Amazon-Whole Foods deal: 1 year in the making

Amazonication — all rights reserved Forward Fooding

A little over 1 year ago we published a piece to cover the story of Amazon’s acquisition of Whole Foods ‘ Was the Amazon-WholeFoods deal so unpredictable? followed by another article where we captured the perspectives of some thought leaders of this space.

With this piece, we want to share what has been happening one year in the making of this deal/integration.

Just to recap on 16th June 2017, Amazon announced they would buy the US natural and organic retailer for US$13.7bn. Back then, in the aftermath of the announcement, I think most packaged foods manufacturers and marketers were probably asking themselves the same question: “What does this deal mean for us?”

I remember reading that straight after the acquisition occurred, Amazon held a three-day gathering in Seattle with food manufacturers like Mondelez International, Unilever, General Mills and others, where it attempted to persuade the corporate executives of those giants to focus more on e-commerce…

After that, we have read all sort of things:

-Prices being slashed from day 1 and Amazon’s added value services (eg. Prime) provided to Whole Food’s customers

-Suppliers that truly partner with Amazon will benefit from data

-Whole Foods to close its UK outlier stores and much more

So here is the top 5 stand-out of what has resulted from this merge:

  1. WHF stores look different: they now sell Amazon’s devices (eg. Echo or Alexa) and other added value services (eg. Free delivery to Prime members) along with Amazon’s white label food brands Wickedly Prime and Happy Belly (which seem to be available only to Prime members and to purchase online). According to SuperMarket news, these two Amazon brands combined for 124 food and beverage products: Wickedly Prime (81 items) and Happy Belly (43 items), representing 1.8% of the retailer’s 6,825 private label offerings. Launched in December 2016, Wickedly Prime includes such consumables as bars, chips and crisps, nuts, popcorn, puffed snacks, soup, seaweed snacks, sweet spreads, tea and matcha and trail mix. Happy Belly, which made its debut in July 2016, includes snack nuts and seeds, snack and trail mixes, and roasted bean and ground coffee.
  2. Health and household products — under the Amazon Essentials, Amazon Basics and Presto labels — accounted for the same percentage as food, totaling 126 items.
  3. Turn regional stores into national ones: Whole Foods has historically been recognized as the leading platform where brands, trends, and innovation have launched in the marketplace, ‘supporting’ local brands by offering shelf space and in-store sampling opportunities. It looks like under Amazon’s administration hyper-local brands have been taken national.
  4. Data shopping: now Amazon can really leverage data to predict online shopping. As Amazon combines its Prime service and Whole Foods shopping experience, it’s getting even more insight into how the same person shops on and offline. That means a better ability to target ads and promotions than a grocer typically is able to.
  5. MOST AND FOREMOST it has shaken up the retail industry with tech to create efficiency (acquisition of tech and platforms (eg. Walmart bought Flipkart, Target acquired Shipt, Kroger invested in Ocado and gobbled up Homechef to name a few)
  6. Big Food companies have been crushed — Retailers are focusing private labels, fresh food and specialty food takes shelf-space away from the country’s largest packaged foods companies. And the focus on price means margins are being squeezed. On top of this, rising costs, upstart competition from challenger brands and a generation distrustful (driven by millennials) of all large brands. It’s been a tough year for them. Many, including General Mills, Nestle and Coca Cola, are reacting by making large, expensive deals. It’s too soon to say whether this strategy will save them, but the stakes are high.

Nobody really knows whether Amazon has more ‘food-related’ aces up their sleeves but it seems that so far the acquisition of Whole Foods’ business is paying off. According to the results that were shared by Amazon’s CFO Brian Olsavsky in the earnings call (Q4: Earnings Summary) last February he continues to see high demand in Whole Foods stores, pointing to roughly $5 billion in sales they generated since the acquisition. “We’re continuing to be very excited about the opportunities we have to innovate with the Whole Foods and Amazon teams together,” Olsavsky said and I think he’s not the only one that sees a lot of growth opportunities coming from using technology to create more efficient and lucrative ways of selling food products in a historically stagnant industry.

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