocery Stores Aren’t the Only Ones Concerned by the Whole Foods Acquisition

On its face, the Amazon-Whole Foods deal represents challenges for grocers big and small. However, there are other niches that must rise to the challenge or face potential demise. Grocery-delivery services such as InstaCart, which currently has a five-year deal with Whole Foods, and PeaPod may find it challenging to compete against Amazon on the delivery front.

Then there are dine-at-home alternatives to grocery stores. Blue Apron, HelloFresh, and other fresh ingredient meal-kit services cater to those who enjoy cooking and eating at home but who don’t have time for — or don’t enjoy — grocery shopping. It’s not hard to imagine Amazon–Whole Foods creating a similar service of its own — with the added benefit of adding a nice bottle of wine perfectly paired to your meal!

Last but not least, there’s the foodservice sector. The restaurant industry has already felt the pinch from the surging popularity of “grocerants.” In April 2017, USA Today reported that grocers have created in-store restaurants that have begun to make a dent in traditional foodservice. The article cites NPD Group, noting that grocerants generated 2.4 billion visits and $10 billion in sales in 2016, and grocerant visits have increased 30% since 2008.

Guess what store USA Today highlights as the model grocerant? If you said Whole Foods, you’re right. 15% of the sales in a Whole Foods store usually comes from its eateries, according to Whole Foods’ global culinary operations coordinator.

What’s the Takeaway for Foodservice Suppliers?

The Whole Foods acquisition may not, at least not immediately, spell trouble for foodservice manufacturers and distributors. However, Amazon-Whole Foods bears watching for the following reasons.

Distribution network & supply chain management

Amazon has an extremely robust distribution network. Last year the company spent $3.88 billion on its distribution network – an increase of 35% over the prior year. A quick Google search showing news articles for the past month reveals Amazon’s announcements of new distribution centers for California, New York, Virginia, and Denver — and those are just page one results.

Think back to Amazon’s early days of disruption in the bookselling business. Jeff Bezos was able to shift more than just how and where books were sold. He changed how they were made, and forced everyone from publishers, authors, and everyone in between to cut their costs. While this may primarily affect — for now — consumer packaged goods, foodservice distributors and manufacturers should take heed. Even now businesses that traditionally purchased “spot deals” from a broadline distributor now turn to Amazon to fulfill orders and supplement supplies.

Technology

To say Amazon is an “early adopter” of game-changing technologies is an understatement. The company is actually a pioneer of innovative technology systems and tech-driven services that drive efficiency, improve productivity, and delight the end users. Just consider Amazon’s “one-click” ordering process. Easy, fast, and frictionless is the Amazon way.

Foodservice Manufacturers and Distributors must innovate to keep in step with Amazon. These are key issues and initiatives to consider:

  • Online, personalized home screens that target product offerings, discounts, and marketing materials to customers based on the buying patterns of similar customers or business strategies to promote a specific products or product types.
  • Omni-channel pricing that allows for consistency across ordering platforms. Pricing shouldn’t be drastically different from the live representative working in CRM compared to eCommerce or over-the-phone ordering.
  • Basket analysis that helps suppliers understand price, discounts and promotions.
  • Mobile technology that makes doing business easier for customers, vendors, and sales reps.

Devoted Following

Whole Foods brings a devoted following of customers into the Amazon fold — assuming the acquisition and concerns over culture and philosophy changes don’t drive customers away. If Amazon can maintain that loyalty with Whole Foods fans, this could be a springboard to capturing these decision makers for other purchases in the future, including foodservice B2B purchases as the potential for that vertical evolves.

Amazon’s acquisition of Whole Foods may change how many segments of the food industry move forward. It’s important that food and beverage suppliers adopt dynamic pricing strategies and other modern commerce concepts. It’s the only way to level the playing field when selling to or competing against a technologically-savvy organization like Amazon.

To learn more about modern commerce for the food industry, download the eBook, Is Modern Commerce on Your Menu?

About the Author

Daniel Wolf

Daniel Wolf is a Senior Strategic Consultant for PROS, Inc. As part of the food and consumables industry team, Daniel is focused on helping companies understand the importance of modern commerce and dynamic pricing science.

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