Whole Foods + Amazon: and now?
Amazon’s purchase of Whole Foods marks the opening salvo in what promised to be a revolution and a wake-up call for the entire distribution industry worldwide. The operation is not only the largest acquisition ever by Amazon, it also raises numerous questions about its future and will undoubtedly prompt some serious strategic thinking among distribution chains around the world. Most distribution companies would say their sector has undergone transformation over the last two decades, but for most consumers, except for cosmetic changes, the experience of shopping has changed very little. But this acquisition means that in the next two or three years we will see change on an unprecedented scale that will determine the future of an industry where some will not survive.
The question is what comes next. Supermarkets around the world have watched as web site that started out in July 1994 as an online bookstore that then began selling more and more things, progressively invading more categories, dominating more and more sectors, and most recently, that of the supermarkets, with Amazon Fresh. With the purchase of Whole Foods, a competitor many supermarket chains saw as a distant competitor, and that others saw as a threat, has made its move into their territory. The main supermarkets lost 22,000 million in market cap right after the announcement of the Amazon acquisition.
For the big brands, the Amazon Dash Button is a wakeup call as well: customers are no longer interest in promotions, and buy fewer and fewer goods in supermarkets: while lavatory paper, detergent or any number of other products fight for space and visibility on supermarket shelves, more and more consumers prefer to just press a button installed where you use the product, which magically appears at their door within a few hours.
What will Amazon do with Whole Foods? For the moment, everything suggests not much: it’s not going to remove checkout tills, sack checkout staff or replace them with algorithms, at least for the moment. However, it is clear that immediate measures are expected to inject efficiency into a chain of supermarkets that seems to be in great need of it, in addition to considering all kinds of synergies between the online and offline world. If Amazon offers Whole Foods an efficient logistics system and works on improving and extending Amazon Fresh, the acquisition of a chain with an establishment within three miles of a third of American households with annual income of more than $100,000, will give the company a major boost, coupled with the fact that 64% of US households have bought into its loyalty program, Amazon Prime. Just by using Whole Foods outlets as collection points, or its rooftops as a base for drone deliveries, Amazon will already have introduced synergies capable of sweetening an acquisition like this.
In the US market, the acquisition of Whole Foods and the efficiency Amazon will be able to bring to chain’s operations would be more than enough to fund the operation. And in the rest of the world? Clearly, Amazon, as a US company based in Seattle, has always applied what it has learned in its domestic market, except when legislation has been too slow for it (as in the case of drones, with most tests taking place in the United Kingdom thanks to its laws). What can we expect as a result of acquiring Whole Foods outlets in other countries? What should the large distribution chains in the rest of the world be expecting?
If the acquisition of Whole Foods by Amazon are the creation of a profitable chain in a short time, thus providing an immediate return on the purchase price, we can probably expect Amazon to think about acquiring other supermarket chains in other countries. Given the purchasing power of Amazon, we might expect companies with a similar profile to Whole Foods: attractive to high-income segments, good locations, and with a positive brand identification. If Amazon is able to manage a chain of stores and create synergies within its online empire, the Whole Foods buyout could mark the beginning of the company’s bid for world domination, which in turn could affect not only the big distributors, but all kinds of other establishments.
If you don’t feel like selling your chain to Amazon, then you’re going to have to give some thought as to how to compete with a powerful company with a large retail outlet and that sooner or later, will arrive in your country. Amazon’s ambitions are not limited to the United States, it is a global player, and what it does in the United States it tends to apply to other countries within a few years as it accumulates sufficient experience and knowhow. I can imagine large distribution chains around the world desperately trying to work out how to compete with something like this, on how to become acquisition targets, or on how to compete with whatever is coming, when it comes. This is the biggest thing to happen to distribution in the last century, with the potential to completely revolutionize a hugely important industry.
Is there anybody out there prepared to speculate on what might be Amazon’s next acquisition target after Whole Foods? What might be the consequences for the big chains? What steps would you take to try to compete with a distribution chain backed by Amazon? How long could it take for Amazon to build an unstoppable value proposition for clients, and how many companies would be swept off the board just by an announcement it was starting operations? Is it even possible to stand up to Amazon?
In short, Amazon hasn’t just bought a chain of supermarkets with a presence in the United States, Canada and the United Kingdom: it has acquired its entry ticket into the world of large-scale distribution, and next it will roll out its strategy there. Watch this space…
(En español, aquí)
