The future of food shopping
Amazon’s purchase of Whole Foods could decimate other stores, overhaul how Americans get their food
Amazon’s purchase of Whole Foods makes it a major player in the U. S. grocery market, and that leaves a lot for consumers and fellow retailers to chew on.
Experts say the move will translate into lower prices for consumers and more competition among traditional supermarkets, discount chains and foodforward big- boxes such as Walmart. And Amazon’s tech heritage could completely refashion grocery stores, from layout to merchandise mix to how shoppers get their purchases.
Amazon is now bringing its firepower to an industry plagued by thin profit margins. Whole Foods — dubbed by some “Whole Paycheck” because its prices are higher than those of regular supermarkets — has had room to coast on wider margins because it helped create and grow the organic food space.
But its promotion of natural foods proved to be such a hit that mainstream stores wanted a piece of this higher- margin action, too. They’ve increased the amount of organic produce, proteins and packaged goods they offer — and that’s cutting into Whole Foods’ business.
“Amazon has a great reputation for value. Bringing that mind- think to Whole Foods is going to be a big change,” said supermarket analyst Phil Lempert, who founded the industry website supermarketguru. com. “June 16 is going to go down in the industry as the day the grocery business changed.”
Shoppers can expect more than just extra money in their wallets when they leave their local grocery stores. They might see completely overhauled stores — smaller footprints and larger assortments of exclusive brands, which is the successful German approach already invading the United States. Lidl opened its first U. S. stores Thursday, and Aldi is planning to add 900 U. S. stores and remodel most of its 1,300 existing ones.
Amazon has its own branded products, too, such as pet supplies and batteries. Whole Foods is already onboard with that; the Austin- based chain has the well- regarded 365 Everyday Value brand, which last year it parlayed into a new affordable- price store concept called 365 by Whole Foods with four locations across the country and another 13 planned.
“Once Amazon is a player in the industry, anything can go,” said Joe Agnese, senior food retailing analyst at CFRA. “The big threat is what else they can do. Now that they have a retail presence with 400 stores, long- term they can expand on that threat.”
Another possible in- store change is what food retailers put on their shelves — and in their refrigerators. Lempert predicts stores increasing the amount of fresh items they sell to as much as 50% — more meat and seafood, baked goods, and ready- to- eat and made- to- order foods — while reducing the lower- margin center- store packaged items.
That dovetails with the click- and- collect model supermarkets are using now, which customers prefer to delivery.
“Delivery is interesting, yes, but clickand- collect has more legs. A lot of people don’t want to stay home and wait, or they think it’s not safe,” Lempert said. “Instacart delivery will be hurt. It was built on Whole Foods. ... Also, AmazonFresh’s delivery model frankly hasn’t done a good job in perishables.”
But the Amazon- Whole Foods deal could invigorate grocery delivery. The Seattle- based Internet retailer is all about sending packages to your door, and though groceries are too bulky to be delivered by drone, they’re something shoppers need to replenish constantly.
“Amazon will use Whole Foods as hubs to deliver into neighborhoods. Other grocers, if they want to compete, will have to follow suit,” said Neil Saunders, managing director of GlobalData Retail.
According to experts, warehouse stores and dollar stores that are selling more food now have little to worry about thanks to the limited overlap with Whole Foods. Ditto for Walmart.
More mainstream competitors, especially regional chains, will need to take a hard look at themselves, though. The stock price of the country’s biggest supermarket chain, Kroger, dropped 19% Thursday — the day before the industryrattling news was announced.
“We’re going to see polarization here,” Saunders said.