Was the Amazon-Whole Foods deal so unpredictable?
Despite the fact that it has caught us all by surprise, might this just be part of a (perhaps bigger) well-thought out plan…perhaps the one that will re-shape the way large tech firms do business with more traditional sectors? And will this acquisition prove that Amazon can be ‘eating’ the food retail industry as well? Or perhaps Jeff Bezos just did the math and got a bit scared by the numbers ;)…
When I first read about the Amazon-Whole Foods deal I was quite surprised. Then I started digging into Amazon’s food-related activities over the past few decades or so, and when I connected the dots, I saw that it actually makes a lot of sense.
We might have forgotten that Amazon has been playing in the food sector via Amazon Fresh — fresh produce delivered to your doorstep — for more than a decade now and they must have learnt a lot about the dynamics of food retail over that time.
Secondly, the first appearance of Amazon in the bricks-and-mortar retail world was September 2011 when the Amazon Locker program was launched in New York. As a self-service parcel delivery service I think it was a great (startuppy) way to get a foot into the physical retail world and served the purpose of studying what customers wanted when it comes to click-and-collect delivery (including grocery from Amazon Fresh).
Then, as part of their strategy to improve the shopping experience, in 2015 they launched Amazon Dash, a one-click button for ordering items on Amazon designed to eliminate those moments you realize you forgot to order a frequently-used household item — including food.
Finally, you might remember Amazon has been toying around with future store concepts like its own bookstore and Amazon Go came into existence as the grocery concept store in Seattle, which is betting big on physical store formats in the future.
So why such a move ?
Can it be for be for the locations only? Probably not (with $14B Amazon could build all those themselves). In my opinion, it is definitely for the unique experience that Whole Foods delivers to customers: I tried it first hand and it goes well beyond the classic groceries shopping experience most retailers deliver. I believe Amazon’s objective is to enhance this experience through its unique logistic and technological infrastructure.
Actually, it seems to me that Amazon wants to take the best of both worlds: to combine its solid logistic and technology expertise with a well established high-end brand to create an even more loyal relationship with its customers by delivering a unique and seamless experience (i.e. the convenience of online shopping with a premium human-centric experience).
Can we talk about industry’s “Amazonication”? In other words, applying the ‘Amazon’ approach to any industry that is not capable of innovating or responding to consumers’ needs? I believe this acquisition not only puts pressure on the rest of the industry to think about their strategic positioning in a truly omni-channel world, but gives them a clear signal that the techies are looking at the food industry with ‘hungry’ eyes and see lots of opportunities for disrupting it. This is what excites me the most about this whole discussion.
Conclusions:
The one thing that really struck me about this deal is that ‘no one saw it coming’. Amazon has been seen as the leader of e-commerce for a long time and although nobody would have said they were well positioned to disrupt the food retail industry, they actually seem to be doing it. I believe this was a brilliant strategy to catch their competitors by surprise and gain a big competitive advantage in the ‘offline’ retail sector.
I think this deal also proves that it’s never been such a great time to be working in food — more and more startups will look at Amazon (both Amazon fresh & Launchpad) with different eyes now that it may also help them get a foot in the retail world. Now that Amazon has got the ball rolling, I believe more and more tech companies will look at ways to disrupt the old retail companies, and that more money will follow suit for startups.
Some provocative scenarios of what could be coming next:
I think this deal proves that for any major online retailers to be able to deliver continued growth, they will need to further expand into physical bricks-and-mortar. From playing into this sector via Amazon Fresh for more than a decade, I guess Amazon has realized that gaining greater market share in areas like fresh produce and grocery requires physical locations, no matter how much research and development they are doing on autonomous or drone delivery applications.
At the same time I see this deal to enable a lot of potential in optimizing latent capacity (e.g. how about using huge warehouses to grow food?) and leveraging their understanding of consumers’ behavior both online and offline to tap into new markets.
Afterall if data is the new ‘gold’ currency to understand consumers’ trends, Amazon seems to be very well positioned to own a good chunk of these customers’ data both in the online and offline worlds and therefore anticipate the next big food trends.
So…what’s next?
Will Amazon start growing food in the warehouse and then sell it in stores?
Are we just 7 years away to see Amazon opening their first store on Mars?
Only time will tell us…
ps. this article is an on-going piece that will be updated with other views from food experts, entrepreneurs and corporate executives from the food and tech world.
