Solving the whole food issue.
Amazon purchased Whole Foods. By the time this was posted, almost everyone with access to news has heard of this. The massive $13.7billion investment’s motivations have been discussed by observers across the board; I fall into the category of people who believe Amazon bought customers. Ben Thompson of Stratechery makes this case eloquently here. But that is not what I am here to talk about today, I am more interested in what comes next.
Amazon is going to solve food waste.
Hear me out and prepare for a high level take on an incredibly complex problem. First of all, we have grown to need, not just love, eCommerce here in the United States. With 8.5% of all retail purchases happening online and 23% year-over-year growth, one can argue that it is going to revolutionize how we consume. We have grown to rely and the convenience, the personalization, and the selection. We get what we want, (basically) when we want it thanks to a plethora of technology many of us never even think about.
These technologies made us fall in love. Personalized recommendations based on shopping patterns, AB testing to make things easier, one-click checkout, all of these pieces fell into place shrinking our path to consume more.
Now this isn’t a bad thing at all. Brands know you better and can improve their business on both the front-end and back through these efficiencies. Leveraging robust data sets, they can create the perfect experience, serve up the right products, and continue to build their data lakes to reduce operating overhead and sell you more. You get your fancy (insert purchase-of-the-week) quicker and hopefully cheaper; it’s a win-win. Now let’s take this back to Amazon and Whole Foods.
The United States wastes 40% of its food annually. This food that goes uneaten is a product of surplus production, lack of demand, perishability, or as was the case in my family, gets stuffed in the dark forgotten corners of the fridge — the land of misfit foods. It amounts to $165b worth of wasted food. But mind you, this is not just on the consumer side of the equation.
In 2008, grocery stores threw out 43 billion pounds of food — 10% of the total food supply according to the Natural Resources Defense Council. This is a direct hit to the bottom line and one thing that I can assume Amazon considered heavily in its purchase of Whole Foods.
“I think frugality drives innovation” — Jeff Bezos
Amazon does not want to lose money. Not in its online stores, not in its AWS business, and not in its new line of grocery stores. Solving for in-store losses in Whole Foods is a key problem for Amazon to solve, the upstream impacts of which might just change the world.
Connecting it all together
Amazon has access to arguably the best eCommerce experience, supply chain backbones, and one of the largest CRM databases in the world. These foundational elements have been instrumental in driving the business’ success in recent years. They can now be turned directly towards Whole Foods and feeding the masses.
Actually, they can now be turned at the $15.72billion grocery business they just purchased — part of a $5.32tn overall retail and food services industry. Can you hear the sound of Jeff Bezos salivating?
Whole Foods, when purchased, controlled 1.7% of the total aforementioned market, approximately $90.44billion.
This 1.7% represents an incredible amount of money.
This 1.7% represents an incredible amount of responsibility.
This 1.7% represents an opportunity to solve an incredibly large problem.
For argument’s sake, let’s say Whole Foods’ marketshare of 1.7% is their contribution to U.S. Food Waste, that $165b amount we talked about earlier. This means $2.8b product is lost, no, wasted annually by Whole Foods and its consumers. Purchased but never enjoyed, a veritable ‘zero star review on an imaginary product page.’
This is a problem Amazon has experience solving — they have been figuring out how to get goods in the hands of consumers when they need them, solving for supply chain issues, and warehousing goods for 20 years. They now own a piece of an industry that hasn’t changed in nearly 200. It’s about time for disruption.
With the purchase of Whole Foods, Amazon added thousands of terabytes of data to their robust CRM: granular pieces of data around purchase behavior down to store location. They purchased a well connected, recently renovated supply chain and are now able to marry that into an ecosystem of data. An ecosystem powered by robust cloud computing and Amazon’s Machine Learning technology. Now it’s the time to bring it together.
Solving it all together
Leveraging the scale of AWS and their Machine Learning technology, Amazon will begin to solve food waste. We all know the power of data in driving change, but many times the information falls on the ears of parties either unable to, or unwilling to make necessary change. Amazon’s self-interest in maximizing profits through their purchase of Whole Foods serves as motivation to solve this problem.
Through use of Machine Learning, Amazon will begin to predict buying patterns across their stores. Consumer behavior from its online channels, matched to offline CRM creates a never before seen look at these micro-segments for grocery stores. This enables a new level of demand planning and procurement to the antiquated grocery market.
Now take this one step further and follow me a bit. As Amazon optimizes its own stores moving only the products it knows it needs to the right locations, it can begin to look at the upstream impact. Machine Learning and AI can then be leveraged to affect demand planning at the agricultural level.
Combining crop yield data with sales data and seasonality can be used to predict yield rates and inform farmers on what to plant when. We could plant crops based on accurate market demand. Surpluses can be managed through rich insights increasing profits for farmers whose crop prices have been driven down by saturation. This increases value for the entire supply chain.
For the first time in history, a technology company has the direct power to tactically improve the oldest industry in the world — food production.
Amazon will not set out to solve food waste but it will. It will solve food waste through the technologies it used to build its businesses and the world will be better because of it.