Amazon’s long game
e:
So, last week Amazon rocked our (and by our, I mean my) world with its Us$13.7bn purchase of Whole Foods — the most cash it has ever dropped on a buyout. At the time, I gave you the quick and dirty on the main points of the acquisition. This, as promised, is Part Deux: Food Fight.
Amazon boss Jeff Bezos once said the company isn’t secretive — “we talk when we have something to say”. Maybe $13.7bn is enough words.
We don’t know exactly how Amazon will use Whole Foods to strengthen its position in the grocery market — and, perhaps more existentially, in the “everything you buy” market.
We do know Bezos is a long-term thinker with far-reaching ambitions. Most thought he was a loon when Amazon started selling Mills & Boon romance novels online — until they awoke to an upended book industry and the world’s most efficient orderfulfilment system.
Wall Street has been happy to give Amazon a pass on performance, despite its investments not resulting in returns (remember, the company basically operates like a start-up: cash goes to the lab, not shareholders). Not to be a scaremonger, but this “profit shmofit” strategy should terrify Walmart et al.
Combined, Amazon and Whole Foods now become the seventhlargest food retailer in the US. And this is not the kind of operation to stay there — disruption is coming. There are at least two easy wins here. First, cross-shopping (I need to return my Bose headphones and — oh, hey — I’ll just pick up some milk and organic arugula while I’m here). Supermarkets still serve as prime selling territory — customers still want to see, touch and smell what they buy. Consider this: the average American family visits a grocery store twice a week.
Second, brick-and-mortar stores augment Amazon’s hybrid retail strategy. I might have lost you here, so let me explain. Some people — like me (for research purposes, obviously) — enjoy meandering through store aisles; others don’t. Some consumers are confident that when they order products in their cereal-stained pyjamas from a couch, their “stuff” will indeed arrive. Others, slightly unsure, prefer the gratification of picking up shopping bags. Amazon believes shoppers should have the choice to do it all. Get it? Got it? Good.
It’s worth noting that Amazon also gets Whole Foods’ supply chain. Combined with its existing logistics efforts for mediocre grocery play Amazonfresh, this could help scale the grocery business faster and result in a more meaningful top-line effect.
A third, calculated guess points to Amazon offering its $99/year Prime members discounts on grocery staples.
Still, there are ways Amazon can tech-enhance the Whole Foods experience. I’ll leave drones that deliver salad out for now, but point of sale could be modernised and promotions are likely to be more targeted (there’s major overlap between Whole Foods and Amazon shoppers). The synergies seem illimitable — almost.
Bezos said something else once: “Your margin is my opportunity.”