Revolutionizing Grocery Shopping

What’s this all about?
Two months since E-commerce giant Amazon Inc announced a blockbuster $13.7bn deal for upscale grocery chain Whole Foods, the US Federal Trade Commission and Whole Foods’ own shareholders have green-lighted the move. Traditionally dominant in the online shopping universe, this marks Amazon’s first major foray into the world of brick-and-mortar retail. Incumbents such as Walmart and Target will likely be on notice as Amazon brings to bear its gargantuan advantages in aggressive pricing and efficient delivery.
Who’s the winner in this deal?
Consumers, first and foremost. Whole Foods has largely been seen as a “high-end” food label — with the prevailing assumption being that healthy food is generally more expensive than its mainstream cousins. Amazon’s intervention changes that presumption dramatically — with its first announcement being an immediate reduction in prices for a large range of items. The tech giant’s $13bn cash reserve lends it tremendous firepower to back up this cost-cutting exercise, and consumers can look forward to cheaper and more accessible products at Whole Foods.
Online shoppers also benefit from this alliance — Amazon will also sell Whole Foods’ store brands on its site, install Amazon pickup lockers in certain locations and integrate Amazon Prime into Whole Foods’ operations.
Amazon also comes out looking pretty. While the $13.7bn purchase price looks an eye-watering sum at first glance, the tech giant has more than enough financial firepower to make it a drop in the ocean in the medium term. Amazon’s market value increased by $15.6bn upon announcing the acquisition — so one could argue (only partly in jest) that Amazon essentially pocketed Whole Foods for free.
While the tech giant’s eventual aim is to conquer the grocery market, most people do not buy their food online today. Amazon is seeking to change an entire behavioural pattern, and this acquisition gives it a huge head start by melding its world-class logistics network with a top-shelf food brand.
Installing Amazon pickup lockers in Whole Foods locations will reduce the company’s delivery costs. With 460 stores in dense city neighbourhoods, Amazon no longer needs to build (expensive) delivery warehouses. Because Whole Foods stores can carry food orders, the company can consolidate both food and non-food orders and drive down overall delivery costs in a variety of markets.
Needless to say, Whole Foods. The increasing popularity of organic products like kale has driven down its cost in competing grocers. The company has not been able to remain competitive on price, and in May announced its seventh consecutive quarter of falling same-store sales. Amazon’s giant war chest is certain to allow Whole Foods to become far more price-competitive in a “niche” that has now arguably become mainstream.
Who loses right now?
Other grocers. Amazon announced price drops in a range of goods on the very same day it closed the acquisition, and the stock prices of other grocery retailers plummeted accordingly. Wal-Mart dropped by 5%, Costco by 7% and Kroger by 9%. The three companies lost a total of $19bn in market value on the day Amazon first announced the deal.
Not only will these grocers have to compete with Amazon on price, they may also have to invest a significant amount of resources to go head-to-head on technology. Amazon’s online voice assistant, Alexa, is hugely popular — and the introduction of Whole Foods’ products on Amazon’s website will also see Alexa aid online shoppers in buying grocery. This experience presently cannot be matched by its competitors, who will invariably have to sink some money into playing catch-up.
Surprisingly, workers. Whole Foods’ CEO John Mackey has run the company under the ethos of “conscious capitalism” — a philosophy that aims to create value for all stakeholders, significantly its employees. Its 90,000 workers have enjoyed being a part of a workplace named to Fortune magazine’s top 100 places to work for 20 years. Amazon’s focus is ruthlessly different. This year, it pioneered Amazon Go — the first cashier-less grocery store. It is clear that the tech giant has no qualms supplanting a human workforce with a robotic one, and this spells a very ominous sign on the horizon for Whole Foods’ existing workers.
Whole Foods — “Buy Now with 1-Click”
Ultimately, Amazon’s raid of the grocery industry seems likely to have a permanent disruptive impact. It certainly does not augur well for Whole Foods’ existing workforce, but a world in which shopping for groceries is as easy to do online as it is at a store is likely a better one for consumers. More crucially, it seems an inevitable conclusion now that Amazon has entered the fray. As for competing grocers — if this shakeup results in better technologies integrated into their own chains or lower prices, it is once again to the eventual benefit of a grocer shopper. As the world watches this transformation, it might just do so with a spirit of hope.
