The Amazon Whole Foods Aftermath: Five Things To Think About…
The retail world is still reeling over Amazon’s proposed $13.7 billion deal to acquire Whole Foods.
- This is about more than just supermarkets—this impacts all of retail. While it will have its most immediate impact on the retail food business, that is the equivalent of saying Amazon.com will have its biggest impact on book retailing. That may be where they started but it is not likely where they will end. The Whole Foods deal is huge—the biggest we’ve seen in retail in quite some time but it is likely not the last for Amazon. I have seen analysts speculate about Dollar General as a value play but the economics for on-line don’t translate well. If I’m thinking “Bezos Big”, I could be looking at a department store chain to beef up the apparel business (Macy’s or Neiman Marcus are potentially in play) or really big like Target if I want to challenge Walmart directly.
- Omnichannel or seamless retail is here to stay. Shannon Warner, Capgemini’s Consulting Retail Lead for North America suggests that the most recent “big acquisitions (including Walmart’s purchase of Bonobos) prove that retailers cannot survive solely through e-commerce or only through brick-and-mortar – it must be a combination of both”. I couldn’t agree more. Amazon and Walmart will no longer be defined in the future as e-commerce or brick and mortar retailers…they will need to be both and need to offer customers a seamless experience in both. This will be an enormous task for retailers to accomplish. Sadly, a fairly large number will not make this transition. The stakes have been raised.
- Grocery home delivery is still economically problematic. Warner says that this signals a move From Last Mile to Last Block: Amazon and Whole Foods are now poised to deliver beyond the ‘Last Mile’ all the way to the ‘Last Block’. No doubt that a major driver in this acquisition is Whole Foods’ 430 plus stores and multiple distribution centers which provide closer access to consumers. It is worth stating, which I have done often, that getting groceries to consumers’ homes remains expensive and problematic. Without charging the consumers a reasonable premium, these businesses will struggle to make money. The economics of pick-up are much better, however, and Amazon just gained a very large and convenient network.
- Supermarkets will be under great pressure to reinvent themselves. Almost lost in the seismic news this week was the opening of the first 10 Lidl stores in the U.S. along with Aldi’s remodel and expansion program which I discussed last week. Supermarkets now face a formidable Amazon/Whole Foods combo with better buying power and innovation and a growing threat from discounters. Margins will be under pressure and we will likely see more M&A activity as they figure out their next steps. The old standby’s—better service, better fresh, more foodservice options—will be mission critical as the center store faces unprecedented pressures.
- Disruptive models will be challenged—Blue Apron, Instacart, etc. CapGemini’s Warner calls their future “bleak”. While she may be right, I always have faith in entrepreneurial company’s ability to adjust on the fly. If you’re Instacart, the implications are dizzying. Billed as a way for traditional retailers to compete against an Amazon, Whole Foods was its biggest customer and a stakeholder. Now what? Instacart has diversified significantly in just the past month, with partnerships with Publix, Wegmans and Stop & Shop. It could be an acquisition candidate but it will need to determine who it will side with. For meal providers like Blue Apron, Plated and Home Chef, they need to find retail partners as a way to bring down customer acquisition costs, marketing spend and they will need to develop more convenient and cost effective supply chain alternatives.
The ripple effects from this seismic deal are just beginning. This could be the deal that forever changes retail.