Industry

Amazon is Building its Grocery Empire

Most categories have been taken over by e-commerce yet the category of fresh groceries hasn’t been disrupted by online.

Amazon announced it was acquiring Whole Foods for $13.7 billion on June 16.

Background of the Deal

Whole Foods is a supermarket offering the best natural and organic foods, that loved by millions of people. “Whole Foods makes it fun to eat healthy”, says Bezos in the official Amazon press release [1]. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

websiteinterior.jpg
(http://www.wholefoodsmarket.com/stores/madison)

Although the deal surprised a lot of people, it’s not a hasty decision. Actually, Amazon started testing delivery concepts in August 2007, when it unveiled Amazon Fresh, delivering produce and pantry staples through its fulfillment centers. It turns out that the instant gratification business doesn’t quite work with fresh food. Still, the market is just too lucrative and too primed for disruption for Amazon to simply give up. Today the e-commerce giant may have finally figured out how to crack the food delivery business: Buy a supermarket.

Benefits for Amazon

BIGGER RETAIL FOOTPRINT

Most categories have been taken over by e-commerce yet the category of fresh groceries hasn’t been disrupted by online.
According to Jason Goldberg, vice president of commerce at the digital marketing company Razorfish, Amazon buying Whole Foods is a good fit with the company’s larger strategy for groceries.

Food Marketing Institute and Nielsen published a report recently, saying that the US grocery sector could grow five-fold in the next decade, with consumers spending upward of $100 billion by 2025 [2]. Amazon saw the potential here, but Amazon Fresh still has been falling behind for a long time. Selling fresh food requires a more experience than delivering package that Amazon is good at. If they don’t get the fresh food home quickly, the food may spoil easily. Plus, there must have someone waiting at home. Even with Amazon’s optimized delivery routes, it seems impossible [3].

Brian Solis, principal analyst at Altimeter holds the opinion that the online shopping that merges intelligent technologies will make a renaissance.

Beating its rivals

Unlike choosing a bag or book, selecting a tomato requires inspecting it. That’s an important reason why WalMart has the biggest share of the market, with about 14.5 percent of all food and grocery sales. Up to now, grocery has been a tough nut for Amazon to crack. But with Whole Foods, Amazon can play more complex game.

By using Amazon’s state-of-the-art machine learning technology, Whole Foods can distinguish ripe vegetables from mouldy ones. Besides, since Amazon knows a lot about customer behavior online, it will be able to apply it in physical stores.

What’s more, Alexa virtual assistant will make it more integral to a person’s day, that will provide a new data and help the firm understand its customers better [4].

Although buying groceries online remains challenging for many individuals who lack technology or access to smart platforms, Amazon’s rivals must think about how to slow it’s expansion.

Why Whole Foods?

amazonwholefoods.jpg
(http://adage.com/article/cmo-strategy/expect-utter-retail-domination-amazon-s-acquisition-foods/309448/)

BETTER GROCERY SELECTION FOR THE AMAZON PRIME MEMBERS

According to a report by JP Morgan, 8 million customers visiting Whole Foods weekly [5]. Now with Whole Foods, Amazon has 464 stores in markets that have significant overlap with Prime customers. Customers can come into their local Whole Foods and pick up their Amazon order at the meantime.

Brent Franson, CEO of retail analytics firm Euclid Analytics says that the Amazon Prime members will be given an opportunity to entry in a new Whole Foods benefits program. They can also pay for groceries in Whole Foods using the Amazon app [6].

COMBINED WITH AMAZON GO IN THE FUTURE

Amazon-Go.jpg
(http://euclidanalytics.com/2016/12/13/amazon-go-customer-data-land-grab/)

In December 2016, Amazon launched a beta of Amazon Go, a real-world grocery store with no checkout process. Costumers can just grab the stuff they want and walk out; the order posts to the Amazon account afterwards. There are no cashiers, no lines, no fumbling for a credit card.

So far, there’s one Amazon Go location in Amazon’s hometown of Seattle and only Amazon employees can shop. However, Amazon can potentially expand Amazon Go to 431 Whole Foods markets nationwide in the near future.

Why does a tech company buy a grocery chain?

Some pundits guessed that Amazon wants to be more like Wal-Mart. Nevertheless, the most likely explanation for the acquisition is that Amazon wishes to expand its grocery business – not simply by adding supermarkets, but by expanding its core e-commerce efforts in this category.

We can notice a phenomenon that tech giants are spreading their tentacles, pushing into complementary businesses in a play to sustain growth as they saturate the market for their existing goods. They believe that tech can fix every industry on Earth.

Apple, a computer company that became a multiple digital products company. It is now working on self-driving cars, original TV programming, augmented reality and payments.

Facebook, a social media company, is creating drones, virtual-reality hardware, original TV shows, even telepathic brain-computer interfaces to connect people.

Google, a search engine giant is building its phone brand. It also takes up maps industry, leads self-driving tech, internet-beaming balloons and energy-harvesting kites.

Elon Musk’s projects include electric self-driving cars, home energy storage, traffic-easing tunnels and cyborg implants.

Amazon, different from the above-mentioned companies, is working on everyday problems. In the long run, this might be the smarter move while Google and Facebook have yet to drive significant revenue outside their core businesses, and Apple is only just beginning to [7].

References

[1]. http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2281414

[2]. http://www.cnbc.com/2017/01/30/online-grocery-sales-set-surge-grabbing-20-percent-of-market-by-2025.html

[3]. https://www.wired.com/story/amazon-whole-foods-acquisition-grocery-shopping/

[4]. https://www.economist.com/news/business/21723868-buying-upscale-grocer-new-front-battle-beast-bentonville-amazons

[5]. http://www.zdnet.com/article/how-amazons-whole-foods-purchase-could-solve-its-grocery-supply-chain-puzzle/

[6]. https://www.forbes.com/sites/jasonbloomberg/2017/06/23/amazons-whole-foods-strategy-its-not-what-you-think/#54c2ddda8223

[7]. https://finance.yahoo.com/news/amazon-leading-tech-takeover-america-224600346.html

[8] https://techcrunch.com/2017/06/19/is-whole-foods-a-healthy-option-for-amazon/


Author: Yuanchao Li | Reviewer: Haojin Yang

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