Whole Foods will be the grocery store of the future
A rather uneventful week in June had a dramatic change of course when Amazon’s announced its acquisition of Whole Foods for $13.7 billion dollars on Friday. Twitter erupted with it’s surprise and wit, while Wall Street hammered grocery, drug store and packaged food companies, wiping out $40 billion in market value.
As the dust settles, people are trying to figure out what this means, including what this ultimately means for shopping for groceries in the years ahead.
Groceries are the final frontier for Amazon to own retail commerce
It’s no surprise that Amazon started its Amazon Fresh initiative a decade ago and has been experimenting to get the experience and unit economics to work. Groceries represent the single largest retail category, at an estimated $800 billion in annual sales, dwarfing other categories like consumer electronics ($230 billion) and apparel ($300 billion). This makes sense, just consider your monthly expenditure, and food likely accounts for a big chunk of your outlay. On average, it’s 10%, beaten only by housing, transportation and utilities. For Amazon, this is about consumer psychology as well — the ideal Amazon customer intuitively looks to the retail giant for everything and today there is a key piece missing.
That being said, the typical e-commerce order and ship model poses several obstacles when it comes to groceries. Perishable foods like fruits and vegetables spoil and lead to wastage, there is a need for immediate delivery, and often someone to receive them. Additionally, this is a low margin business and that makes unit economics particularly challenging.
How does Amazon win?
Amazon excels at identifying a deep customer need and leveraging its technological capabilities to build an innovative solution that customers just love. There is no place this is clearer than its recent success with the voice based assistant Alexa and Echo devices.
I would argue that the grocery shopping experience has largely remained unchanged for the last fifty years — you make a list of things you want, drive or walk to a store, peruse aisles with a bewildering array of options, load things into a cart, walk to the cashier and pay, and then head back home. At a time when we book a hotel or a taxi at a push of a button and have music recommended to us, this experience sure feels archaic. To cater to millennials especially, who value health, efficiency and technology, there is a lot of room to leverage machine learning and personalization to create some compelling experiences, much as Amazon has done in other areas.
Whole Foods 2.0 will be the grocery store of the future
With the Whole Foods acquisition, Amazon gains several obvious advantages- space in urban areas for an AmazonFresh pickup as well as Prime Now warehousing, and not having to deal with the headache of building this city by city. One can also imagine Amazon devices being showcased in Whole Foods as well as Prime membership benefits.
But, to truly imagine what this acquisition means, consider these possible experiences, in the hopefully not too distant future.
- Your Amazon app (or Alexa) reminds you that its time to purchase these grocery essentials, curated based on your previous purchase behavior and frequency. You agree and after some modifications, agree to pick them up packed and ready to go at your nearest Whole Foods store on the way back from work.
- As you walk into a Whole Foods store, you decide that inspired by Aziz Ansari in Master of None, you want to make pasta for dinner. The Amazon app suggests some recipes and corresponding ingredients, and then points you to where exactly in the store to find them, obviously taking the most efficient route.
- You easily know the nutritional information and presence of allergens among the over 40 types of cereal in the aisle, since this information seamlessly floats above each cereal box as you pan your augmented reality app across.
- As you reach home, you have no idea what to eat except that it must conform to your Paleo diet. Alexa offers to send a precooked meal or one with ingredients to cook (watch out Blue Apron) in 45 mins from the nearest Whole Foods.
As Amazon looks to establish a presence in this space, Whole Foods gives it a large laboratory to test such ideas and instantly scale them across the country. When exactly these ideas will materialize depends on a number of factors, though this acquisition certainly helps speed things up. It’s sure going to be exciting to see how Amazon reshapes this industry, but for now, its time for my weekly grocery store visit.
P.S. This is my first post on Medium and I look forward to your thoughts and comments! Thanks for reading.
