What Ama­zon wants from Whole Foods: Data on shop­ping habits

Kuwait Times - - BUSINESS -

NEW YORK: Why is Ama­zon spend­ing nearly $14 bil­lion for Whole Foods? One rea­son: Peo­ple who buy yoga mats and fit­ness track­ers on Ama­zon might also like grapes, nuts and other healthy items at the or­ganic gro­cery chain. In short, the deal stands to net Ama­zon a wealth of data-driven in­sights into how shop­pers be­have off­line - in­sights that are po­ten­tially very lu­cra­tive. To be sure, there are plenty of other ben­e­fits to the com­bi­na­tion.

Ama­zon will de­rive steady rev­enue from more than 460 Whole Foods stores; it can also in­tro­duce ro­bots and other au­to­ma­tion tech­nolo­gies to cut costs and im­prove the bot­tom line. But ul­ti­mately, Ama­zon wants to sell even more goods and ser­vices to both online and off­line shop­pers - in­clud­ing stuff they might not even re­al­ize they need. Ama­zon has been quiet on its spe­cific plans so far, but an­a­lysts are en­thu­si­as­tic about the pos­si­bil­i­ties. “This will be a fun time for Ama­zon,” said Ryne Misso of the Mar­ket Track re­tail re­search firm in Chicago. “They are in­tro­duc­ing a whole new set of shop­per pro­files that span gro­cery stores and durables.”

The track­ing

Ama­zon is a pro at us­ing data on past shop­ping and brows­ing to prod you to buy more. The home page, for in­stance, of­fers quick ac­cess to re­cently viewed items and sug­gests prod­ucts “in­spired by your shop­ping trends.” Ama­zon sends emails about price cuts on items you’ve searched for but haven’t bought - yet. Brian Handly, CEO of the mo­bile an­a­lyt­ics firm Re­veal Mo­bile in Raleigh, North Carolina, said that while Ama­zon doesn’t nec­es­sar­ily have bet­ter ar­ti­fi­cial-in­tel­li­gence ca­pa­bil­i­ties than its ri­vals, it has scale in the num­ber of shop­pers and va­ri­ety of busi­nesses it has. Whole Foods can help by giv­ing Ama­zon a bet­ter un­der­stand­ing of what peo­ple do at phys­i­cal re­tail stores, where 90 per­cent of world­wide re­tail spend­ing still hap­pens, ac­cord­ing to eMar­keter.

Ama­zon could learn whether a par­tic­u­lar cus­tomer tends to come once a month to stock up, or make smaller and shorter vis­its more fre­quently. Wi-Fi hotspots in stores might col­lect unique sig­nals em­a­nat­ing from smart­phones to fig­ure out which aisles cus­tomers spend the most time in. Same with sen­sors on prod­uct shelves, some­thing Ama­zon is cur­rently test­ing at a con­ve­nience store in Seat­tle.

“They will break that data down to build sto­ries about their con­sumers,” Misso said. All this might feel creepy, but it’s some­thing Ama­zon al­ready does and does well online. Larry Ponemon, who runs the Ponemon In­sti­tute pri­vacy think tank, said he per­son­ally would find track­ing of his self-de­scribed un­healthy eat­ing habits “very creepy.” But he doesn’t ex­pect any con­sumer back­lash be­cause Ama­zon and Whole Foods have both earned a high level of trust and loy­alty.

Re­con­fig­ur­ing the store

To make stores more prof­itable, Ama­zon could push cus­tomers to or­der lower-profit bulk items such as de­ter­gent and toi­let pa­per over the in­ter­net. That would free up store space for higher-profit items, such as per­ish­ables and ready-to­heat pre­pared meals. Ama­zon’s chal­lenge will be to “sep­a­rate the prof­itable busi­nesses that can be bet­ter done online and the prof­itable busi­nesses that can be bet­ter done at re­tail,” said Larry Light, CEO of the brand con­sult­ing firm Ar­ca­ture in Del­ray Beach, Florida. Ama­zon might find that some items sell bet­ter at some lo­ca­tions than oth­ers. It can stock just the most pop­u­lar items at each location; other items are just a click away for home de­liv­ery. It’s an ap­proach Ama­zon is al­ready tak­ing at its eight phys­i­cal book­stores. Handly said that even if Ama­zon can’t get rid of ev­ery lower-profit item on shelves, it can use data to fig­ure out ways to drive more cus­tomers to those aisles.

Be­yond gro­ceries

Ama­zon will be able to use gro­cery data to drive other pur­chases as well. Say you buy a lot of in­gre­di­ents typ­i­cally found in Asian recipes. Ama­zon might then sug­gest a Thai or Ja­panese cook­book. It might also rec­om­mend a new rice cooker. It works the other way, too. If you just watched a Mex­i­can food show on Ama­zon video, Ama­zon might point you to deals on av­o­ca­dos and per­haps of­fer sub­scrip­tions for reg­u­lar de­liv­er­ies of tor­tillas and canned beans. Or it might au­to­mate a gro­cery shop­ping list based on a cho­sen recipe on your Kin­dle e-reader. Just bought some camp­ing equip­ment? Ama­zon might of­fer gra­nola bars and other ready-to eat meals for your hikes. Like­wise, some­one who just bought a fit­ness tracker might be in the mar­ket for more pro­duce.

Im­pli­ca­tions for in­dus­try

Wal­mart re­mains the lead­ing re­tailer over­all and has its own huge stake in gro­ceries; its re­tail rev­enue is more than three times that of Ama­zon, even with Whole Foods in­cluded. Yet it’s on the de­fen­sive. To beef up its online oper­a­tions, Wal­mart has gone on a spend­ing spree for e-com­merce com­pa­nies such as Jet, Bono­bos, ModCloth and Moose­jaw. An­a­lysts say these com­pa­nies should help Wal­mart get into the data game as well. —AP

SEAT­TLE: In this file photo, shop­pers roam through an Ama­zon Go store, cur­rently open only to Ama­zon em­ploy­ees, in Seat­tle. —AP

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