by Noah Miller
June 19, 2017
As a market analyst who's been observing the grocery retail industry longer than I care to admit, I'm hard pressed to recall a strategic move more unexpected yet savvy - once considered - than Amazon's $13.7 billion acquisition of Whole Foods. Leaping to mind are "Walmart's worst nightmare" followed by "this changes everything", the latter effective immediately in the natural and organic food retail channels. Longer-term, the acquisition could affect the entire grocery industry, not just in the U.S. but worldwide.
Even before the acquisition, it was hard to escape the sense that time was on Amazon's side (Internet/mobile/younger/urban) rather than Walmart's (brick-and-mortar/older/rural and suburban), especially in terms of growth. To date, or course this has applied mainly to online grocery retailing, although Amazon recently surpassed Walmart in market cap if not sales (Amazon's are about a quarter of Walmart's). But with Amazon suddenly in possession of the nation's foremost natural and organic foods retailer, Walmart must suddenly play catch-up in the promising grocery retailing industry segment.
Packaged Facts' new report, Whole Foods, Trader Joe's, and Natural Channel Grocery Shopping: The Future of Food Retailing, covers Amazon's penetration into grocery retail, as well as other trends shaping the grocery market.
As always, vis-à-vis the bold and unexpected, there are naysayers, including the risk-averse investment firms wary that Amazon has yet to decipher brick-and-mortar, and that no grocery retailers have so far mastered gaining online grocery sales ,or offering home delivery of fresh, perishable groceries. But this didn't stop Whole Foods' shares from soaring 30% or Amazon's rising 2%. Nor did it prevent the shares of rival grocery retailers from plummeting, with Kroger down 15%, Supervalu down 14%, Sprout’s down 13%, Target down 8%, Costco down 7%, Walmart down 7%, and Ahold down 5%. For Amazon, it looks like a win-win. And almost incontrovertibly, coming as it does on the heels of Walmart’s $3.3 billion purchase of Jet.com, it marks the point at which online and brick-and-mortar must be concurrent.
Like Walmart, Kroger has been competing aggressively in the natural and organic foods industry, having recently made a giant leap forward with its phenomenally successful Simple Truth store brand. Along with a number of other national supermarket chains, Walmart and Kroger have also been trying to puzzle out how to compete in the grocery industry's e-commerce segment. Thus far for pure-play supermarket retailers, the only viable way in appears to be “click-and collect”—online ordering coupled with in-store pick up. Big-name players such as Walmart/Sam’s, Target, and Costco are more entrenched online, though less so in grocery (especially the perishables segment) than non-foods. Walmart, of course, has ramped up with its acquisitions of Jet and other e-tailers, most recently apparel seller Bonobos.com. But internet-wise, no one expects even Walmart to catch up with Amazon anytime soon, or for that virtual road to be smooth.
True, compared to Walmart, Amazon's grocery penetration is minuscule. Even with the addition of Whole Foods, Amazon accounts for just 4% of U.S. grocery/consumables sales ($45 billion) compared with Walmart/Sam’s 18% share ($228 billion), with Kroger at 7%, and Costco and Albertson’s/Safeway each at 4%. But overnight, Amazon is the number one brick-and-mortar natural and organic foods retailer in the U.S., and if Amazon can parlay that out to grocery retail overall, the rewards are potentially vast.
Speculation has it Amazon will use its new fleet of Whole Foods stores as distribution centers to supplement its Amazon Prime and Amazon Fresh delivery services, dramatically scale back on workers in favor of automation, and use Whole Foods as a testing ground for"the store of the future." And to some degree, all of those predictions may be on point.
But the most important result of the Whole Foods merger may be to "humanize" Amazon at the flesh-and-blood level, not overnight but over the long-term, creating a customer-centric (especially among urban Millennials and Gen Zers) in-store experience that's less about automation and more about transitioning Amazon from foremost online retailer to foremost retailer, groceries and all.
--David Lummis
For further coverage of Amazon's consumer usage and engagement trends and related consumer usage and engagement strategies, visit Packaged Facts' Amazon Strategies and the Amazon Shopper.
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