Amazon Buys Whole Foods To Expand Its Digital Prowess In Retail

Written by Principal Analyst Brendan Miller and Principal Analyst Brendan Witcher.

Whole Foods’ brick-and-mortar expertise combined with Amazon’s digital prowess is a one-two punch that will give retail executives more sleepless nights. Our initial take on what Amazon’s $13.7 billion acquisition of Whole Foods means for the broader retail market:

  • To thrive in grocery, Amazon needs a keystone: the local store. Grocery is a high-frequency shopping experience. Whole Foods’ stores give Amazon a new store platform for deeper engagement across all its selling categories. Amazon can lock in its national distribution and logistics mastery with a local “place” in a way that other retailers will struggle to replicate. Now Amazon can tie into those weekly (or multi-weekly) grocery runs with add-on products and services further deepening their reach into customers’ wallets.
  • Amazon knows that to win at brick and mortar, retail theater is paramount. Whole Foods locations are destinations where the idea of “Retail Theater” still thrives. Consumers go to Whole Foods to shop but also to discover new foods, attend wine tastings, pick up prepared foods, and enjoy a cup of organic coffee. Whole Foods can be credited with turning Americans on to arugula, almond milk, and probiotics. The idea of retail theater and discovery is badly missing in most brick-and-mortar retail shopping experiences. Amazon is now getting private lessons from the master.
  • Whole Foods shoppers will get the Amazon digital experience. Over the long haul, expect Amazon to inject much needed digital chops into Whole Foods’ fledgling digital business. We expect to see Amazon Fresh pickup and delivery services fulfilled by Whole Foods sooner than later. We also expect to see special discounts at Whole Foods for Amazon private label card holders and Prime members. This injection of new customers should immediately be the shot of vitamin B Whole Foods desperately needs – and a shot across Walmarts’ bow. Additionally, expect to see AmazonGo digital store technology coming to a Whole Foods near you in the future, further combining an already great store experience with digital.

We believe this foreshadows acquisitions to come. Whole Foods only has 450 stores across 42 states, which does open myriad opportunities for Amazon to reach a valuable demographic in their local neighborhood, but it leaves much of the US wide open. We expect Amazon to make more acquisitions that have deeper reach into middle America and extend its attractiveness to new demographics: think Wegmans, Trader Joe’s, and other high-end regional grocers. 

Comments

"Retail theater" and showrooming

Very important, under-appreciated point about "retail theater" -- just as valuable as the more obvious issues of logistics and convenience. This also ties to the showrooming patent just issued to Amazon -- showrooms as theaters. (as I observe in my latest post: http://bit.ly/2rJUhFh).

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